The Spiral Path has linked to Michael Lewis on several occasions. In this piece, Lewis gives his take on what went wrong on Wall Street. In the introduction he reminds us of his three years at Salomon Brothers:
To this day, the willingness of a Wall Street investment bank to pay me
hundreds of thousands of dollars to dispense investment advice to
grownups remains a mystery to me. I was 24 years old, with no
experience of, or particular interest in, guessing which stocks and
bonds would rise and which would fall. The essential function of Wall
Street is to allocate capital—to decide who should get it and who
should not. Believe me when I tell you that I hadn’t the first clue.
I’d never taken an accounting course, never run a business, never even
had savings of my own to manage. I stumbled into a job at Salomon
Brothers in 1985 and stumbled out much richer three years later, and
even though I wrote a book about the experience, the whole thing still
strikes me as preposterous—which is one of the reasons the money was so
easy to walk away from. I figured the situation was unsustainable.
Sooner rather than later, someone was going to identify me, along with
a lot of people more or less like me, as a fraud. Sooner rather than
later, there would come a Great Reckoning when Wall Street would wake
up and hundreds if not thousands of young people like me, who had no
business making huge bets with other people’s money, would be expelled
He goes on to discuss his surpise that, twenty years later, Wall Street was still going strong. No amount of scandal or impropriety, it seemed, could dent America’s advantaged youth from embracing wealth like never before. This was, according to Lewis, until an otherwise obscure advisor named Meredith Whitney from Oppenheimer Securities who
on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.
It appears that Americans, and the rest of the world for that matter, were very much prepared to accept that Wall Street Bankers were corrupt. What came as a shock to us all was that it turns out they are also stupid.