Wednesday, November 10, 2010

Review: The Big Short: Inside the Doomsday Machine by Michael Lewis

First line: The willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grown-ups remains a mystery to me to this day.

From the inside cover: When the crash of the U.S. stock market became public knowledge in the fall of 2008, it was already old news. The real crash, the silent crash, had taken place over the previous year, 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.

The crucial question is this: Who understood the risk inherent in the assumption of ever-rising real estate prices, a risk compounded daily by the creation of those arcane, artificial securities loosely-based on piles of doubtful mortgages?

Michael Lewis turns the inquiry on its head to create a fresh, character-driven narrative brimming with indignation and dark humor, a fitting sequel to his #1 best-selling Liar's Poker. Who got it right? he asks. who saw the real estate market for the black hole it would become, and eventually made billions of dollars from that perception? And what qualities of character made those few persist when their peers and colleagues dismissed them as Chicken Littles? Out of this 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 times.

My thoughts: This was the selection for my book club this past month. It is definitely not my usual type of read, but I did find the book to be extremely interesting. Having just gone through the process of obtaining a mortgage myself, I can now appreciate why it is so comprehensive - I felt as if we had to jump through hoops! I have to admit that I had heard about the financial crisis but really did not understand how it came to be. This book, I felt, gave great insight. Michael Lewis does a good job of explaining the essence of very complicated financial transactions and gives the reader a good understanding of the whys and hows of the financial meltdown. It was highly informative.

(I borrowed this book from the library.)

1 comment

  1. A reader friendly explanation of very complicated financial insruments and some of the reasons for the bond market debacle; the same people were betting for and against the ups and downs of the market, using other people's money; and all the eggs were in the same insurance basket. At least I think that's what happened -- it is still confusing to some degree. I wish I had known some of this before investing in the bond market & losing part of my 401K money. It will be very difficult for me to ever take the ratings agencies seriously again. Somebody needs to go to jail for fraud.


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