Monday, November 12, 2012

Sharks or Marks: How Michael Lewis Unfairly Characterizes Winners and Losers

The book “The Big Short”, by Michael Lewis, tells the story of a market full of fools, and the story of a handful of lucid investors who made a killing off of the ignorance of many. In his recent book “Boomerang” Lewis describes several European countries whose cultural misconceptions led themselves to disaster. These stories are riveting and his writing is superb. Yet, the main characters in all of Lewis’ books are flat; yet, in reality, there is often more to the stories that Lewis tells than what he writes in his novels. “Boomerang” is different from previous books because the characters in the book are whole societies. This is distinct from his previous books because it is much easier to tell stories about flat individuals rather than flat societies. Because of “Boomerang,” a collection of financial meltdown centered vignettes about California, Iceland, Ireland, Germany and Greece, I will never be able to think about Germans without remembering their national obsession with feces. It seemed that the book bordered on crude racial profiling rather than strict economic facts at various points.

For example, in “Boomerang”, Lewis claims that Germans live within their means and refuse to play the overleveraging game that has crushed so many individuals and economies. However, in “The Big Short” Lewis argues that Germany was ultimately the country who made the credit default swap gamble possible: “When Morgan Stanley devised extremely complicated credit default swaps so they were all but certain to fail, so that their own proprietary traders could bet against them, the buyer was German. When Goldman Sachs helped the New York hedge fund manager John Paulson design a bond to bet against — a bond that Paulson hoped would fail — the buyer on the other side was a German bank.”

And speaking of John Paulson, though his investments went well during the subprime mortgage crisis, during 2011 his two largest funds, Paulson Advantage and Advantage Plus, lost 36 percent and 52 percent that year. This red streak has continued into 2012: Advantage and Advantage Plus were down 6.3 percent and 9.3 percent as of the end of May. Paulson makes the following excuse: “If you’re going to come in and then leave, come in and leave, I don’t think you’ll reap the benefits of investing with us,” Paulson says. “Investors that do the best, and have done the best, are those that stay and compound at above-average rates over the long term.”

If I can find any shortcoming in Lewis’s writing it’s the flat, binary nature of his characters. According to Lewis everyone is either a shark or a mark, a savant or an idiot. Yet the sucker of his 2010 book, Germany, has become the savior of his 2011 book. And the biggest winner of “The Big Short” has become a loser in the past two years. In any case, the book was a great read, albeit a simplified version of the truth. Even though Lewis is a great writer, at the end of the day, he is still a journalist.

Above: John Paulson


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