The Big Short_ Inside the Doomsday Machine - Michael Lewis [122]
I'd not seen Gutfreund since I quit Wall Street. I'd met him, nervously, a couple of times on the trading floor. A few months before I quit, my bosses asked me to explain to our CEO what at the time seemed like exotic trades in derivatives I'd done with a European hedge fund, and I'd tried. He claimed not to be smart enough to understand any of it, and I assumed that was how a Wall Street CEO showed he was the boss, by rising above the details. There was no reason for him to remember any of these encounters, and he didn't: When my book came out, and became a public relations nuisance to him, he'd told reporters we'd never met. Over the years, I'd heard bits and pieces about him. I knew that after he'd been forced to resign from Salomon Brothers, he'd fallen on harder times. I heard, later, that a few years before our lunch, he'd sat on a panel about Wall Street at the Columbia Business School. When his turn came to speak, he advised the students to find some more meaningful thing to do with their lives than go to work on Wall Street. As he began to describe his career, he'd broken down and wept.
When I e-mailed Gutfreund to invite him to lunch, he could not have been more polite, or more gracious. That attitude persisted as he was escorted to the table, made chitchat with the owner, and ordered his food. He'd lost a half-step, and was more deliberate in his movements, but otherwise he was completely recognizable. The same veneer of courtliness masked the same animal impulse to see the world as it is, rather than as it should be.
We spent twenty minutes or so determining that our presence at the same lunch table was not going to cause the earth to explode. We discovered a mutual friend. We agreed that the Wall Street CEO had no real ability to keep track of the frantic innovation occurring inside his firm. ("I didn't understand all the product lines and they don't either.") We agreed, further, that the CEO of the Wall Street investment bank had shockingly little control over his subordinates. ("They're buttering you up and then doing whatever the fuck they want to do.") He thought the cause of the financial crisis was "simple. Greed on both sides--greed of investors and the greed of the bankers." I thought it was more complicated. Greed on Wall Street was a given--almost an obligation. The problem was the system of incentives that channeled the greed.
The line between gambling and investing is artificial and thin. The soundest investment has the defining trait of a bet (you losing all of your money in hopes of making a bit more), and the wildest speculation has the salient characteristic of an investment (you might get your money back with interest). Maybe the best definition of "investing" is "gambling with the odds in your favor." The people on the short side of the subprime mortgage market had gambled with the odds in their favor. The people on the other side--the entire financial system, essentially--had gambled with the odds against them. Up to this point, the story of the big short could not be simpler. What's strange and complicated about it, however, is that pretty much all the important people on both sides of the gamble left the table rich. Steve Eisman and Michael Burry and the young men at Cornwall Capital each made tens of millions of dollars for themselves, of course. Greg Lippmann was paid $47 million in 2007, although $24 million of it was in restricted stock that he could not collect unless he hung around Deutsche