The Big Short by Michael Lewis

January 18, 2011

Summary (from the publisher): The real story of the crash began in bizarre feeder markets where the sun doesn’t shine and the SEC doesn’t dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower- and middle-class Americans who can’t pay their debts. The smart people who understood what was or might be happening were paralyzed by hope and fear; in any case, they weren’t talking.

Michael Lewis creates a fresh, character-driven narrative brimming with indignation and dark humor, a fitting sequel to his #1 bestseller Liar’s Poker. Out of a handful of unlikely-really unlikely-heroes, Lewis fashions a story as compelling and unusual as any of his earlier bestsellers, proving yet again that he is the finest and funniest chronicler of our time.

Liked:

  • I liked how Lewis’s bottom-line explanation that the CDO’s that led directly to the most recent financial crisis were essentially created “out of whole cloth.” As the publisher’s blurb above says, these instruments were dreamed up by some geeks as just another bet for Wall Street bigwigs to make. I seriously had no idea that this sort of thing was allowed. I used to be a hardcore capitalist and Wall Street sympathizer, but what I read in this book has significantly changed my tune. Good lord, get the government regulators in there now!!
  • I appreciated Lewis’s attempt to make the tale relatable by telling it from the point of view of several of the biggest players in the CDO game. It was an interesting angle, and though I didn’t think it was effective on the whole, I could see what the author was trying to do. This book would have been incredibly dry and boring without these crazy, manic characters.
  • Lewis names names. He calls out people that should have known what was going on and could have put a stop to it, tells about Howie Hubler’s massive $9 billion loss, etc. These folks deserve to be vilified.
  • The information about Standard & Poor’s and Moody’s ratings essentially being for sale was eye-opening, to say the least. What a friggin’ joke.
  • The image of the four guys sitting on the steps of the cathedral looking out at New Yorkers whose lives were ruined because of the crash was a pretty powerful one. I could totally see that being in a movie.

Disliked:

  • Collateralized debt obligations (CDO’s, which were at the heart of the crisis) are extremely difficult to understand. There are pages upon pages of highly technical details, even though I’m sure Lewis watered down the information for the general reading public. I admit it, I skimmed. I didn’t understand half of what Lewis was talking about, so I guess I shouldn’t be surprised that hardly anyone else in the big investment banking firms knew what the hell was going on either. Then again, those guys were getting paid millions and millions per year to understand that stuff; I’m not.
  • There were a few too many stories about who called whom, who met whom for dinner, whose bets were in place first, what happened in Vegas, etc. Unless you personally know the people Lewis was talking about, I don’t see how that could be interesting to too many folks.
  • Wall Street is not for regular people, is it? You or I could only get in the game on the fringes, and of course we would have to play by the rules. There’s no way the average person could make a killing like the guys in this book. Heck, even the start-ups that Lewis highlighted had to have a six-figure bankroll to start, and then had to keep parlaying their winnings until they got into the millions of dollars. The sums talked about so casually were mind-boggling to me. It hardly seems fair that Wall Street exists to help the rich get richer. Wow, I have really done a complete 180 on this issue.
  • I can’t believe no one has ended up in jail after this fiasco. The mortgage meltdown and all the associated securities b.s. Think of all the lives adversely affected by this. The jobs lost, the pensions wiped out, the homes lost… And nobody is held accountable? The main players get to keep their hundreds of millions in profits and pass around the champagne and arturo fuente cigars like they’re Kings of the Universe? Come on!

Rating:

Overall, I thought The Big Short: Inside the Doomsday Machine was a fairly interesting look at what precipitated the biggest financial crisis of modern times. Michael Lewis does a pretty good job of explaining what happened and why it was allowed to happen, though some of the information is esoteric and a bit boring. Regardless, I think this book will leave you disgusted at the kind of free rein Wall Street firms have traditionally had. I give the book 3 stars out of 5.

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