“The Big Short” was both eye opening and riveting. Wow! In the interest of full disclosure, I often don’t make it all the way through nonfiction books because I frequently find them dry and repetitive, as if the authors are belaboring the point in a desperate attempt to fill up 200 pages. I mean, really, why does it take 200 pages to present the “5 Steps to (fill in the blank )”. But “The Big Short” reads like good fiction, complete with a fascinating plot line and well developed characters.
I should also disclose that I have an MBA. I don’t share that because I think it makes me particularly smart. There are plenty of knuckleheads out there with business degrees. However, it does make me more inclined to like business literature. Also, I worked for a company that had a business unit involved in subprime lending during the time period covered by this book. I remember that one day this business unit was raking in cash, and the next day the parent company was trying really hard to sell it . Now I understand why. This is a very roundabout way of saying that this book fits into a sweet spot of my own interests but may not be for everyone. The author, Michael Lewis, does a really good job of using relatable analogies to explain complicated financial instruments, but at the end of the day they are still complicated financial instruments and that component of the book may not be everyone’s cup of tea.
Fortunately, the book is about so much more than subprime mortgage backed bonds. Taking place from roughly 2003 to 2008, it chronicles the origins and actualization of the financial meltdown that none of us understood but many felt painfully in the form of job losses and home foreclosures. It’s a tale of greed and stupidity; groupthink and individual insight. The financial services industry was greedily lending money to consumers who had no business getting big mortgages (known as subprime mortgages, “sub” being the key term here ). Then big Wall Street firms were packaging them into bonds that nobody really understood, including the ratings agencies who blithely and stupidly gave many of these bonds their highest rating. They were building a house of cards doomed to collapse.
Playing arm chair quarterback, it seems so obvious that something based on bad credit risks was doomed to fail, but at the time very few people involved with these subprime mortgage backed bonds realized it, either because they were blinded by greed or they simply didn’t understand the business they were in. “The BIg Short ” focuses on three groups of investors who were able to predict the meltdown and figure out a way to bet against (short ) the market. They were able to do this mainly through good old fashioned reasoning and due diligence. They author does a great job conveying their bewilderment and sometimes self doubt as they talked to many people in the industry and none of them saw the flaw that should have been so obvious. In the end, although they all made a lot of money by shorting the market, they also felt a little sickened by the whole experience.In fact, one of them left the industry altogether.
Here are a couple of other key points I took away from this book: It didn’t seem like there was sufficient punishment for those who created the mess, and so now I better understand some people’s ongoing anger with Wall Street and big banks. This book also reinforced the whole notion of “let the buyer beware” – consumers of financial products need to understand what they’re investing in and also not blindly trust the ratings agencies.
i definitely recommend this book and have been eyeing some of Michael Lewis’s other books, as well. And I suspect I’ll be watching the movie soon.