PAN T H E S T O R Y OF M O D E R N F I N A N C I A L I N S A N I T Y MICHAEL LEWIS W. W. NORTON & COMPANY NEW YORK LONDON
CONTENTS INTRODUCTION: INSIDE WALL STREET'S BLACK HOLE 3 PARTI A BRAND-NEW KIND OF CRASH - STEPHEN KOEPP, "Riding the Wild Bull" 14 SCOTT MCMURRAY AND ROBERT L. ROSE, "The Crash of 87: Chicago's 'Shadow Markets' Led Free Fall in a Plunge That Began Right at Opening" 20 FROM THE BRADY COMMISSION REPORT 25 TIM METZ, from Black Monday: The Catastrophe of October 19,1987... and Beyond 30 MICHAEL LEWIS, from Liar's Poker: Rising through the Wreckage on Wall Street 36
vi CONTENTS STEPHEN LABATON, "The Lonely Feeling of Small Investors" 43 RICHARD J. MEISLIN, "Yuppies' Last Rites Readied" 47 ERIC J. WEI NER, from What Goes Up 50 LESTER C. THUROW, "Did the Computer Cause the Crash?" 54 TERRI THOMPSON, "Crash-Proofing the Market; A Lot of Expert Opinions, but Few Results" 57 THE ECONOMIST, "Short Circuits" 62 ROBERT J. SHILLER, "Crash Course: Black Monday's Biggest Lesson- Don't Run Scared" 65 FRANKLIN EDWARDS, from After the Crash 71 PART II FOREIGNERS GONE WILD REED ABELSON, "Mutual Funds Quarterly Report; The Forecast Looks Brighter for Adventure Travel" 79 THE NEW YORK TIMES, "Thailand Warns Currency Speculators" 82 DAVID HOLLEY, "A Thai Business Wonders, Will It All Crumble?" 83 PAUL KRUGMAN, Reporter Associate Jeremy Kahn,"Saving Asia" 86 INTERVIEW WITH ROB JOHNSON, from Frontline's "The Crash" 96 THE ECONOMIST, "Finance and Economics: A Detour or a Derailment?" 106 MICHAEL LEWIS, "Pulling Russia's Chain" no INTERVIEW WITH JEFFREY D. SACHS, from Frontline's "The Crash" 113 MICHAEL LEWIS, "How the Eggheads Cracked" 124 JOSEPH STIGLITZ,"IO Years After the Asian Crisis, We're Not Out of the Woods Yet" 145 KEITH BRADSHER, "Asia's Long Road to Recovery" 148 CHOE SANGHUN, "Tracking an Online Trend, and a Route to Suicide" 153
CONTENTS vii PART III THE NEW NEW PANIC THE NEW YORK TIMES, "Bigger Netscape Offering" 162 THE NEW YORK TIMES, "Underwriters Raise Offer Price for Netscape Communication" 163 LAURENCE ZUCKERMAN, "With Internet Cachet, Not Profit, a New Stock is Wall St.'s Darling" 165 CARRICK MOLLENKAMP AND KAREN LUNDEGAARD, "How Net Fever Sent Shares of a Firm on 3-Day Joy Ride" 169 MICHAEL LEWIS, "New New Money," from The New New Thing 176 REBECCA BUCKMAN AND AARON LUCCHETTI, "Cooling It: Wall Street Firms Try to Keep Internet Mania from Ending Badly" 186 JACK WILLOUGHBY, "Burning Up" 193 JOHN CASSIDY, from Dot.con: The Greatest Story Ever Sold 208 ERICK SCHONFELD, "The High Price of Research: Caveat Investor: Stock and Research Analysts Covering Dot-Coms Aren't as Independent as You Think" 216 KATHARINE MIESZKOWSKI, "Fumble.com: Internet Companies Threw Millions into the Air at the Super Bowl. They're Still Pretending They Scored a Touchdown" 219 MARK GIMEIN, "Meetthe Dumbest Dot-Com in the World" 228 JAMES SUROWIECKI, "The Financial Page: How Mountebanks Became Moguls" 231 JERRY USEEM, "Dot Corns: What Have We Learned?" 234 MICHAEL LEWIS, "In Defense of the Boom" 239 PART IV THE PEOPLE'S PANIC DAVE BARRY, "HOW to Get Rich in Real Estate," from Dave Barry's Money Secrets 264
viii CONTENTS JOHN HECHINGER, "Shaky Foundation: Rising Home Prices Cast Appraisers in a Harsh Light" 276 JOHN CASSIDY, "The Next Crash" 283 ROBERT JULAVITS, "As Bubble Speculation Rises, Industry Sees Little Fear" 294 PETER S. GOODMAN, "This Is the Sound of a Bubble Bursting" 299 CHRISTOPHER DODD, Opening Statement of Chairman Christopher Dodd Hearing on "Mortgage Market Turmoil: Causes and Consequences" 308 JAMES SUROWIECKI, "Subprime Homesick Blues" 313 ROGER LOWENSTEIN, "Triple-A Failure" 316 LARRY ROBERTS, from "Rudolph the Red-Nosed Reindeer" 330 KATE KELLY, "Bear CEO's Handling of Crisis Raises Issues" 332 MICHAEL LEWIS, "What Wall Street's CEOS Don't Know Can Kill YOU" 341 DAVID HENRY AND MATTHEW GOLDSTEIN, "The Bear Flu: How It Spread" 345 MICHAEL LEWIS, "A Wall Street Trader Draws Some Subprime Lessons" 350 PAUL KRUGMAN, "After the Money's Gone" 353 MATTHEW LYNN, "Hedge Funds Come Unstuck on Truth-Twisting, Lies" 356 GREGORY ZUCKERMAN, "Trader Made Billions on Subprime" 359 ACKNOWLEDGMENTS 367 GLOSSARY 369 CONTRIBUTORS' BIOGRAPHIES 379 CREDITS 387