Omni Podcast: Michael Lewis on Fatherhood and Subprime Mortgages
On the last weekday before Father's Day, I'll close out my week's posting with my BookExpo interview with Michael Lewis. You likely know Lewis, whether from his now-classic business memoir, Liar's Poker, or his more recent bestsellers on innovative thinkers in sports, Moneyball and The Blind Side (and their companion piece on Shane Battier and the NBA in the New York Times Magazine), or any of his half-dozen other smart takes on business and technology and, well, whatever he turns his mind to. He has a Gladwellian ability to pull out a sharp and witty contrarian narrative from a subject you might think you already know everything about, though he tends to work with longer, more personality-driven stories than Gladwell's anecdotes.
We talked about two books: one, his current new release, is Home Game: An Accidental Guide to Fatherhood, a collection of the funny and frank diaries he wrote for Slate after each of his three children was born. They work as a sort of companion piece to Ayelet Waldman's recent Bad Mother, both breaking taboos about modern perfect parenthood and arguing that honesty about the ambivalences and imperfections of our parenting will actually help us become better, less stressed fathers and mothers. The other book is not out yet--in fact, he's still writing it: The Big Short: Inside the Doomsday Machine, which comes out in November. It's an account of our economic meltdown from the familiar Lewis perspective of a few iconoclastic thinkers who saw it coming ahead of time--and placed a big bet on it. It's also his first book on Wall Street since Liar's Poker, a subject he never thought he'd write about again.
We split the interview between the two books (skip ahead to about the 9:48 mark if you want to go straight to the Wall Street stuff), but throughout he was as interesting and articulate in person as he is on the page. You can listen here in our player, or read the full transcript after the jump:
Amazon.com: We're talking with Michael Lewis, who has followed his bestselling debut, Liar's Poker, with a series of bestsellers that, despite their wide range of subjects, are all easily identifiable as Michael Lewis books, including The New New Thing, Moneyball, and The Blind Side. His latest book is Home Game: An Accidental Guide to Fatherhood. And later this year, a phrase that may strike fear into his soul, since I think he is still writing it, he'll return to where his writing career began with The Big Short, his account of what caused our economic freefall in the past year.
But Home Game: tell me how it came about. It started with a series of pieces in Slate?
Lewis: Yeah. It's a bastard book, in that I've foresworn this business of publishing collections of journalism. I did that early in my career and I just lost interest in it because it had no narrative flavor. But this book: what happened was I was so perplexed by new fatherhood that I started to sit down and keep really a journal of the experience because I found it really disturbing. And I was sorting through the difference between what I was supposed to feel and what I felt and what I was supposed to do and what I actually wanted to do and all the rest. Then I phoned up my friend Jacob Weisberg who is the editor of Slate and said, "Some of this actually looks like pieces. You want to run an occasional series?"
And over the next eight and a half years and three children, after each child was born, he ran essentially extracts from my journal. When I finally had myself neutered, and I knew this process was over, I thought--a friend actually sent me a pile of these things I'd written over the years and I'd never gone back and looked. I looked through it and there was a natural story. I had to add quite a bit to it, but I thought that it was a weird evolution of a man who struggled with this role, coming to terms with it. And I was reading it almost as if someone else had written it, because a lot of it I had forgotten.
Amazon.com: That's the way I feel about my own. I've got two kids and people ask about that first year and it's gone. I don't remember anything that happened.
Lewis: That's right. It's gone. So I was reading it like it was someone else's stuff, and I thought, I mean, not to be immodest, but I thought, "Jesus, it works. It's funny, it's a narrative. It's got points to it." I thought this actually is a story. The publisher was interested in bringing it out as a book. That's when I really paid attention to it. So it's a book. I wrote an extra 10,000 words in the beginning and the end and there it is.
Amazon.com: So if you were going to write, from scratch, a Michael Lewis book on fatherhood rather than a journal, how would you go about it? Because I think one thing you often do is find someone who has figured out or represents a way of thinking about your subject that the mainstream has neglected or is just catching on to. The Billy Beanes out there in Moneyball. Is there someone out there who could figure out fatherhood in the same kind of analytical way?
Lewis: Well, I'll tell you. The analogy to this book is Liar's Poker in that I was the main character in Liar's Poker, who stumbled into this role, investment banker, that I found perplexing and didn't understand. And the end result was I wanted to write about it to kind of make sense of it.
So, in a weird way, this is how I think I would naturally do it. If I was looking for sort of The Inner Game of Fatherhood, for someone who found a way to sort of rig the system, I have no idea because I have never met that person. I don't think it exists. I don't think that exists.
To me, the real story is--and I got this a bit when I got feedback from the Slate pieces--it is amazing how shocking a number of people find it when you actually write the truth about the experience. And if had set out to write a book about fatherhood, looking back on it 10 years later, what I would have written would have been much less honest because the pressure is all to tell the lies. And the only reason I wrote in the bald way that I did was that I was in a raw and emotional state when I did it.
