Michael Lewis wrote Liar’s Poker, a book I’ve seen referred to so often that it has finally ascended to my wish list (it should have been there a long time ago).
From the best I can tell having not read Liar’s Poker, it was about the rampant corruption experienced first-hand by Lewis in the mid-1980s (American Psycho anyone?). More recently, Lewis has written an update to Liar’s for Portfolio.com. You can find it here.
Both Daniel and Moses enjoyed, immensely, working with Steve Eisman. He put a fine point on the absurdity they saw everywhere around them. ?Steve?s fun to take to any Wall Street meeting,? Daniel says. ?Because he?ll say ?Explain that to me? 30 different times. Or ?Could you explain that more, in English?? Because once you do that, there?s a few things you learn. For a start, you figure out if they even know what they?re talking about. And a lot of times, they don?t!?
To sum up the article in just a few words, Lewis describes Wall Street as having turned into factory for imaginary clothes. That the dupe worked for decades is amazing enough. I gather that Lewis believes this crisis to mark the ultimate end of the con, and I hope he is right (Though I’m skeptical).
What brought the article home for me was how often I could relate to it via experiences from my prior job at Ga. Gulf, specifically when I was working with the then-CEO, CFO, Veeps, rating agencies, consultants and investment bankers (We had dual-bankers working the deal for us — Merrill and Lehman!) on the ill-fated billion-and-a-half-dollar deal to buy Royal. In short, the so-called experts used their authority to gloss over details, often being so short on understanding that they could not take the ideas they bantered about and tie them back to rational, coherent, non-jargoned core principles.
Of course, you only caught these “experts” at their legerdemain if you persisted in asking questions and staying skeptical, thereby avoiding the trap of their shaming you into silence with big-words and ostensibly complex ideas.
My most tragic experience of this appeal to authority, banker dodgi-ness occurred back around early June 2006. After having lobbed in an initial offer to buy Royal that was summarily rejected, we requested a day with Royal’s top management to go over their most up-to-date financials. They were hoping we’d become more confident in the deal, and up the ante. After the day-long conference call with Royal’s people, I was sitting in the CFO’s office with all the Veeps gathered around and all our investment bankers on the phone (Amazingly, for such an important meeting the CEO was actually absent — he’d dashed off to Louisiana for some reason and couldn’t even get on the phone!). This internal meeting was to have a final discussion about whether or not to continue pursuing Royal.
A quick step back for some background info: Royal was a building materials company we, a chemical commodities company looking for downstream integration of our PVC, were looking to buy. Everything we saw out of Royal (except for the Bain-prepared powerpoint presentations) was ugly. What we learned on that last-ditch day of diligence was that the multi-month slide was only getting worse. This new information made a clear case that we shouldn’t buy them at the price we had already offered, much less up the ante. Further, maybe we should rethink pursuing this company at any price. It was obvious that their business had managed to falter during the greatest housing boom of all time, yet we were contemplating paying for them going into the post-boom bust! I felt I had pieced together the big picture (as did the late CFO and a couple others who had been effectively shut-up by the CEO), thus in this post-diligence meeting, I took three minutes and laid out my case in full.
It was a treatise that hit on the economy, housing, Royal specifically and even interest rates. I left my thoughts open-ended, pleading to all parties present for discussion, feedback or criticism.
What did I get in response? A joke about bringing everyone down by being so gloomy. Everyone got a good guffaw and the joke was followed-up by one of the i-bankers on the phone immediately changing the subject to strategy on how to counter back and continue the buying process.
And that was that. Ga. Gulf bought Royal for a 40 – 50% premium (depending on which stock price you pick). Ga. Gulf’s stock price has dropped over 95% since that decision, and I believe Royal would have gone bankrupt had we just said, “Forget it; we’re not interested” and walked.
Between Lewis’ condemnation of Wall Street, my own experiences in corporate America (Oh the stories I could tell!) and having read Nassim Taleb’s The Black Swan, it’s abundantly clear that the great majority of so-called economic and financial “experts” who have been running the show in Wall Street are nothing but con(fidence) artists, whether they realize it or not.
It is a shameful history and a lot of hard-working people are going to be hurt in the fall-out as the con-game, which goes all the way back to the something-for-nothing printing presses of fiat currency, is laid bare.
Let’s hope this really is “the end” of it.