Michael Lewis Slams Wall Street, Leadership Deficit: Interview

The cover jacket of "Boomerang: Travels in the New Third World," by Michael Lewis. Source: W.W. Norton via Bloomberg

Michael Lewis’s “Boomerang: Travels in the New Third World” begins with Kyle Bass, a Texas hedge fund manager who’s buying guns and gold bricks.

Bass is also betting against European governments.

Following on last year’s “The Big Short: Inside the Doomsday Machine,” Lewis’s exploration of the subprime mortgage debacle, “Boomerang” is a collection of articles Lewis wrote about his adventures in Iceland, Greece, Ireland and Germany, with a bonus look at the parlous state of California.

Films based on his books, like “Moneyball” and “The Blind Side,” have brought Lewis wider success. “Liar’s Poker,” about his short-lived Wall Street career, may finally start shooting. He has a couple of television series in the works and is a columnist for Bloomberg View.

We spoke at Bloomberg’s world headquarters in New York.

Lundborg: You’re writing the script for “Liar’s Poker.” Who should play you? John Gutfreund?

Lewis: Jonah Hill, after he gains some weight. I’d like to see Jeff Bridges play John Gutfreund.

Lundborg: You’re clearly on a roll, so what are you doing with all that money?

Lewis: I’m always cautious, so I’m not a barometer of the times. I always have about 40-50 percent in the stock market, and it’s all in large-cap, high-dividend-paying battleship companies that can withstand recession.

Dog Food

Lundborg: So you aren’t buying guns and gold like Kyle Bass?

Lewis: The difference between me and Kyle Bass is that I just assume if it gets to that point, I’m dog food. He thinks he can defend his gold.

Lundborg: Where’s the smart money now?

Lewis: It’s impossible to predict what the markets are going to do, but if you’re asking me what smart people are doing, they have been for some time in metals, very risk-averse, out of debt entirely.

They make a persuasive case that we’re living in very perilous times.

Lundborg: What do you think of the Occupy Wall Street protesters?

Lewis: They’re right to be angry, but they have to figure out what they want if they’re going to have any effect. If there were specific demands, it would start to get very interesting.

Lundborg: Has Wall Street changed since the meltdown?

Big Is Bigger

Lewis: The changes have been incremental. I would have radically restructured the financial industry, nationalized the banks. I just assume there were really good reasons I don’t understand that prevented the Obama administration from doing it.

Lundborg: Like Summers and Geithner?

Lewis: They had their reasons. But some of the changes have been disturbing. The big have gotten even bigger, so there’s even more of an advantage being Citigroup or Goldman Sachs or Morgan Stanley, when it should be less of an advantage.

Pay has changed -- more pay is in the form of restricted stock. There is a real attempt to try to orient interests toward the longer term rather than the short term.

Lundborg: What’s the worst thing you’ve been seeing?

Lewis: The way the big firms meddled in the legislation to reform the financial industry after the crisis drives me batty.

I don’t think they should have had any place at that table, and they manipulated the legislation in ways that are not good for the rest of us.

There doesn’t seem to be any remoralization of the financial industry.

Risk Taking

Lundborg: Have the incentives changed?

Lewis: They’re better in the pay area, but they’re worse in the sense that now their deposits are explicitly government-guaranteed and they can still engage in hedge-fund-like activities.

There’s not enough of a market check on their risk-taking. It’s still unclear 3 years later if the Volcker rule will actually be implemented or gutted. It feels like it will be gutted.

Lundborg: You point out the paradox that the Germans essentially run Europe now. And yet the worst toxic deals could be sold to the “stupid Germans in Dusseldorf.”

How do you explain it?

Lewis: The Germans have the advantage that their people, not their financiers, behaved very well in the face of temptation, and the people are outraged at what’s going on.

Financial questions are now political questions. I know hedge fund managers who have pollsters running around Germany trying to figure out public opinion and how it’s going to change.

Who’s in Charge?

Lundborg: Figures like Roosevelt, Churchill, Hitler and Stalin dominated history in the last century in a way that Obama and Merkel don’t, so are financiers now running the world?

Lewis: Nobody’s running the world, that’s the scary thing. There’s been a massive decline in authority, and in moments of crisis it’s very unnerving to realize no one’s in charge.

Lundborg: In the piece on California, you say they have a system that delivers “maximum contempt for elected officials.”

Lewis: Here you have extreme democracy where the people vote by initiative on all important fiscal matters, and then they complain about what it generates.

What they want is services without paying for them, so it’s a problem of public morals.

Killing Parasites

Lundborg: You say that when confronted with a dark room filled with money, Americans grabbed as much as we could.

Lewis: The common theme between public employee unions, say, and Wall Street bankers is an excessive focus on the short term and a weird blindness about the long term.

It’s unsustainable behavior, parasites everywhere killing their hosts.

To buy this book in North America, click here.

(Zinta Lundborg is an editor for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are her own. This interview was adapted from a longer conversation.)

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