Liar's Poker

by Michael Lewis

A good example of this was the crisis at the US Farm Credit Corporation. It looked for a moment as if Farm Credit might go bankrupt. Investors stampeded out of Farm Credit bonds because, having been warned of the possibility of accident, they couldn’t be seen in the vicinity without endangering their reputations. In an age when failure isn’t allowed, when the US Government had rescued firms as remote from the national interest as Chrysler and the Continental Illinois Bank, there was no chance the Government would allow the Farm Credit bank to default. The thought of not bailing out an 80-billion-dollar institution that lent money to America’s distressed farmers was absurd. Institutional investors knew this. That is the point: the people selling Farm Credit bonds for less than they were worth weren’t necessarily stupid. They simply could not be seen holding them. Since Alexander wasn’t constrained by appearances, he sought to exploit people who were. (The occupational hazard of his role was an ugly élitism; you begin to think everyone else is stupid.)