The Big Short: Inside the Doomsday Machine

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The Big Short: Inside the Doomsday Machine

4.19 of 5 stars 4.19 · rating details · 29,284 ratings · 2,934 reviews

The real story of the crash began 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...more

Hardcover, 266 pages

Published March 15th 2010 by W. W. Norton & Company (first published November 2009)

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Feb 29, 2012 Stephen rated it 4 of 5 stars

Shelves: ebooks, audiobook, economics-finance, 2006-2010, non-fiction, history-usa, history, busyness

The Subprime Mortgage Crisis...it’s too easy to just lay blame on a cabal of greed-constipated Wall Street sphincters who unzipped their consciences, yanked down their morals and dropped a huge deuce on the U.S. financial system.

In many ways it’s TRUE and it feels REALLY good to say...but it’s too easy.

There were clearly some major crooks, scumbags and swindlers involved in this monetary atrocity...a number of whom should have been taken out to the desert and shot, in my very pissed off opini...more

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Dec 13, 2011 Lorin Kleinman rated it 5 of 5 stars

Remember that point, in recent years, when we all started to notice something strange? Houses were getting more and more expensive, interest rates were dropping more and more, and most of us knew someone who had no money, but was able to get a huge mortgage. And then there were all the stories of people buying houses with no money down and interest-only payments for three years. How exactly were these people expecting to make principal payments in three years? And why was anyone lending them mon...more Remember that point, in recent years, when we all started to notice something strange? Houses were getting more and more expensive, interest rates were dropping more and more, and most of us knew someone who had no money, but was able to get a huge mortgage. And then there were all the stories of people buying houses with no money down and interest-only payments for three years. How exactly were these people expecting to make principal payments in three years? And why was anyone lending them money?

In “The Big Short,” Michael Lewis explains that all of this was just the tip of an iceberg: an iceberg floating in exceedingly murky water. There was a reason for all of the bad mortgages. The people making the mortgages were selling them, so they didn’t care how bad they were. The mortgages were being bought by companies that bundled them and turned them into bonds—which they were able to sell, so they didn’t care how bad the mortgages were either.

In order to be sold, the bonds had to be rated by one of three rating agencies. In a reasonable financial system, rating agency analyst would be the career the most ambitious business students aspired to. As it is, these analysts are some of the lowest-paid and least-respected employees in the financial world. The smartest and most talented people on Wall Street are never at the rating agencies. (They tend to become bond traders.) The agencies are paid to rate bonds by the very companies that produce the bonds. As mortgage bonds were a new kind of bond, they needed help understanding them. So the same companies also explained the bonds to the rating agencies. None of this was illegal: in fact, it is standard practice.

Not surprisingly under the circumstances, a great many of these bonds (which increasingly consisted of utterly worthless mortgages) were rated triple A, the highest possible rating. The bonds that consisted of the absolutely worst mortgages were given a triple B rating. But the financial companies soon realized that triple B-rated mortgage bonds could in turn be bundled into another financial product, a collateralized debt obligation (CDO). Presented with the CDOs, the rating agencies tended to give them triple A ratings—which suggested that they were as safe an investment as U.S. Treasury bonds. Shockingly, very few people, at any level of the financial world or the U.S. government, understood that the ratings—and the bonds they described—were worthless.

This is a book about many things, but it is particularly a story of incentives, and the calamitous effects of incentivizing irresponsible behavior. In a system in which virtually everyone had an incentive to do the wrong thing, almost everyone did: and almost everyone, from mortgage lenders to the Fed, failed to understand that disaster was imminent. “The Big Short” describes the very small—and very eccentric—group of people who saw it coming.

The cast of characters begins with Steve Eisman, a socially inept hedge fund manager, who had turned cynic after witnessing a flagrant case of fraud on which the government refused to take action. Mike Burry is a brilliant hedge fund manager who is virtually incapable of human relationships, a problem which he blamed on his glass eye but turned out to be undiagnosed Asperger’s syndrome. Charlie Ledley and Ben Hockett were two rather aimless friends who proved to have an uncanny ability to work the financial market. Greg Lippmann was a cynical Deutsche Bank bond trader who realized that the market was unsustainable.

