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The Big Short: Inside the Doomsday Machine Paperback – February 1, 2011
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From Publishers Weekly
Although Lewis is perhaps best known for his sports-related nonfiction (including The Blind Side), his first book was the autobiographical Liar's Poker, in which he chronicled his disillusionment as a young gun on Wall Street in the greed is good 1980s. He returns to his financial roots to excavate the crisis of 2007–2008, employing his trademark technique of casting a microcosmic lens on the personal histories of several Wall Street outsiders who were betting against the grain—to shed light on the macrocosmic tale of greed and fear. Although Lewis reads the book's introduction, narration duties are assumed by Jesse Boggs, a veteran narrator of business titles (including Lewis's own 2008 book Panic!). Boggs's rich baritone is well suited to the task and trips lightly through a maze of financial jargon (CDOs, derivatives, mid-prime lending) and a dizzying cast of characters. Lewis returns on the final disc for a 10-minute interview about the crisis's aftermath, including a savvy assessment of the wisdom of the financial bailout and where-are-they-now updates on the book's various heroes and villains. A Norton hardcover. (Mar.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an alternate Paperback edition.
From Bookmarks Magazine
Michael Lewis has written from the perspective of a financial insider for more than 20 years. His first book, Liar's Poker, was a warts-and-all account of Wall Street culture in the 1980s, when Lewis worked at the investment bank Salomon Brothers. Everything Lewis has touched since has turned to gold, and The Big Short seems to be another of those books, combining an incendiary, timely topic with the author's solid, insightful, and witty investigative reporting. Only the Pittsburgh Post-Gazette criticized what it felt was a rush job of writing and a failure to integrate the individual stories. Few readers will care for the message here (despite laugh-out-loud moments of absurdity), but Lewis is a capable guide into the world of CDOs, subprime mortgages, head-in-the-sand investments, inflated egos--and the big short. However, as Entertainment Weekly points at, if you're only going to read one book on the topic, perhaps this should not be the one. --This text refers to an alternate Paperback edition.
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Top Customer Reviews
In a sense, this book is similar to Moneyball in that Lewis tells his story by following a host of characters that most of us have never heard of--people like Steve Eisman (the closest thing to a main character in the book), Vincent Daniel, Michael Burry, Greg Lippmann, Gene Park, Howie Hubler and others.
How informative is the book? Well, it may seem that Lewis has his work cut out for himself, since the events of the recent financial crisis are already well known. More than that, lots of people have their minds made up concerning who the perps of the last few years are--banks and their aggressive managers, "shadow banks" and their even more aggressive managers, hedge funds, credit default swaps, mortgage brokers, the ratings agencies, Fannie Mae and Freddie Mac, the Fed's monetary policy, various federal regulators, short sellers, politicians who over-pushed home ownership, a sensationalist media, the American public that overextending itself with excessive borrowing (or that lied in order to get home loans), housing speculators, etc. The list goes on--and on. Okay, so you already know this. The defining aspect of this book, however, is that it asks (and answers) "Who knew?" about the impending financial crisis beforehand. Who knew--before the financial crisis cracked open for everyone to see (and, perhaps, to panic) in the fall of 2008--that a silent crash in the bond market and real estate derivatives market was playing out? Indeed, the good majority of this book addresses events that occurred before Lehman's failure in September of 2008. In describing what led up to the darkest days of the crisis, Lewis does a good job helping the reader to see how the great financial storm developed. All in all, this is an informative book.
Interestingly, in the book's prologue, Salomon Brothers alumnus Lewis explains how, after he wrote Liar's Poker over 20 years ago, he figured he had seen the height of financial folly. However, even he was surprised by the much larger losses suffered in the recent crisis compared to the 1980s, which seem almost like child's play now.
For a taste of The Big Short, Steve Eisman was a blunt-spoken "specialty finance" research analyst at Oppenheimer and Co., originally in the 1990s, and he eventually helped train analyst Meredith Whitney, who most people associate with her string of negative reports on the banking industry, primarily from late 2007. Giving a flavor of his style, Eisman claims that one of the best lines he wrote back in the early 1990s was, "The [XYZ] Financial Corporation is a perfectly hedged financial institution--it loses money in every conceivable interest rate environment." His own wife described him as being "not tactically rude--he's sincerely rude." Vinny Daniel worked as a junior accountant in the 1990s (and eventually worked for Eisman), and he found out how complicated (and risky) Wall Street firms were when he tried to audit them. He was one of the early analysts to notice the high default rates on manufactured home loans, which led to Eisman writing a 1997 report critical of subprime originators. Michael Burry (later Dr. Michael Burry) was, among other things, a bond market researcher in 2004 who studied Warren Buffett and Charlie Munger, and who correctly assessed the impact of "teaser rates" and interest rate re-sets on subprime loans. In 2005, Burry wrote to his Scion Capital investors that, "Sometimes markets err big time." How right he would be.
