Steadfast FinancesLiar's Poker Author Speaks Out from an Insider's View to the Root of the Financial Crisis - Steadfast Finances

Liar’s Poker Author Speaks Out from an Insider’s View to the Root of the Financial Crisis

Filed in Financial Crisis 2 comments

I realize that most people are probably tired of discussing how Wall Street’s greed cannibalized their own pro-capitalist business model, but when one of the most articulate Wall Street insiders decides to speak out, it’s probably in your best interest to listen.

CNN’s Fareed Zakaria interviewed Michael Lewis, author of one of the best Wall Street books ever written (in my humble opinion), Liar’s Poker.

[Email and RSS Readers please click link to view video]

Video highlights:

  1. Shrinking profits.  Lewis discusses the gradual shrinking of Wall Street’s middleman role and how the disappearance of old world financial fees (e.g. commissions) lead to the path of increased leverage (e.g. risk).
  2. Small role but big impact.  How a smaller group of traders, not surprisingly, could generate such huge profits by trading equities/bonds that those profits would be cumulatively larger than the rest of the entire investment bank profits.  The cream rises to the top, but also means the risk savvy traders took power over those investment banks.
  3. Easy money via financial engineering.  The issue of such easily acquired profits from buying and packaging mortgage backed securities became so important, in terms of revenues for the firms, that even though traders who realized it was madness were cast aside.  Another instance of profit over analytics.
  4. Killing the golden goose.  How difficult it must have been for the naysayers to convince their superiors to stop packaging mortgage backed securities when everyone else was doing it.
  5. Positions of privilege.  The future is more bleak than anyone has projected.  The people who created the problem in the first place are still in power, and making the decisions to clean it up… while figuring out ways to still make lots of money.

It’s not often you get an opportunity to hear an analytical mind like Lewis, so I would encourage you to take a listen.  His insights are worth the 15 minute time investment.

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Posted by CJ   @   8 June 2009 2 comments
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2 Comments

Comments
Jun 8, 2009
11:26 pm
#1 SJ :

Hrm… I guess I will have to move liar’s poker up on my reading list. As a sidenote: Have you tried playing the game before? It’s kind of interesting… My friend and I added a “community” dollar, i.e. texas holdem style and played for “punishments”.

“THIS IS MADNESS” — Great!

Have you read the economic naturalist? In that book they discuss how self-regulation is forced, otherwise massive “arms-races” occur. It’s especially troublesome for “relative games”.

Sort of how from 2-5 you basically needed to take greater risks to get a greater share of the “pie”.

Thanks for sharing, fun vid!

Jun 9, 2009
1:50 am
#2 Matt :

Haven’t played the Liar’s Poker card game yet. I can remember a card game in college called “Bulls**t” where you had to bluff you way through a Go Fish like game. Probably isn’t closely related, but based on the same premise of bluffing (e.g. lying) your way through the game.

Might have to pick up Economic Naturalist at the library if it’s available.

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