They shared a key insight: that the market was going to collapse, and therefore the only safe bet was a bet against the market. (To short a bond is to bet that it will lose value.) Michael Lewis rivetingly describes how they first made, and then won, this bet, becoming extremely rich in the process.

Recently–at Politics & Prose Bookstore, at an entertaining event with Michael Lewis–Joel Achenbach said that this book had undermined his belief in capitalism, and asked if we should all become socialists. It was a joke, but it’s also a fair question. Lewis depicts a system in utter disarray, where financial products are too complex to be understood by either buyers or sellers; the agencies in charge of evaluating these products are both under-valued and embroiled in a serious conflict of interest; and there are no incentives to encourage responsible behavior. All of this links the health of the U.S. economy to a large gamble in which virtually no one has any idea what he is doing. It is to be hoped that this book will help foster a movement toward a truly sane financial system.

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Sep 29, 2010 Rachel C. rated it 3 of 5 stars

Shelves: non-fic, finance-and-econ

This book made me want to vomit, then take a bath in a tub of bleach. Not because it's not well-written, but because the story is so repugnant and grotesque.

Lewis' last book "The Blind Side" told the stories of a lot of people who, when faced with impossible situations, chose to do the right thing and/or work harder. This book exclusively features people who were criminally stupid, those who were just flat-out criminals, and the scumbags who were smart enough to profit from it when the financial...more This book made me want to vomit, then take a bath in a tub of bleach. Not because it's not well-written, but because the story is so repugnant and grotesque.

Lewis' last book "The Blind Side" told the stories of a lot of people who, when faced with impossible situations, chose to do the right thing and/or work harder. This book exclusively features people who were criminally stupid, those who were just flat-out criminals, and the scumbags who were smart enough to profit from it when the financial world was burning down.

One sweetheart described himself as "orgasmic" when he received reports on the failing housing market. This guy Eisman, who Lewis places centrally in the story as if he was some kind of hero, sniffed out the giant steaming pile of crapulence early and bet heavily against it. There is no mention that Eisman ever made any attempts to contact regulators or even reporters, only that he wanted to obscure what he was doing so that he could do it longer and for increasingly greater amounts. He walked away from the debacle with a $500 million profit - and has the gall to give interviews to Michael Lewis, all indignant about how the banks were victimizing the poor?! It's psychopathic.

In addition to Eisman, several other folks in the narrative also figure out what going on. Unfortunately, none of them worked for the SEC, the Federal Reserve, the FBI or the Wall Street Journal - they all worked for hedge funds. They all actively participated in the machinery, reaped returns in the hundreds of percent on their investment, and clearly pat themselves on the back for getting out while the going was good.

As the final slap in the face, the government swoops in in the third act to pass out pallets of cash to sinking banks with almost no strings.

Yes, Main Street America got taken for a ride. Most of the people who took out these subprime loans probably had no idea of the massive financial malfeasance going on several rungs up the ladder. And the same population that saw their savings wiped out and their homes repossessed will now have the pleasure of paying for the bailout with their tax dollars for the next century.

But some of the blame lies at Main Street America's door as well. So Average Joe doesn't understand complex derivative products. He surely understands "too good to be true." Some people took interest only, floating rate, negative-amortizing mortgages. Did they really think, "I can borrow buckets of money, truly insane multiples of my gross income, make miniscule payments to start, and have the rest of what I owe rolled into a bigger principal, the interest rate on which I don't even know - this is going to end well"? I occasionally watch Suze Orman's show, and get the feeling that some Americans truly don't understand the difference between being able to afford something, and being able to afford the minimum payments on something.

