Michael Lewis: Both Prophet and Pariah

by: Investment U

by Alexander Wissel

The End of Wall Street’s Boom

In December, Condé Nast Portfolio.com released one of the best articles in the past few months.

Shared around the offices of Investment U, it contains one of the best descriptions of what happened to the mortgage and credit industry – well before CMOs became front-page news. Its author, Michael Lewis, is often known for his book “Liar’s Poker,” which became a bible of sorts for those looking to claw their way to the top of the investment-banking world. Unfortunately, Lewis wrote the book as an indictment, a warning to the barons of Wall Street about the unsustainable excess they were creating and the greed that followed. His warning went unheeded.

Lewis takes a look at our current mortgage and credit crisis from start to finish. His story centers on Steve Eisman, a contrarian known for questioning the status quo of business as usual. He trained analyst Meredith Whitney – her analysis was credited with bringing down the banking sector when she correctly predicted Citigroup (NYSE:C) and others would slash their dividends or go bust – and is known as her mentor.

Lewis gives us a window into the process that Eisman took and how he started looking at the creditworthiness for subprime mortgages and questioning the methods Wall Street was using to grade, package and peddle what we know today as “toxic” mortgage assets.

We highly recommend giving The End of Wall Street’s Boom a read, it’s not short (nine pages) but it is one of the best looks at how the market got to where it is today. Both pariah and prophet, Michael Lewis reminds us why we should question the established investment professionals and why it’s not so easy to do.

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