Mar 24, 2009
Michael Lewis on Football, Finance, and his Next Book
Yesterday I posted, asking for any input on what to ask Michael Lewis at his talk that was given to my school today. Nobody had suggestions, so I just asked something I was genuinely curious about as a blogger. Below are answers to questions regarding football, finance, and his next book.
The talk focused mainly on his book The Blind Side because it is required reading for one of the freshmen introductory courses here — so really, the talk mainly focused on that. I would have liked it if some of the people asking questions ventured more towards finance, since that is what he has written about recently, but they didn’t. Since I was only the second person asking a question I lacked that hindsight.
Here are some interesting questions though, a mix of sports and finance that I think readers may be interested in. All of the below is paraphrased by me, so don’t take these as exact quotations.
Q: Who will Michael Oher play for? (Michael Oher is the subject of The Blind Side)
A: If I had to bet, the San Francisco 49ers.
Q: What do you think could be improved upon in financial journalism? (My Question)
A: In the scheme of things, financial journalism is not really a big of a problem or some kind of machine that hurts the republic. Print journalism is largely fine. There is this backlash right now that’s asking where the journalists were during this crisis. The fact is, they were there, they were commenting on some of these issues — but people refused to listen (My guess is that this is a hint towards his book Panic, which if I understand correctly features articles that were written from the crisis’ inception and through out it).
I think that CNBC though, is bad. It breeds a kind of hysteria which is not healthy, especially for investors. But this problem really is not limited to CNBC, you saw it with political reporting on TV as well. That’s how TV is. It should be viewed as entertainment. So no, no real need for any big improvement in financial journalism.
Q: What do you think of moral hazard and its role in the crisis and finance?
A: Moral Hazard is important,its a really subtle force. I don’t think that a trader at Merrill Lynch was thinking that if he won big he would make a lot of money on a trade and if he loses the government will have to step in and bail them out. This problem though was not limited to banks her, it was every where — global. I think that the ideal risk taking environment is with partnerships. With partnership, the senior partners have much more of a stake in the livelihood of the business and as a result, they would not lever up 30-to-1 and take these exhorbant risks, or really be able to borrow so much.
I think that “too big to fail” is a recipe for failure and these big banks will have to be dismantled in the future. Most of the future big risk taking will probably be moved to partnerships. I think that the current steps the government is taking will lead to some unintended and bad consequences because the problem is likely to be much worse than everyone thinks at the moment. Things may change but everyone will probably forget about this crisis 15 years from now and relax standards, creating yet another problem.
Q: Finding inefficiencies in sports, will it spread?
A: It is really existing everywhere. I’ve spoken to cricket and rugby teams about it. One of the things I think is that the reason it is spreading and taking hold more is the fact that players salaries have skyrocketed. A mistake with a player that costed $50,000 is much less than what’s now — a mistake that would cost the team $50M.
As a result, it becomes much cheaper and more intelligent to hire a couple PhDs from MIT than it is to chance it and stay with the same old broken system. What’s going to happen is a Darwinian process where the teams that don’t take this up will lose games and be forced to move towards it.
Q: Future book on the Houston Rockets?
A: There will be no book on the Houston Rockets. I’m working on a book right now about the financial crisis and a manager who was able to see it and profit from it. Basically it is an extension of the Portfolio article, that was the book pitch. Little work done on the book so far, I probably need another year or so for it.
If you want to know more about what he said regarding The Blind Side, feel free to ask. Like I said, most of the talk was dedicated to this subject, I’ve limited this post mainly to the select questions and answers. He spoke a bit about his writing process and literature, so I can go more in depth into those subjects if any of you wish to know more.