Exclusive: The 2008 Wall Street crash resulted from a combination of unrestrained greed and political contempt for government regulators who might have prevented the devastation. In The Big Short, the tale is told from the perspective of a few players who saw the inevitable and made money on the crash, writes James DiEugenio.
By James DiEugenio
If you read Michael Lewis’s book The Big Short or see the movie by the same name, you won’t find much about how the financial crisis of 2008 was set in motion more than two decades earlier. You won’t learn much about the roles of Ronald Reagan and his disdain for big government or about Bill Clinton’s faith in neo-liberalism, trusting that the modern markets and the supposedly sophisticated investors would keep excesses in check.
Nor will you find much about economist-turned-politician Phil Gramm who incorporated many of Reagan’s and Clinton’s beliefs into legislative actions, slashing taxes on the rich in the 1980s (and thus incentivizing greed) and, in the 1990s, brushing aside Franklin Roosevelt’s painfully learned lessons from the Great Depression about the need for firewalls between the speculation of Wall Street and the hard-earned savings of Main Street.
Also out of Lewis’s narrative frame is Brooksley Born, the federal commodities regulator who foresaw the looming danger from the exotic new financial instruments that sliced and diced risky subprime mortgages and packaged them in bonds with ratings far above what they deserved — and the even riskier tendency to lay bets on how the bonds would perform.
But Born was out-muscled by bigger financial stars with larger egos, the esteemed Federal Reserve Chairman Alan Greenspan (originally a Reagan appointee) and Clinton’s brash Deputy Treasury Secretary Lawrence Summers, a rising star in the neo-liberal establishment which treated the market’s “invisible hand” as a new-age god.
Michael Lewis’s Treatment
These names and that background are not mentioned because Michael Lewis did not write The Big Short as an overview of the economic meltdown. It is not remotely a historical chronicle of the crisis. Lewis chose to write about six characters…