Michael Lewis on how Mad Money fueled the Vegas mentality.

Question: What do you tell the average American to avoid catastrophe in this crisis?

Michael Lewis:    I like that the Prime Minister of Iceland said when they figured out they were bankrupt, because they turned themselves from a country into a hedge fund.  He basically stood up and said, “Now, we all need to go fishing again.  We need to stop banking and go fishing.” 

I think that one of the threads that runs through the last 30 years of American financial history is the increased financial obsession of ordinary people, the increased sense that they should devote some meaningful part of their existence to whipping and driving their savings on E-Trade to make money instead of doing whatever they do productively to make a living. 

And symptoms of these are things like the show, Mad Money.  There are cable channels that are symptoms of these.  Symptoms of these are the way the markets move around. 

And I think that, just to back away from this, what behavior leads to happiness?  This isn't behavior that leads to happiness.  Essentially, it’s a ‘going to Vegas’ mentality just spreading into ordinary life. 

And so, my first piece of advice would be, when you think of your savings, don’t think of trying to turn a little money into a lot of money in the markets.  Think of just trying to prevent a lot of money from becoming a little money.  Just think of preservation. 

And secondly, when you think of making money, think of what you do for a living, not the financial markets.  They’re all these signals coming in to you that tell you that’s not how you should think of it.  Your broker, the television set, everything, the smart guy down the street who got rich because he made the smart trade.  But it’s not a healthy way to think about capital. 

And then, I guess I would say, never feel stupid asking a simple question, that the markets conspire to make you feel stupid asking what is actually the smart question.  Be withering in your investigation of any investment opportunity.  If you don’t understand what the person who’s trying to get your money is telling you, look him in the eye and say, “Could you explain that to me again in English.”  And if you don’t understand it, say, “Maybe, I’m just stupid but it doesn’t make any sense still.”  If it doesn’t make sense, it probably doesn’t make sense, and the complexity is not intelligence. 

So, I think those are kind of big things people can take into their loss.

Recorded Nov 11, 2008.