Book report: Michael Lewis' "Panic! The story of modern financial insanity"

[Nords]

I'm a sucker for all of his financial books, and this is the best non-fiction* book I've read in 2009.

He's edited this anthology of over 50 articles chosen from the last 22 years. He included seven of his own as well as financial writers like Roger Lowenstein, Paul Krugman, Lester Thurow, and … Dave Barry.

Lewis starts off with commentary on how Black-Scholes has led millions astray through its assumptions on orderly markets and accurate performance under all market conditions, but didn't reveal those flaws until it was pounded by Black Monday. (Taleb says that Black-Scholes and Black Monday account for 97% of his lifetime trading profits.) In forewords to the book's sections, Lewis develops the theme that traders and investment bankers begin to believe ever-more complicated models telling them everything they need to know about risk (volatility) and leverage. He then moves on from 1987 to dot.coms, Long Term Capital Management, and the subprime fiasco. Each section has articles from a few months before, during, and a few months after their respective crises.

It's a great retrospective. Spouse and I were in our 20s when Black Monday hit, and it left a big impression on both us and our newlywed equity portfolio. I hugely enjoyed Jack Willoughby's "Burning Up", published in Barron's on the day the NASDAQ peaked and widely believed to be the trigger of the tech meltdown. If you've been investing through any of this book's events then you'll appreciate the article's themes of "It's the next new thing!", "Yes, but we have the risk under control", and "This time it's really different". This book will make you a better investor, albeit a much more cynical and skeptical one.

The most eyebrow-raising article is Kate Kelly's Nov 2007 profile of Bear Sterns' 73-year-old pot-smoking bridge-playing CEO and his subordinates. The most gratifying article is the profile of John Paulson (no relation to the Treasury Secretary) who personally made over $3B figuring out how to short subprime mortgages and then having the guts to follow through.

If you can't find a library copy, Lewis writes: "All proceeds from this anthology go to 826 National and a fund inside the Greater New Orleans Foundation dedicated to the rebuilding of the city." He says he donated his time.

*Fiction? Jim Butcher: "Turn Coat" and "Princeps Fury".

[donheff]

Sounds good Nords. I put my hold in the library electronic catalog.

[Maurice]

I like Lewis, but I usually don't like 'books' that are nothing more than collections of essays. They tend to be too repetitive on certain themes when read in series, and since each article was written to stand by itself, they don't usually go that deep.


Maybe I should pick it up anyway. How well do you think he avoided those pitfalls?

[Sarah in SC]

I love the Nords book reviews! Thanks for another good one. I really like Michael Lewis and have given his books to folks as gifts. I loved Coach as well.

[Nords]

Quote:

Originally Posted by Maurice Maybe I should pick it up anyway. How well do you think he avoided those pitfalls?

You already know what's going to happen to this train. The difference is that this time you know where to look and what to watch for.

He avoids the pitfalls because I learned a lot of new details. What's interesting is the background that I'd never read before and the personal details of some of the participants. I missed some of this during sea duty, some of it because I wasn't reading the WSJ every day, and some of it didn't come out until well after the depositions. And while I'd read Dave Barry's column before, it's worth the encore.

I like Lewis' skill in explaining big, complicated problems with small words and poignant character sketches. Apparently he came across pretty well on Charlie Rose's show, too.

[mickeyd]

I became a Lewis fan after reading Moneyball a few years ago. I also enjoyed Panic.

[EDDY AMPS]

"The End" This is an article/essay by Michael Lewis from DEC 2008. It might even be in the new book.

The End of Wall Street's Boom - National Business News - Portfolio.com

[kumquat]

Quote:

I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience

While I admit that I've never read his stuff (and I didn't even read the entire linked article), the cynic in me says that Mr. Lewis probably still knows very little about accounting, hasn't learned to run a business, and possibly, doesn't have any savings to manage. He has learned how to write and sell books.

Writing and selling books is a good way to make money. More power to him.

[Maurice]

Liar's Poker is a classic (his book from the SB experience)

[NW-Bound]

I am reading this book, Panic, by Michael Lewis. Same as several posters on this thread, many years ago, I read his Liar's Poker about the S&L fiasco.

Any serious investor should read Lewis' books to see how Wall St bankers were able to "generate wealth" (read nice salaries and bonuses for the players and high dividends for the stock holders) from subprimes and CDOs.

I have read the link posted by Eddy Amps. Excellent info from insiders, same as in Liar's Poker, though this time only relayed by Lewis. An excerpt from this link follows.

Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking home*owners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.

Just discovered this thread. The last few days, I have been busy debating with the market efficiency theorists on another thread, and almost miss this one.

[TromboneAl]

On hold at the library, thanks. I'll read anything with Dave Barry in it.