That this catastrophe happened within a decade of Enron is unfathomable. And the scariest thing is, it doesn't sound like anyone - not the public, the banks or the government - learned enough to prevent this sort of thing from happening again. Apocalypse is coming, y'all.(less)

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Sep 03, 2010 Mike W rated it 3 of 5 stars

This book provides an interesting and enjoyable glimpse into the world of the Wall Street financiers who helped to create the recent financial crisis and the savvy few who recognized the bubble before it had burst.

As a piece of economic analysis Lewis's work has serious flaws. While he sees correctly that moral hazard was central to creating the crisis Lewis looks for the moral hazard in the wrong place: arguing, oddly, that the transformation of Wall Street firms from private partnerships into...more

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Mar 22, 2011 Otis Chandler rated it 4 of 5 stars · review of another edition

Shelves: business, nonfiction, finance

An extremely well-written account of the 2008 financial collapse. It explained complex ideas like subprime mortgage bonds and CDO's in a clear way, and almost read like a fast paced thriller.

Essentially it seems that a bad ratings system and human greed created an economy that fostered the creation of a lot of bad debts, that eventually went bad, and caused a lot of big companies to go under (Lehman brothers, Bear Sterns), or require a bailout (Goldman Sachs, AIG). This is the real crime. These...more An extremely well-written account of the 2008 financial collapse. It explained complex ideas like subprime mortgage bonds and CDO's in a clear way, and almost read like a fast paced thriller.

Essentially it seems that a bad ratings system and human greed created an economy that fostered the creation of a lot of bad debts, that eventually went bad, and caused a lot of big companies to go under (Lehman brothers, Bear Sterns), or require a bailout (Goldman Sachs, AIG). This is the real crime. These big companies were so focused on short term profits that they failed to see that long term what they were doing wasn't going to work. They should be appropriately punished for this, and instead many of them were saved by Uncle Sam. Would we have had a worse recession if Obama hadn't done that? Maybe. Maybe not. Lewis should write another book about that :)

Let me see if I can get this right. The book explains that mortgages are sold by the banks that issue them, passing off the risk. Mortgages are aggregated into groups in mortgage bonds, which are then packaged into tranches, which are rated by agencies such as Moody's and S&P's. The math was complex, but apparently somehow tranches that consisted almost entirely of "subprime" (aka risky) mortgages were being given high A ratings. I guess the theory was that by spreading out the risk across lots of mortgage bonds it lowered the risk. Too bad this didn't work.

Many of these mortgages were the variety that started 2 year fixed then went floating. They were largely taken out in 2005 - 2006, and as they hit 2 years the interest rates jumped as they went floating, and hoards of people defaulted. This explains why we teetered in 2007 and crashed in 2008. One of my favorite quotes to illustrate the madness:

"In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $724,000."

And it wasn't just in Bakersfield. All over the country people were taking out loans that were too big for their britches, because the banks were encouraging it:

"The simple measure of sanity in housing prices, Zelman argued, was the ratio of median home price to income. Historically, in the United States, it ran around 3:1; by late 2004, it had risen nationally, to 4:1. “All these people were saying it was nearly as high in some other countries,” says Zelman. “But the problem wasn’t just that it was four to one. In Los Angeles it was ten to one and in Miami, eight-point-five to one."

Economics is about incentives, and this book explained how they went very awry. But it was also a story about greed, and how even unintelligent people made a lot of money by riding the subprime mortgage train. The book followed several investors who noticed what was happening, but when they tried to tell people and test their "crazy" hypothesis that the financial world was going to collapse, they were mocked or ignored. So they just ended up shorting (betting against) the whole thing to make some money, which is what a good investor does.

"What are the odds that people will make smart decisions about money if they don’t need to make smart decisions—if they can get rich making dumb decisions?"

