THE BASIS POINT

Michael Lewis Says SEC’s Goldman Suit Is Soul-Changing For Bond Markets

Michael Lewis just published his take on the SEC suit against Goldman. Normally Lewis’ unique ability is to discuss complex market topics in a way that presents both sides of the story even when it’s clear which side he’s taking. This piece feels like more of a populist take, and that was the same impression we got seeing him discuss this topic on Charlie Rose. At least in that interview (he was part of a roundtable), he admitted that he hadn’t yet done all the research. As for his main point (excerpted below) on the soul of bond markets being changed by this suit, that seems far fetched—investors are always going to get paid well to find and exploit all market inefficiencies.

What begins as an effort to change your business may well end up as an attempt to change your soul. Among the many likely consequences of the SEC’s decision to sue Goldman Sachs for fraud is a social upheaval in the bond markets. Indeed, the social effects of the SEC’s action will almost certainly be greater than the narrow legal ones. Just as there was a time when people could smoke on airplanes, or drive drunk without guilt, there was a time when a Wall Street bond trader could work with a short seller to create a bond to fail, trick and bribe the ratings companies into blessing the bond, then sell the bond to a slow-witted German without having to worry if anyone would ever know, or care, what he’d just done. That just changed.