The Big Short_ Inside the Doomsday Machine - Michael Lewis [121]
"It was like feeding the monster," said Eisman. "We fed the monster until it blew up."
The monster was exploding. Yet on the streets of Manhattan there was no sign anything important had just happened. The force that would affect all of their lives was hidden from their view. That was the problem with money: What people did with it had consequences, but they were so remote from the original action that the mind never connected the one with the other. The teaser-rate loans you make to people who will never be able to repay them will go bad not immediately but in two years, when their interest rates rise. The various bonds you make from those loans will go bad not as the loans go bad but months later, after a lot of tedious foreclosures and bankruptcies and forced sales. The various CDOs you make from the bonds will go bad not right then but after some trustee sorts out whether there will ever be enough cash to pay them off. Whereupon the end owner of the CDO receives a little note, Dear Sir, We regret to inform you that your bond no longer exists...But the biggest lag of all was right here, on the streets. How long would it take before the people walking back and forth in front of St. Patrick's Cathedral figured out what had just happened to them?
EPILOGUE
Everything Is Correlated
Around the time Eisman and his partners sat on the steps of the midtown cathedral, I sat on a banquette on the east side, waiting for John Gutfreund, my old boss, to arrive for lunch, and wondering, among other things, why any restaurant would seat, side by side, two men without the slightest interest in touching each other.
When I published my book about the financial 1980s, the financial 1980s were supposed to be ending. I received a lot of undeserved credit for my timing. The social disruption caused by the collapse of the savings and loan industry and the rise of hostile takeovers and leveraged buyouts had given way to a brief period of recriminations. Just as most students at Ohio State University read Liar's Poker as a how-to manual, most TV and radio interviewers read me as a whistle-blower. (Geraldo Rivera was the big exception. He included me in a show, along with some child actors who'd gone on to become drug addicts, called "People Who Succeed Too Early in Life.") Anti-Wall Street feelings then ran high enough for Rudolph Giuliani to float a political career upon them, but the result felt more like a witch hunt than an honest reappraisal of the financial order. The public lynching of Michael Milken, and then of Salomon Brothers CEO Gutfreund, were excuses for not dealing with the disturbing forces underpinning their rise. Ditto the cleaning up of Wall Street trading culture. Wall Street firms would soon be frowning upon profanity, forcing their male employees to treat women almost as equals, and firing traders for so much as glancing at a lap dancer. Bear Stearns and Lehman Brothers in 2008 more closely resembled normal corporations with solid, Middle American values than did any Wall Street firm circa 1985.
The changes were camouflage. They helped to distract outsiders from the truly profane event: the growing misalignment of interests between the people who trafficked in financial risk and the wider culture. The surface rippled, but down below, in the depths, the bonus pool remained undisturbed.
The reason that American financial culture was so difficult to change--the reason the political process would prove so slow to force change upon it, even after the subprime mortgage catastrophe--was that it had taken so long to create, and its assumptions had become so deeply embedded. There was an umbilical cord running from the belly of the exploded beast back to the financial 1980s. The crisis of 2008 had its roots not just in the subprime loans made in 2005 but in ideas that had hatched in 1985. A friend of mine in my Salomon Brothers training program created the first mortgage derivative in 1986,