After yesterday’s post on Mortgage-Backed Securities (click here), I felt that I should write something on the book that talks about the origination of the MBS
(which, for the record, is a pun: Origination
refers to the collection of mortgages and repackaging them as an MBS).
Michael Lewis, before he became famous for writing books, was a bond trader with Salomon Brothers. And when I read this book, I realised the following:
- At no point in my life do I want to sit at a trading desk;
- Traders look down on the Corporate Finance guys as being soft-core; and
- I’m totally okay with being soft-core.
But apart from that little self-discovery, the most valuable realisation that came from this was just how new finance is. So much of the theory that we’re lectured on in University gets confused with my impression of economics lectures: you think that this is all old-school well-covered territory. Well, it’s not.
In this book, not only do they talk about Salomon Brothers traders coming up with MBS, they also make reference to the first call options being created. In the 1980s! Hectic.
Other points I hadn’t realised before:
- Bond traders sound a lot like the Italian mafia.
- Bond traders may actually have been Italian mafia.
- John Meriwether was heavily involved in the creation of Mortgage-Backed Securities. That’s the same John Meriwether of LTCM fame – which was the Fed’s bailout crisis of the late 1990s. That guy should be cast in bronze and placed next to the Wall Street bull.
I’ll be honest – the book is a bit slow at certain points, and the writing-style sometimes reminds me of the Godfather dialogue.
But worth it.