Greg Lippmann was a bond trader for Deutsche Bank, who discussed with Eisman ways to bet against the subprime mortgage market. Before home prices declined, he noted, for example, that people whose homes appreciated 1 - 5% in value were four times more likely to default than those whose homes appreciated over 10%. In other words, home prices didn't need to actually fall for problems to develop. (Of course, home prices fell a lot.) When Lippmann mentioned this to a Deutsche Bank colleague, he was called a Chicken Little. To which, Lippmann retorted, "I'm short your house!" He did this by buying credit default swaps on the BBB-rated tranches (slices) of subprime mortgage bonds. If that's not a mouthful, read further in the book for a description of Goldman Sachs and "synthetic subprime mortgage bond-backed CDOs." Then there's the AIG Financial Products story, told through the story of Gene Park, who worked at AIG, and his volatile boss, Joe Cassano.
Did I say this book is informative? Here's a bit more: Did you know that a pool of mortgages, each with a 615 FICO score, performs very differently (and better) than a pool of mortgages with half of the loans with a 550 FICO score and half with a 680 FICO score (for a 615 average)? If you think about it, the 550/680 pool is apt to perform significantly worse, because more of the 550 FICO score loans develop problems. Think about how that got gamed.
There's more, but hopefully you've gotten the point. This is a very interesting, entertaining and informative book that accomplishes what it sets out to do. Chances are you'll enjoy it.
In "The Big Short," Michael Lewis tells the story of the subprime mortgage crisis in a way that couldn't be more removed from my own perspective, or that of anyone I knew: the story of the money managers, traders, and analysts who figured out the weaknesses in the subprime bond market and placed their bets that the bubble would burst in a *big* way, and *soon*. They were right, of course, but even they didn't realize just how deeply corrupt the system was, or how devastating the fallout would be when the crash came.
Although I follow the news more closely now than I did in my twenties, I've still never taken much interest in the world of high finance, and I probably never would have picked up "The Big Short" if my husband hadn't been intrigued by the trailers for the movie released late last year. When I learned that one of the men profiled in Lewis's book had Asperger's syndrome, like me, I was definitely in.
Lewis explains in detail how the subprime mortgage crisis happened, but his interest is less in analyzing the event as a whole than in profiling the eccentric, self-confident, cautious men who dared to swim against the current of the most respected financial entities - and found themselves vindicated. My favorite parts of the book were, by far, the small-picture slices: personal histories, colorful anecdotes, delicious little ironies. As often happens when I stumble upon the human element of something I've never taken any interest in before, I found myself suspecting that perhaps high finance wasn't an inherently tedious subject after all.
Unfortunately, Lewis starts in assuming his reader has a pretty good understanding of the world of high finance already. As assumptions go, that's really not such a bad one; anyone who picks up a book like this probably already knows a stock from a bond, a hedge fund from a mutual fund. A chapter on "Finance 101" would certainly be annoying, if not actually insulting, to the book's target audience. However, this isn't a technical book for market insiders, either. Lewis knows he's not exactly writing a fluffy beach read; he even jokes, about a quarter of the way through the book, that the reader who has managed to follow the narrative that far deserves a gold star. I believe a glossary would have been a useful addition: readers unfamiliar with some of the terms specific to the subprime mortgage bond market explained in the book could refer to the glossary to clarify anything they'd forgotten without having to flip through earlier chapters, while definitions of more basic terms would make the book more accessible to a wider audience. (Perhaps the most prominent example of the kind of thing that could have used a better explanation is found in the title itself. An unofficial poll among friends of mine, all more or less educated, productive adult members of society, turned up only a couple who knew what "short selling" was. For the record, "short selling" is essentially a way of betting against the market by borrowing an asset and then selling it, on the basis of the belief that the price will have dropped when it comes time to return what was borrowed. Lewis never explains this.)
I wouldn't say "The Big Short" is entirely inaccessible to the general reader, especially one with easy access to the Internet. (Fortunately, I had my smartphone close at hand while I was reading.) Even when I didn't understand the specific details of what I was reading, I was almost always able to get the gist of what was going on, and Lewis is very good about succinctly summing up the effects of complex sequences of events. I did enjoy reading this, and came away from it vowing to be more confident in my own carefully reasoned conclusions even when they go against the grain. I haven't seen the movie yet, but if it stays true to the basic events of the book while presuming a little less knowledge of high finance on the part of its audience, this may well be one of those rare cases in which the majority of readers are better served by seeing the movie instead, or at least seeing the movie first.
One warning I will share is that the language is this book goes beyond “Salty”. It was if the film “Serpico” was filmed in a bank’s conference room. The reader may be offended.