I think the lesson in the end is that if it looks to good to be true, it is. That, and we need smarter people working at the ratings agencies. (less)

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Jan 24, 2011 Amy rated it 4 of 5 stars

In The Big Short, Michael Lewis outlines the causes of the housing crisis (which led to the larger Financial Crisis of 2007-2010), and tells the story of three small investment companies (basically four different investors) who saw it coming, bet against it, and made millions of dollars in the process. I really enjoyed reading about these individuals who foresaw the coming doom. Great human interest stories.

I think one of the greatest take-away learnings for me is the explanation why nannies who...more In The Big Short, Michael Lewis outlines the causes of the housing crisis (which led to the larger Financial Crisis of 2007-2010), and tells the story of three small investment companies (basically four different investors) who saw it coming, bet against it, and made millions of dollars in the process. I really enjoyed reading about these individuals who foresaw the coming doom. Great human interest stories.

I think one of the greatest take-away learnings for me is the explanation why nannies who lived in Queens (or really why anyone was liberally offered a loan he/she couldn't afford) were loaned enough money to buy five townhomes (that really happened). For quite some time, Wall Street has packaged corporate loans and sold them as low-risk bonds, low-risk because the corporations were so diversified. Some genius on Wall Street decided that packaging sub-prime loans and selling them off as bonds would be a great idea and assumed they were low-risk simply because they were coming from people all around the country rather than one specific geographical area. Because the big banks on Wall Street were selling off the risk of all the horrible loans they were making (and making oodles of money as they were selling the bonds), they wanted more and more raw material (loans) to sell as bonds. This explains why people were able to get loans they could never afford, which increased the demand for housing and increased housing prices so drastically. One line I remember particularly from the book is that many of these people were "one broken refrigerator away from defaulting on their loan". Once the "teaser rates" on these loans expired, about two years after the loans were made, people began defaulting on the loans en masse, and the housing crisis was born.

What is absolutely astonishing is that so few people saw it coming (according to the author). Many of the risk models used on Wall Street didn't even have a way to value what would happen if housing prices went down. They all assumed housing prices would always go up and up and up. And the rating agencies that rated the bonds were absolutely clueless. It instills all kinds of confidence in the financial system (hope you're picking up the sarcasm).

And probably the greatest lesson of the book is the power of incentives. When people on Wall Street can engulf their companies in flames and still walk away pocketing millions of dollars that year, there is definitely an incentive problem. Why behave responsibly with other people's money if you can get rich regardless of the outcome?

Oh, and for my friends who would like to know, there is some strong language sprinkled quite liberally throughout the book, thanks to quotes from the investors in the book.

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May 04, 2010 Steve rated it 4 of 5 stars

Lewis has a talent for making his readers feel smart. Absorbing his best works, you’re granted kinship with the elite. Like a trader at Salomon Brothers, you might have laughed at the chumps in the bond market; or like the wage-constrained A’s boss, you could’ve cobbled together a line-up that draws lots of walks; or like a genius of modern day football, you would’ve recognized the importance of a great left tackle in protecting your quarterback’s back. Now, with The Big Short, you’d no doubt ha...more Lewis has a talent for making his readers feel smart. Absorbing his best works, you’re granted kinship with the elite. Like a trader at Salomon Brothers, you might have laughed at the chumps in the bond market; or like the wage-constrained A’s boss, you could’ve cobbled together a line-up that draws lots of walks; or like a genius of modern day football, you would’ve recognized the importance of a great left tackle in protecting your quarterback’s back. Now, with The Big Short, you’d no doubt have foreseen the folly of investing in subprime mortgages with its impending defaults. He does this in a very readable way, too. The characters are all interesting – often genuinely quirky. And his vantage point as a quasi-insider implies the straight scoop. Whatever the topic, he explains its subtleties well enough that you can paraphrase it to impress friends over cocktails.

