Michael Lewis, author of The Big Short, spoke with us Tuesday about the Financial Crisis Inquiry Commission’s report, efforts to reform big banking, and the state of the financial sector today. (He has just published a new article in the March issue of Vanity Fair on the financial crisis in Ireland.)
If you didn’t catch the On Point segment, we’re posting some of Lewis’ thoughts here:
ON THE COMMISSION REPORT:
Reading between the lines, it seems to me the commission had trouble getting the warm cooperation of people on Wall Street. They had subpoena power, but they may have needed waterboarding power. There’s all kinds of stuff that I still would like to know that’s not in there. But given how combed-over the subject is, it’s amazing, one, how many fresh little nuggets there are in it and, two, given that it’s a government report, how well-written it is. It’s very readable. By the standards of government literature, it deserves a Pulitzer Prize.
ON FANNIE AND FREDDIE:
…[The Commission] debunks the notion that the crisis was somehow orchestrated by the government itself, that it’s all a result of the Community and Reinvestment Act and Fannie Mae and Freddie Mac and activities of the government interceding in the marketplace rather than the marketplace going wild. They show, for example, that although Fannie Mae was indeed engaged in buying subprime mortgages, its share of the subprime mortgage market actually declined as the madness got worse and worse, and that the mortgages that Fannie Mae owned were much better than the mortgages that ended up in more private investment hands. They showed it was the free market going crazy more than it was a matter of distortions introduced into the marketplace by the government. That’s very important.
ON POLITICS & BAILOUTS:
…[I}t’s unfortunate how politicized, party politicized, the aftermath of the crisis has been. It’s odd that it’s become a party political matter and the Republicans have essentially ended up being the friend of Wall Street, of big Wall Street, and siding with the financial sector, trying to bat away reforms. If you think about where we stand right now, we essentially have socialism for capitalists and capitalism for the rest of us. The big Wall Street firms are essentially operating with a government guarantee, having been bailed out by the government. They were failed institutions. If the free markets had been allowed to run their course, if nature had run its course, all these businesses – Morgan Stanley, Goldman Sachs, Bank of America, Citigroup – they’d all be out of business, they’d all be failed. You think of the Republican Party as the party of markets, but they’re supporting an enterprise right now that is essentially state-backed. Having complained about Fannie Mae for years, they’ve turned the entire top end of the financial sector into Fannie Mae.
-Staff intern Matthew Baskin contributed this report.