A Wall Street Trader Draws Some Subprime Lessons: Michael Lewis
2007-09-05 00:05 (New York)
Commentary by Michael Lewis
Sept. 5 (Bloomberg) -- So right after the Bear Stearns
funds blew up, I had a thought: This is what happens when you
lend money to poor people.
Don't get me wrong: I have nothing personally against the
poor. To my knowledge, I have nothing personally to do with the
poor at all. It's not personal when a guy cuts your grass:
that's business. He does what you say, you pay him. But you
don't pay him in advance: That would be finance. And finance is
one thing you should never engage in with the poor. (By poor, I
mean anyone who the SEC wouldn't allow to invest in my hedge
fund.)
That's the biggest lesson I've learned from the subprime
crisis. Along the way, as these people have torpedoed my
portfolio, I had some other thoughts about the poor. I'll share
them with you.
1) They're masters of public relations.
I had no idea how my open-handedness could be made to look,
after the fact. At the time I bought the subprime portfolio I
thought: This is sort of like my way of giving something back. I
didn't expect a profile in Philanthropy Today or anything like
that. I mean, I bought at a discount. But I thought people would
admire the Wall Street big shot who found a way to help the
little guy. Sort of like a money doctor helping a sick person.
Then the little guy wheels around and gives me this financial
enema. And I'm the one who gets crap in the papers! Everyone
feels sorry for the poor, and no one feels sorry for me. Even
though it's my money! No good deed goes unpunished.
2) Poor people don't respect other people's money in the
way money deserves to be respected.
Call me a romantic: I want everyone to have a shot at the
American dream. Even people who haven't earned it. I did
everything I could so that these schlubs could at least own
their own place. The media is now making my generosity out to be
some kind of scandal. Teaser rates weren't a scandal. Teaser
rates were a sign of misplaced trust: I trusted these people to
get their teams of lawyers to vet anything before they signed
it. Turns out, if you're poor, you don't need to pay lawyers.
You don't like the deal you just wave your hands in the air and
moan about how poor you are. Then you default.
3) I've grown out of touch with ``poor culture.''
Hard to say when this happened; it might have been when I
stopped flying commercial. Or maybe it was when I gave up the
bleacher seats and got the suite. But the first rule in this
business is to know the people you're in business with, and I
broke it. People complain about the rich getting richer and the
poor being left behind. Is it any wonder? Look at them! Did it
ever occur to even one of them that they might pay me back by
WORKING HARDER? I don't think so.
But as I say, it was my fault, for not studying the poor
more closely before I lent them the money. When the only time
you've ever seen a lion is in his cage in the zoo, you start
thinking of him as a pet cat. You forget that he wants to eat
you.
4) Our society is really, really hostile to success. At the
same time it's shockingly indulgent of poor people.
A Republican president now wants to bail them out! I have a
different solution. Debtors' prison is obviously a little too
retro, and besides that it would just use more taxpayers' money.
But the poor could work off their debts. All over Greenwich I
see lawns to be mowed, houses to be painted, sports cars to be
tuned up. Some of these poor people must have skills. The ones
that don't could be trained to do some of the less skilled labor
-- say, working as clowns at rich kids' birthday parties. They
could even have an act: put them in clown suits and see how many
can be stuffed into a Maybach. It'd be like the circus, only
better.
Transporting entire neighborhoods of poor people to upper
Manhattan and lower Connecticut might seem impractical. It's
not: Mexico does this sort of thing routinely. And in the long
run it might be for the good of poor people. If the consequences
were more serious, maybe they wouldn't stay poor.
5) I think it's time we all become more realistic about
letting the poor anywhere near Wall Street.
Lending money to poor countries was a bad idea: Does it
make any more sense to lend money to poor people? They don't
even have mineral rights!
There's a reason the rich aren't getting richer as fast as
they should: they keep getting tangled up with the poor. It's
unrealistic to say that Wall Street should cut itself off
entirely from poor -- or, if you will, ``mainstream'' --
culture. As I say, I'll still do business with the masses. But
I'll only engage in their finances if they can clump themselves
together into a semblance of a rich person. I'll still accept
pension fund money, for example. (Nothing under $50 million,
please.) And I'm willing to finance the purchase of entire
companies staffed basically with poor people. I did deals with
Milken, before they broke him. I own some Blackstone. (Hang
tough, Steve!)
But never again will I go one-on-one again with poor
people. They're sharks.
(Michael Lewis is the author, most recently of ``The Blind
Side,'' and is a columnist for Bloomberg News. The views he
expresses are his own.)
--Editors: Schenker (jmg/cus)
To contact the writer of this column:
Michael Lewis in Berkeley, California, at mlewis1@bloomberg.net.
To contact the editor responsible for this column:
James Greiff at +1-202-617-5801 or jgreiff@bloomberg.net
[TAGINFO]