Our man Lewis was clever to focus on the winners of the bet. As he explained in an interview, those were the ones who were forthcoming. They saw what became obvious in hindsight: that many of the loans backing mortgage securities were originated with very low standards applied (by firms who didn’t have to eat their own cooking), were issued with teaser rates that would soon adjust up, and were likely to default as soon as the air started coming out of the housing balloon. For reasons Lewis explains well, the bet against the bubble was not so apparent to many. These securities were hidden in tranches of complicated mortgage-backed securities with obscure features that made it harder to do proper due diligence. They were also rated too high by Moody’s and S&P for the default potential they contained (partly because the agencies were easily duped by the Goldmans of the world who were paying their fees and wanted AAA assets to vend). Plus, there was little to go on from past default data because such high levels of credit unworthiness had never before been experienced. Modeling assumptions were poor, too. For instance, it was thought that diversification across regions would reduce risks. The widespread downturn in housing showed otherwise, of course. Default correlations were high. It hurt the cause, too, when some of the strongest personalities in the business, like Cassano at AIG and Hubler at Morgan Stanley, were also some of the wrongest.

The misdeeds on Wall Street were spotlighted well. I couldn’t help feeling, though, especially at the end, that Lewis had overstated his case. There were times when he claimed the investment banks were stupid for not knowing the true value of these assets and at the same time duplicitous in passing them off to customers. You can’t have it both ways, at least not in that case. I was also hoping that he would weigh in on some of the other factors that contributed to the crash, such as the role of government with its CRA program and the poor oversight of its sponsored enterprises, toxic waste-makers Fannie Mae and Freddie Mac. Other points Lewis made against the investment banks were more deserving, I thought, among them, the fact that they are no longer partnerships (where any losses would truly hit home), but rather corporations with limited liability. Agency theory in economics points to the problem of employees receiving a much bigger share of the upside (with bonus structures as they are), and a lot less of any downside. Riskier strategies result. That doesn’t explain everything, though. Several of the notable blow-ups included principal architects who were also major shareholders. For instance, Richard Fuld lost over half a billion in share value when Lehman went under.

The other thing I thought was noteworthy about Lewis’s critique was something he alluded to in the introduction. He said when he wrote Liar’s Poker that he intended for it to be a finger-wagging at the industry’s bad behavior. Many read it instead as a how-to manual. This disconcerted him, and it was apparent that he went to greater lengths this time to dwell on the negatives. That said, might we still get the sense that he wants it both ways? His descriptions are alluring, the language of the cognoscenti is enticing, the personalities are bigger than life, and the market savvy that decides who wins the pot is celebrated. Wittingly or not, there’s an extent to which he glamorizes. I’ll take him at his word that he doesn’t want to see bright young people flocking to Wall Street anymore, but it seems there’s a small, slightly disingenuous part of him that still finds it all pretty fascinating.

In summary: strongly recommended as a guidebook on the crisis, very entertaining, but maybe not the one-stop shopping it might have been for assigning all warranted blame.
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Apr 14, 2010 Mary rated it 4 of 5 stars

Four years ago, I would rant to anyone who would listen about the insanity of the real estate market: who was BUYING all these places, and WHERE were they getting the money? I knew from simple math and common sense that I couldn't afford a mortgage, but I didn't understand how my conviction could put me in such a distinct minority in the general population. The most frightening thing about Lewis's book is the revelation that my situation had an exact parallel on Wall Street, where the handful of...more

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Mar 28, 2010 Robert Intriago rated it 3 of 5 stars

Shelves: non-fiction-history

It was a good book, but it disappointed. I will tell you what let me down:

1. One of the reasons for the credit crash was the lenght of the easy monetary policy pursued by the FED and Greenspan after 9/11. Mr. Lewis devotes about one paragraph towards the end of the book to it and Mr. Greenspan is only mentioned three times, even though his policies were the cause of the housing bubble, my opinion.

2. I found the book repetitious. He tells the same story from three different points of view, even t...more

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Mar 27, 2010 Trish rated it 5 of 5 stars

Shelves: nonfiction

Lawd. This book took my breath away. I remember what I was doing at several critical moments described in the book and to have been so unaware makes me breathless. I learned things and feel oddly vindicated and cheated at the same time. I knew dumb people were making money with my money: vindicated. I thought some people in the government might be smart enough to realize what happened and know what to do: cheated.