So I don't actually think I could do it in retrospect. I don't think I have any interest in it. What interested me was getting the stuff down in real time. Everything pretty much in the book was written in 48 hours of having the experience or the sensation that led to the piece of writing.
Amazon.com: Probably with a child in one arm while you are typing with one hand.
Lewis: No, that didn't happen, but often in the sleep-deprived state, of course. I mean, what they don't tell you is that--especially when you have difficult infants, and I did a couple times--it is essentially a Guantanamo-like experience, that you are sleep deprived. Certain things that happen to you are the sort of things that people do to torture information out of other people. And so, what you are reading is a Guantanamo confession, is what it's like.
Amazon.com: And you went back two more times.
Lewis: Well, you forget. This is the point: that if you tell people what the experience of new fatherhood is like from a distance of even a year, you tell a completely different story than if you are telling it real-time. And nobody tells it real-time because they are so trapped in the misery of the thing. I think it is very hard. It is just one of those subjects. Partly it is social taboo, partly it is just you don't want to seem like a monster. It is one of those subjects it is kind of hard to talk straight about.
My father--my father read this thing for the first time. He had read none of the original stuff in Slate, and he read the thing for the first time a week ago. He calls me and he's laughing. But the first thing out of his mouth, he said, "You know some people who read this are going to think you are a truly terrible human being."
And I read it and I said, "Yeah, I think that is probably right." Some people will read it that way. But those are the people who are really invested in the lie, and I questioned why they were so invested in the lie because the truth is not entirely pleasant. And we go back to it and have more children because we forget the truth, I think. It's amazing how your memory--you wipe clean the slate and go back.
Amazon.com: I think nature does that. That reaction makes me think of someone you may know because I think she lives in your town, Ayelet Waldman, and the reaction she had to her piece in the Times where she admitted, "I love my husband more than my children." It was admitting an emotional truth that some people--the reaction to that was vicious. People attacked her almost physically. You are just not allowed to say certain things even if you might think them.
Lewis: Well, we do live in a culture that is wildly protective of children on the surface. Just below the surface it's a little warped in the way it deals with children, I think. But it's true that when you write honestly about children and about your experience with them, people are looking to be upset and take offense. And just as if you parent differently than other people parent, they are looking to disapprove of you. There is a huge amount of social pressure around this subject--as there probably should be. It is society's way of not nationalizing the problem, of not turning to the government to solve a problem. You create powerful social norms so that children get raised healthfully and safely kind of thing. When Michael Jackson dangles his child off a balcony, it changes his reputation forever.
So, there's that impediment to saying what you actually think about all this. But I don't think it's healthy that the actual thoughts not get expressed. Because I think what happens is you get this situation where--in my case fathers, but I'm sure it is true of mothers too--feeling one way and being expected to feel another causes enormous unhappiness. If they knew that other people felt this way and what they were feeling was actually not abnormal, it was socially unacceptable but not abnormal, they'd actually be much happier in the role and better at the role.
It's a strain that comes--I'm trying to think of an analogy. When you go on a vacation and you told all of your friends you're going on a fancy vacation. You're going to Paris. You get to Paris and you get food poisoning. Then you get mugged and then there is a Metro strike so you can't get around. Then all the French people are mean to you, and nothing good happens.
You come back from your trip to Paris. What do you say? Nobody wants to say, "Boy, I had a really crappy time in Paris. Paris is horrible," kind of thing. Everybody wants to say it was lovely. Maybe if you catch them right at the beginning, right when they got back they might admit. But six months later they are talking about--bragging about--their wonderful trip to Paris. Parenthood is like this. I think people would actually enjoy Paris more if they were allowed not to enjoy it.
Amazon.com: I want to move to a much less controversial subject: our economic meltdown. So you're working on a book called The Big Short? I think you had a long piece in Portfolio in January [actually December]. Is it building on--
Lewis: That was essentially the book proposal.
Amazon.com: You begin that piece by looking back at Liar's Poker and your feeling when you wrote it that this was going to be the end of an era, and people were going to look back at this era of excess and--that this would be a timepiece. And it is a timepiece. It actually looks quaint, as you put it. So how does Wall Street look to you 20 years later?
Lewis: What drew me back in is the chance to write the book I thought I was writing when I wrote Liar's Poker. I really did think it was like this message in the bottle. It was this very weird excessive period in Wall Street history that wouldn't repeat itself in my lifetime. People now would look back and not believe it unless I got down on paper exactly what had happened. A bit like fatherhood: if you don't get it down now, it gets distorted by history.
Now I think we're actually coming to the end of a period that began roughly about the time I walked onto Wall Street. A little before, but early '80s. An awful lot of what has caused this disaster was born on a couple of trading floors in the 1980s.
When I wrote Liar's Poker I really, honestly thought, "I'm done with Wall Street. I've said what I had to say about it. I don't think I'm ever going to come back to it as a subject in quite the same way, not for a book." Now I'm completely engrossed. I'm engrossed because this event we've gone through--because the excesses went on for so long, the end was much more catastrophic than it should have been. And getting at why and how it happened is really interesting to me, especially through the eyes of people who figured out it was happening at the time.
