Did market efficiency cause the sub-prime mortgage meltdown?
I just finished Michael Lewis’s newest book, The Big Short: Inside the Doomsday Machine. Lewis explains exactly what caused the sub-prime meltdown. The real origins of the meltdown, he points out on page one, go back to early 1985. This is when Michael Lewis was working at Salomon Brothers, which was the background for his first book: Liar’s Poker. I decided to read Liar’s Poker again, since I hadn’t read it since it first came out. Back in the mid-1980’s I had just graduated from law school and didn’t really yet grasp how “things really worked.” Like many people I believed that people who worked in high finance had a certain level of ethics. Or that at least they understood the underpinnings of the financial markets that they shaped. I was obviously naive. Re-reading Liar’s Poker is very strange, and not because I’m now reading it on a Kindle. The book is a stark portrayal in how ‘mortgage bonds’ quickly went from being in complete disfavor to becoming a darling of Wall Street. Greed