Michael Lewis played two roles in writing this book about the subprime loan debacle...more

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Jul 03, 2011 Simon rated it 4 of 5 stars · review of another edition

Obviously there are no heroes on Wall Street, just different breeds of greedy pig. Nevetheless, Michael Lewis manages to put a human face on the story of the financial crisis by focusing on three groups of money managers in the US who saw through the absurdity of the subprime-mortgage-based financial structure, shorted the market, and made zillions of dollars in the process. Lewis manages to make those people interesting and just about likeable, but I'm certainly not going to celebrate their suc...more Obviously there are no heroes on Wall Street, just different breeds of greedy pig. Nevetheless, Michael Lewis manages to put a human face on the story of the financial crisis by focusing on three groups of money managers in the US who saw through the absurdity of the subprime-mortgage-based financial structure, shorted the market, and made zillions of dollars in the process. Lewis manages to make those people interesting and just about likeable, but I'm certainly not going to celebrate their success. They may have been a symptom rather than a cause but that's far from being a cure.

The story is by now familiar - the rage-inducing irresponsibility, complexity, arrogance and stupidity of modern high finance - but Lewis's skill is in using the personal to introduce the technical, in the process delivering a really engaging account of how and why everything turned to shit. If much of the technical detail is still lost on me then that's kind of the point - a key theme of the book is how a majority of the traders, the CEOs, the rating agencies, the politicians, pretty much everybody, never understood it either. (The rating agencies, ironically, emerge from this story with no credit at all. If Lewis's account is to be believed, they're staffed by idiots and cowards. Think about this the next time George Osborne is justifying his ideologically-driven destruction of the public sector by warning us that if he doesn’t, the rating agencies will pull the plug.)

Just one moment that grated for me in this book. As the crisis reaches its peak one of the central characters is on a family holiday in the UK. Lewis plays this scene for comic effect, making out that this guy struggled to find anywhere with an internet connection in order to make his trades, and that he couldn’t talk to his English in-laws about his business ‘because they were English’, as if it’s still 1588 and as if there weren’t legions of high-tech greedy pigs in the City of London destroying just as many lives as those people on Wall Street. A disappointing note of parochialism from one of my fave authors (although the guy in question was on holiday in Devon so maybe the bit about the internet and pointing at the moon was correct).
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Dec 19, 2012 Mitchell rated it 4 of 5 stars

Shelves: economics-finance

The Big Short: Inside the Doomsday Machine
By Michael Lewis
Reviewed by Mitchell Rhodes

The Big Short takes the reader on a fantastic ride inside the most recent, and many would say ongoing, financial crisis. Lewis introduces us to people who bet against the subprime mortgage market, in all its variations, and in doing so became unimaginably wealthy. They are presented as a few select heroes pitted against the corrupt and often stupid villains of Wall Street insiders and their legion of minions. Ha...more The Big Short: Inside the Doomsday Machine
By Michael Lewis
Reviewed by Mitchell Rhodes

The Big Short takes the reader on a fantastic ride inside the most recent, and many would say ongoing, financial crisis. Lewis introduces us to people who bet against the subprime mortgage market, in all its variations, and in doing so became unimaginably wealthy. They are presented as a few select heroes pitted against the corrupt and often stupid villains of Wall Street insiders and their legion of minions. Has anything really changed since then?

If Dr. Evil ever resurfaces in another installment of Austin Powers, puts his little finger to his mouth and makes a ransom demand for anything less than, “one gazillion dollars,” it will seem preposterous and, once again, a cue for all to laugh.

The shock and awe of billions or even trillions of dollars are past us. They are now just strings of meaningless zeros heading off into the vastness of infinity. Take for example the capitalized notional value of derivatives—pegged at 1.2 quadrillion dollars (December 2012). Really?

