Business Insight Zone

“When innovation is used to disguise risk, as it often has been of late, it really can have disastrous consequences.”

Read this l-o-n-g and good-humored Atlantic interview of Michael Lewis, if only so that you will at last understand the true mechanism of credit-default swaps and the perverse incentives that made some Wall Streeters get buried so deeply in them.

Two more choice tidbits about the financial markets and the regulation thereof:

“Goldman and Morgan Stanley and Lehman Brothers: their returns were increasingly generated by these smart traders making complicated gambles. But that’s ended. The complicated gambles require, one, people to trust them, and two, the ability to borrow large sums of money to make the gambles. And both those things have ended.”

“What’s the risk that the backlash will go too far? Well, everything overshoots, so you can be sure that whatever the reaction is, it will be excessive.”

And one more on the future of long-form journalism — in which field, as will be clear by now, Michael Lewis is one of my heroes:

“[M]y sense is, there’ll always be a hunger for long-form journalism, and that it’s just a question of how it’s packaged. And that people will always figure out how to make it sort of viable. It’s never going to be a hugely profitable business: it’s more like the movie business or the car business in that there are all sorts of good non-economic reasons to be involved in it. The economic returns will always probably be driven down by too many people wanting to be in it.”

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Related:

• Must-read: Michael Lewis on the Meltdown
• A Subprime Primer

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Category: Finance & Real Estate, Media