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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.
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.
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The book covers the stories of several different investment fund managers who recognized the coming implosion of the housing market of the mid 2000s and figured out a way to profit from the collapse of the financial instruments which had put the money into the hands of recent home buyers who in any other time of less easy credit would not have been lent the money. These managers were believed that the coming collapse in housing prices, defaults, and repossessions would dwarf even the Great Depression. They basically bought insurance that would pay them if the housing bonds they owned or were betting against were to lose their value. Huge entities who supposedly hired the best and brightest financial minds agreed take their insurance payments with the promise to pay off the fund managers the value of the bonds if they lost money. The amount of money these “insurers” were obligated to pay in was many times their liquidity, but they blindly continued to write these credit default swaps which made the fund managers fabulously wealthy when the bonds collapsed in 2007.
The book covers the dysfunctional position that investment banking has taken in our economy and the way in which it has evolved from efficiently collecting and allocating capital , to a highly leveraged house of cards , offering products which do little to help customers , provide an outsized share of the GDP to financial firms while providing little of value to the overall economy.
Reading this book makes one wonder about the future of the economy , considering the concentration of wealth in the top 1%. The trillion dollars that went into bonds that funded housing from 2000 to 2007. We now all know that many many people who ended up borrowing that money to move into homes ultimately could not afford those borrowing costs. And yet the economy of the early 21st century in America was driven by the overheated housing market. Many , many carpenters, cement finishers etc were put to work building those houses for people who ultimately couldn't afford them. How much GDP was driven by home equity loans – people borrowing on unjustifiable rising house values, buying boats, vacations, kitchen upgrades on borrowed money. So now look at the scenario where that trillion dollars isn't made available for housing, where does that money go? If only the top 20% can afford to carry loans for houses, where is that trillion dollars invested in order to move the economy along? Is our problem that not enough money is in the hands of potential consumers? Charles Murray in his book thinks that our societal problem is more an 80-20 problem with the top 20% pulling so far away from the bottom 80%. At any rate if not enough money is in the hands of consumers, then not enough is invested in serving them, nor are the rates of returns on invested money very attractive to the majority of middle class investors (via 401Ks) that need the investments to work in order to fund their longer life spans after their working lives end.
This book views how things unraveled before the crash of financial crash of 2007. What you already know by now, and it touches on, is that those experts packaging these products knew full well these products were not solid or, at least, should have known!
It still leaves out detail role of many others, including the Fed, Treasury, and other players but is a good start. What one should get out of this book? Don't follow heard mentality as risk detection and aversion should be everyone's responsibility :)
But before you throw up your hands in disgust and say "they all do it", remember that much of this could have been avoided (even without G-S) with a strong SEC. Without the possibility of a revolving door, could we attract the kind of men and women needed to keep us safe? For all our smugness over checks and balances, a great deal of government is still based on trust. We must trust that the sitting president will make sure that the right people are working for us and know their jobs. The president lets all of us all down when he hires incompetents or nincompoops or people who are hoping their next job is in the industry they are regulating. And that's just what happened before the collapse.