Reviewing the Shorts

David Warsh reviews three recent books on the role of credit default swaps in the financial crisis:

• Gillian Tett, Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe
• Gregory Zuckerman, The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
• Michael Lewis, The Big Short: Inside the Doomsday Machine

I enjoyed the first two. Tett tells the story of the rise of the credit default swap, and Zuckerman explains how John Paulson (among others) used them to profit by selling the housing bubble short. Michael Lewis tells the same story, less effectively, and ignores Paulson. I think this is so he can treat those who saw what was happening as weirdos. This may be because, as Warsh point out, Lewis sure considered them so in 2007. As Michael Osinski wrote in Business Week (hat tip to Warsh):

It wasn't until Jan. 31, 2007, that the index of subprime bonds suffered its first ever one-point drop. According to Lewis, that was the day "the market cracked." What Lewis fails to note is that the day prior, Lewis himself had filed a column for Bloomberg News from Davos mocking Nouriel Roubini's warning "that the risk of a crisis happening is rising." Such forecasts of doom came from "people with no talent for risk-taking gather[ed] to imagine what actual risk takers might do," Lewis wrote. The headline described them as "Wimps, Ninnies, and Pointless Skeptics." In The Big Short, Lewis recognizes he was wrong. The ninnies have inherited the earth.

Lewis's book is of course the best read. He is a great writer. But his book seems less like reporting than storytelling. He never questions or analyzes what his heroes tell him. And there ought to be some reward for depth.

I plan to write a longer post comparing Zuckerman and Lewis since they address the same subject but write different books. But for now, Warsh's review is very good.