Does Michael Lewis think the German banks were very dirty or much too clean?
Neither Kevin Drum nor Felix Salmon are particularly impressed with Michael Lewis’s scatological explanation of Germany’s role in the financial crisis. I would go a bit further than they have: This is a peculiar case in which an article’s outrageous stylistic flaws are doing it a service by distracting from its deeper conceptual incoherence.
The Washington Post runs a family-friendly web site, which is rarely much of an impediment when writing about financial crises. But it is when writing about Lewis’s take on Germany. Lewis frames his article around a 1984 anthropology text that read deep into popular German folk tales to argue that Germans were proper in public, but obsessed with excrement in private. This lets Lewis argue that the German people are “clean on the outside, dirty on the inside,” which happens to be a helpful way of thinking about their role in the banking crisis: though there wasn’t much of a credit bubble in Germany, German banks were heavily invested in the credit bubbles in other countries. “It was another case of clean on the outside, dirty on the inside,” writes Lewis. “The German banks that wanted to get a little dirty needed to go abroad to do it.”
Lewis takes this somewhat gross/somewhat entertaining metaphor much further than you might expect him to, which is fine. The problem is that he throws another sociological hypothesis into this mix. And this one completely undercuts the scatological take.
A German traffic jam, Lewis observes, “is almost a pleasure to watch.” Unlike the rowdy, anarchic gridlock New Yorkers know and hate, everyone in a German traffic jam “obeys the rules, and believes that everyone else will obey them, too.” But while that may work for a German driver in a German traffic jam, or a German banker lending to a German corporation, it doesn’t work for a German banker lending to Wall Street.
“The Germans were blind to the possibility that the Americans were playing the game by something other than the official rules,” Lewis writes. “The Germans took the rules at their face value: they looked into the history of triple-A-rated bonds and accepted the official story that triple-A-rated bonds were completely risk-free.”
These explanations directly conflict with one another: Either the banks were dirty-in-private, which would mean they knew what they were buying abroad, or they naively trusted the rules, which would mean they didn’t know what they were buying abroad. But if Lewis is right that they believed they were purchasing risk-free assets — and the enthusiasm with which they bought into the various credit bubbles suggests they did — then what they were doing wasn’t dirty. It wasn’t the logical endpoint of a people whose private obsessions would make a porn star blanch. It was clean, but dumb.
Even this explanation, however, doesn’t hold up all that well. In “The Big Short,” Lewis portrayed most of Wall Street as rules-obsessed sheep who were blindly buying AAA-rated products that they didn’t understand in the least. His few heroes are the contrarian thinkers who took a deep look into the bonds and the housing market and realized that things were going to get real ugly, real soon. In this article, Wall Street comes off as the canny wolves while the Germans come off as the unthinking sheep. And maybe, right at the end, that was true. But Wall Street — and, for awhile, Lewis himself — had bought into this nonsense so deeply that when the market went down, it was only TARP and the Federal Reserve that kept these banks from going under.
The Germans seem to have realized what was happening somewhat later than the Americans, but that doesn’t require the deep sociological dive that Lewis conducts. They were, after all, Germans, and it makes sense that they would be slower to pick up on emergent trends in the subprime housing market than American banks. But that suggests that many different people in many different countries were making broadly similar mistakes, which undercuts Lewis’s thesis that the various financial crises were the unique products of each country’s national character.