“Strawberry Picker Buys $720,000 Home”

Remember Michael Lewis? As a young man, he got a job with Salomon Brothers, then a leading investment bank. When he quit, in 1989, he sat down and wrote a stunning book, Liar’s Poker, about what he saw and learned there. Liar’s Poker anticipates much of what has happened since July 2007.

I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance. When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future. Unless some insider got all of this down on paper, I figured, no future human would believe that it happened. 

Guess what. The book was a bestseller. But we still did not really believe him.

Michael Lewis is back. Writing in Portfolio.com, an on-line magazine, he has written a powerful essay titled “The end of Wall Street’s boom.” It is must reading. Tom Friedman quotes it in his column in the New York Times published today in the International Herald Tribune. 

Here is what Lewis writes about Long Beach Financial, owned by the mortgage bank Washington Mutual (now bankrupt, of course). 

Long Beach Financial specialized in asking homeowners with bad credit and no proof of income to put up no money down and defer interest payments for as long as possible. In Bakersfield, CA., a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a home for $720,000.

A very large number of people knew this debacle, this destructive innovation, was going on. But huge bonuses kept them quiet. And now we have the $300 b. bailout of Citicorp. Friedman calls the senior Citicorp executives “some of America’s best-paid bankers…who were overrated dopes who had no idea what they were selling, or greedy cynics who did now and turned a blind eye.”

Citicorp had to be bailed out or risk what Friedman calls “a systemic crash.” 

“These are the wages of our sins,” Friedman says. These are the wages of destructive innovation.