Michael Lewis, the book’s author, recalls when he was 24 years old and working on Wall Street. He didn’t have much experience when he started a job at the investment bank Salomon Brothers in 1985, but he managed to make some money before leaving in 1988—and he also got the idea for his first book, Liar’s Poker. He found that what people were doing on Wall Street was “preposterous” and “totally unsustainable,” and, as an insider, he wanted to write everything down, because otherwise no one would believe such crazy things actually happened.
Michael Lewis immediately introduces himself and his background in part to establish his credentials. He has firsthand experience working on Wall Street (and has already written one bestselling book on the subject), so he has the expertise to tackle the subject of the economic crash of 2008. His description of how crazy Wall Street was in the 1980s lays the groundwork for him to explore how more recent Wall Street exploits have gotten even more unbelievable.
Lewis’s first book was about the bond market. At the time he was writing, Wall Street traders were making tons of money by “packaging and selling and shuffling around America’s growing debts.” Lewis thought this phenomenon would be limited to the 1980s, and that future readers would be shocked and appalled. He never imagined anyone would look back on 1980s Wall Street trading and find that period quaint.
For the benefit of people who haven’t read his previous book, Lewis explains the parts that are most relevant to his current book: how so much of finance revolves around monetizing ordinary people’s debts, and how much worse this practice has gotten since the 80s. He’s interested in finding out what’s changed on Wall Street, but also what’s stayed the same.
Lewis hoped Liar’s Poker might spur college-age readers to turn down offers from investment banks and pursue other passions. Instead, they used it as a guide to the secrets of Wall Street. Lewis kept waiting for Wall Street to collapse, but for a long time, it didn’t.
On October 31, 2007, a financial analyst named Meredith Whitney gave such a devastating report on the investment bank Citigroup that it caused the company’s stock to plummet. Financial stocks crashed and lost a total of $390 billion in value. Whitney claimed that if anyone really looked at how Wall Street firms were run, they’d find out quickly that the firms were badly mismanaged. She figured that the CEOs were either all clueless or all liars.
Rather than stating his own views, Lewis uses an expert’s opinion. Because Meredith Whitney is established as a credible figure in the financial world, it lends more weight to her statement that Wall Street CEOs were either clueless or liars.
Lewis wonders how he would’ve contributed to the financial meltdown if he’d stuck around on Wall Street. He remembers calling Meredith Whitney to hear her story firsthand. She mentioned to Lewis that her career—as well as her whole worldview—was largely established by a man named Steve Eisman. This was Lewis’s first time hearing of him.
Lewis tries to be transparent by revealing how he first got interested in the story. He wasn’t working on Wall Street in the time directly before the crash, and he didn’t know many of the story’s main players—such as Steve Eisman—before he started researching the book. In this way, he’s sort of an insider to Wall Street, but he’s also an outsider now, since he’s been out of the industry for so many years.
After talking with Whitney, Lewis read in the news about a man named John Paulson, who made phenomenal amounts of money by betting against subprime mortgage bonds. These same bonds were responsible for the crash of Citigroup and other Wall Street banks. Lewis thinks this is odd; Wall Street banks are like “Las Vegas casinos,” where customers like John Paulson rarely beat the odds. Lewis concludes that the Wall Street casino must have sorely misjudged the odds of their own game.
Lewis leans on his own experience on Wall Street to make educated guesses about John Paulson and how he made his money. By comparing Wall Street to a casino, Lewis hints at his disdain for the world of high finance. The implication seems to be that people making eye-popping amounts of money aren’t really doing anything useful—they’re simply gambling.
By late 2008, the financial markets were in a full meltdown. Many pundits claimed to have seen it coming, but few of them actually did anything about it. Whitney gave Lewis a list of about six people who saw what was coming and were willing to bet money on the outcome: in the middle of the list is John Paulson, and at the top is Steve Eisman.
Lewis ends the prologue with a cliffhanger, promising that he is about to tell the story of some unique people who were able to predict something that almost no one else could.