That’s the equivalent of 20 years worth of economic activity for the entire planet. And derivatives are only one asset class expecting a return on investment (ROI). When others classes, such as stocks, (traditional) bonds, money market instruments, real estate holdings, etcetera, are added to the mix, financial expectations, going forward, become even more unrealistic and ridiculous.

Due to a system of circular collateralization, debt, money and other financial assets essentially get boiled down to the same thing—mental constructs of value. The assigned values are now stratospheric. At best, they are delusional, dishonest and corrupt, and at worst, dangerously catastrophic.

It’s not the values in and of themselves that represent a threat; it’s the global financial system—and everyone in it expecting some sort of benefit, return or payback. Interest on global debt (estimated at $100 trillion), along with the expected ROI on other assets, requires continuous growth and a level of physical activity that’s beyond the productive capacity of a finite planet to produce it.

The level of physical activity being undertaken to meet the demands of the global financial system is literally killing off the natural capital that’s required to sustain human life. The ongoing financial crisis is not about strengthening banking regulations, reeling in reckless spending, evoking austerity measures or even curtailing greed, it’s how to deal with the consequences of a global capitalistic system that will ultimately fail. And along with that managing the psychotic state of human collective consciousness arising out of our committed efforts to try and save a doomed system.

For now, it seems, nearly everyone continues to be bullish on capitalism. Those with a desire to become gazillionaires are shorting natural capital markets and are betting that an ecological and social collapse can be avoided. Inherently, and by extension, they have deliberately and without shame or guilt shorted the rest of us too.

And yet, who’s effing who here? Each time we climb into the hamster wheel and begin to run, aren’t we also willingly putting everything at risk?

Most of what you've just read doesn't show up directly in The Big Short—rather it's been inspired by it. The story does tell of a select few who saw things differently and had the courage to act. I’ve taken a short position on capitalism. Crazy! Read The Big Short: Inside the Doomsday Machine and then judge.(less)

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Dec 13, 2012 Mark Rossiter rated it 4 of 5 stars

On the plane to Athens I read The Big Short by Michael Lewis, an account of the sub-prime debacle. It lionises the few who bet against sub-prime and won big, in the process demonstrating that many of those on the inside didn’t understand the instruments in which they were dealing, and which almost brought down – may yet, in the end, be an important step in bringing down – the entire financial system of the West. It’s a commonplace by now how outrageous it is that these people got away with ridic...more On the plane to Athens I read The Big Short by Michael Lewis, an account of the sub-prime debacle. It lionises the few who bet against sub-prime and won big, in the process demonstrating that many of those on the inside didn’t understand the instruments in which they were dealing, and which almost brought down – may yet, in the end, be an important step in bringing down – the entire financial system of the West. It’s a commonplace by now how outrageous it is that these people got away with ridiculous amounts of money when they should be in jail for negligence in charge of one of the vital functions of civil society – the banking system – if not for outright fraud; and yet it still has the power to shock. The guy who crashed AIG to the tune of almost 100 billion dollars, a disaster now being paid for by the taxes of average people, lives in idle luxury in a Kensington townhouse, while (according to a story in the Guardian) a young woman who briefly picked up two left shoes from a looted shop in Birmingham during the riots, and then put them down again before going home, gets ten months in jail. What’s wrong with this picture? It’s getting wronger and more blatant too – the rich have figured out that they don’t even need to pretend any more, they can get away with anything and make the poor pay. What seemed still contestable in the days of Thatcher is now pure fait accompli.

The Big Short is an interesting read, though if it adds to the detail of the picture which has been fairly clear for three years now, it doesn’t change its overall shape. It challenges, in its final few pages, the functioning of the system that can allow disasters like this to happen, though it doesn’t raise the question of why the far-sighted winners whose perspective he takes should be allowed to make so obscenely much money, even if they were right. Shouldn’t there be a limit? How much does one person need? Did they do anything positive for the functioning of a proper banking system in which capital is allocated to people with positive ideas which will be productive for society and add to the general well-being? Or were they nothing more than gamblers, even if very astute ones?

