The Big Short by Michael Lewis
Recommended for people who like finance, quirky characters, or well-written descriptions
I picked up The Big Short because it was so well received on many of the blogs I read. I’m very glad that I did. It’s been sitting on my shelf for awhile, but I threw it into my purse to read at the doctor’s and I was hooked.
The Big Short is about the sub-prime mortgage implosion that took down Bear Stearns and resulted in the TARP and AIG bailouts. (Which I personally feel should have resulted in a slap with a wet mackerel across the belly of more than one politician.) Stick with me here. It’s not all esoteric and twisty like that. It’s a study of the issue through the points of view of four or five of the people who saw it coming and shorted the market.
Okay, from that last line I can see that I need to at least give a brief, novice’s explanation of that. Shorting the market is basically betting against something. Simple as that. It’s the Don’t Pass line on the craps table. If you short the subprime mortgage market, you assume that the mortgages will not be paid. How do you do this? You buy insurance against the loss of those assets.
Got that? Okay, so what you read about is not only what shorting the market is, but how the credit crisis actually came to pass. There’s arrogance and willful blindness. And things that my parents and I were saying as soon as we noticed that ARMS and interest only loans were being passed out like candy. My dentist was over-extended. Half the folks in my neighborhood couldn’t afford the loans they had. And my bank (established in the 1800’s and still in the hands of the family, thank you very much) was telling people “oh Hell no” when they wanted 100% interest only loans and staring at them as though they had gone mad.
According to The Big Short the rest of the banks were really screwing people over by giving out bad loans. Those bad loans were bundled up into a package that was then sold and sold and then held. The gentlemen in The Big Short did exactly what I would have done, if I’d known it were possible. They didn’t do it too easily though. They had to create their own way through. But damn if it isn’t a great read. And it offeres very clear definitions to arcane terms.
Though if you tell me you understood absolutely everything right away, I will laugh at you. It takes a few repetitions for some of the concepts to click, but that is more indicative of the complexity of the situation than the writing.
It’s a good companion piece to Dear Mr. Buffet. Dear Mr. Buffet talks about the bond market as well, but it’s not about the people as much as the technical changes that were taking place and that she was railing against.
Still I think they work well as a pair and highly recommend both of them.