Amazon.com: Those are the characters in the Portfolio piece--and I assume that's what The Big Short alludes to: people who were saying no for a long time and putting their money where their mouth was.
Lewis: That's right. The talking heads didn't interest me as much, but the people who actually with very reasonable arguments figured out--because the information was right under our noses if you paid attention to it--that this was maybe the greatest trade to make in the history of Wall Street. But it was a bet not against just a particular security, though it was, against subprime mortgage bonds. It was a bet against an entire financial way of life. And they realized that, that they were making essentially a bet against their own society.
There's something very poignant about that. The thought process that they go through to get to the point is very interesting to me. There are very few people who this describes, but I found them, and I'm writing about them, and it's just a terrific story. It's an odd story because we're basically in the middle of this horrible disaster, and these are people who made a fortune out of it. They were very contrarian, very odd in their thinking. So it's a story of triumph, in a way, but it's a horrible triumph.
Amazon.com: Again, they're classic characters for the books you write. Before I saw that piece I was thinking "I wonder how he's going to write this. Is he going to find a Billy Beane kind of character, that kind of contrarian thinker?" And this is how naive I was: I said, "Oh, no, the market would reward people for ... those people wouldn't be hidden because the market would reward them." That has clearly not happened.
Lewis: No, it's not happened. Actually that's one of the really interesting things: In the universe of people who got it right, most of them got really rich--so they were rewarded in that sense--but most of them also endured enormous conflict and personal humiliation and all the rest on the way to being right. So they looked back on this as not the richest, happiest experience of their lives. In a couple of cases it drove them to leave the investment business. An "If this is what it feels like when you win, I don't want to know what it feels like when you lose" kind of thing.
So yes, it's odd. We're talking about this, and I'm still writing it. I'm not done yet. So I can't really tell you everything the book is about. But it's a subject that has honestly engaged me.
Amazon.com: And even if they were rewarded eventually, there are many people who were rewarded along the way for wrong thinking--the way that things were set up with the bonuses and--
Lewis: Absolutely. I mean not just for wrong thinking, but for doing things that were socially destructive. That's what's so appalling about what happened to Wall Street and the financial system. It became completely untethered from the productive economy. Things were "productive" on Wall Street that were actually destructive. There was some of that in the '80s. But this latest episode I think is of world-historic proportions.
I had a financial historian, a very distinguished economist and friend of mine, tell me that he thought this was the worst financial crisis in history. I said ,"Oh, come on. Look--the South Sea Bubble, the tulip craze, blah blah blah." "No," he says, "This is different. For example, after World War I--when World War I broke out, there was a financial collapse. The stock exchange in Britain shut down for six weeks. But World War I had broken out. Something had happened. It was horrible." He said, "This was an enormous financial catastrophe created by financiers out of a clear blue sky, as just a pure financial event." He thought it was unprecendented. I don't know if it's unprecedented, but it is pretty spectacular. There are a lot of books being written about one angle or another--there should be. There should be a library because there's so much to say about it.
Amazon.com: One small detail from the Portfolio piece that struck me: there are all these short sellers and the people they were betting against basically were encouraging them to make those bets, so they could give them a market for their derivatives of derivatives of derivatives ...
Lewis: This is strange. An awful lot of the people who made money betting against subprime mortgage bonds weren't bond-market traders. They were just stock market investors who had figured out that these financial companies they wanted to invest in, they couldn't invest in because they were corrupted by the subprime mortgage market. They all in one way or another had exposure to this.
So the natural thing to do then is to short the stock of those companies, right? Bet against it. But you never know what the stock market's going to do. So they didn't want to do that, because they're going to be right, but they might be right six months early. And six months early, if you do that, you're bankrupt.
So along comes this trade: it is to buy credit default swaps on subprime mortgage funds--buying insurance against defaults--subprime homeowners defaulting on their mortgages. For this you know your downside. You're just paying a little premium like you would for an insurance policy. You get rich if these subprime mortgage bonds go bad. Well, that's a very asymmetrical bet, and the bet was cheaply made. You paid a one or one-and-a-half percent premium a year. You pay $10 million a year to make a billion. That sounds good if you really--but they couldn't understand why anybody would take the other side. Their journey's an investigation of this. Who and why? Who would take the other side and why?
There are a number of different answers for this--and I don't want to spoil the book--but what you allude to is (and they didn't know it when they got into the bet) the cash flow of their bet looked like a replica of a subprime mortgage bond. They were like another subprime mortgage borrower paying a subprime mortgage rate of interest. The bankers on the other side were taking these bets and creating synthetic subprime mortgage bonds essentially, vastly increasing the pool of the assets that were going to go rotten. Even worse, because these were smart people who were making the bets, the way they would make the bet is they'd pick a particular mortgage bond that they wanted to bet against. They were picking the absolute worst mortgage bonds.
So what they did in making their bets ended up inflating the pool of the absolute worst mortgage bonds, and the losses in the system partly reflect that.