As it was, the big banks, as Lewis points out, were handed a fat gift from the taxpayer, no strings attached, to carry on just as before with their irresponsible ways and excessive bonuses; the poor subsidizing the rich, in effect. Where he doesn’t run with the ball (not that it was his aim to do so) is into territory where he asks what should be done. Three years on and, with Geithner in the Treasury and Obama a flop, the answer in responsible circles seems to be: nothing. It would be useful for someone to stand up and channel the increasing rage and cynicism of the powerless into meaningful action to punish the guilty from the last time around, moderate present excesses, and call a just and well-structured year zero followed by measures to ensure a banking system that serves its proper purpose – but heading into a year when a pusillanimous Obama seems to be the best that American politics has to offer, it doesn’t seem likely somehow. So the infrastructure will go on crumbling and the bonds of society will continue to fray…(less)

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Feb 02, 2013 Michael Sutton rated it 5 of 5 stars

Wow. Gives an enlightening perspective on the reality of things.

Staggering what devastation was brought about by greed and recklessness by nearly every major bank and financial institution in the country.

Also reveals further the myth of expertise, as much of the gross miscalculation was made not by evil financial geniuses, but by the very highest "elite" corporate heads and traders - who were completely clueless, literally not understanding at a basic technical level the investments to which t...more

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Jan 01, 2013 Sam Quixote rated it 5 of 5 stars · review of another edition

Michael Lewis returns to Wall Street 20 years after publishing his first book "Liar's Poker" of his time as a trader, to find that the system hasn't changed and has gotten worse - that the traders now don't even understand the system. And instead of trying to understand it, they kept making bets which kept paying out until one day it didn't and the whole house of cards came crashing down in the crash of 2008.

I've got to hand it to Lewis, he does a fine job of telling the story of how things got...more Michael Lewis returns to Wall Street 20 years after publishing his first book "Liar's Poker" of his time as a trader, to find that the system hasn't changed and has gotten worse - that the traders now don't even understand the system. And instead of trying to understand it, they kept making bets which kept paying out until one day it didn't and the whole house of cards came crashing down in the crash of 2008.

I've got to hand it to Lewis, he does a fine job of telling the story of how things got to be the way they were. The book ostensibly tells how a small group of traders managed to make millions off of the back of the crash that left millions homeless, jobless, and without any money to their name but it's also about how a handful of traders at these banks that caused the crash came away from the whole mess unscathed and able to keep their millions of ill-begotten loot. And still, it's also about how the banks that caused the crash were able to take in billions of taxpayer money in order to stay in business. So even though the individual stories of Steve Eisman and Michael Burry and the Cornwall Group are fascinating and you're rooting for them to beat the smug Wall Street banks, you know that those same villains they're going up against are going to take the hits and still come out smelling of roses.

It's strange that Lewis thought that this book would have comedy in its story, when its entirely a tragedy and such a monumental event that its shaped the way the entire world economies work (he goes on to describe these in his follow up book "Boomerang", also highly recommended). When you read facts like fruit pickers in California with an annual income of $14k are able to get a loan to purchase a $750k home and can't make their first repayment, or the Las Vegas stripper who owned 5 houses, or the Jamaican nanny who owned 3 townhouses in Boston - and all of them of course lost the properties because they couldn't make the payments, it's not really funny, it's really sad. Because who in their right mind would make those loans in the first place?

"The Big Short" is a fantastic book not least because of its subject matter but in the way Lewis writes it. He is a tremendous writer who can even make you understand some of the more complex and previously inscrutable ideas behind CDOs and how S&P and Moody's played a major part in the crash. It's a compelling read, well told, and is a fine book for anyone interested in discovering more about the financial collapse of 2008, it's causes, the main players, and the inevitable fallout. Highly recommended. (less)

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Mar 23, 2012 Laura rated it 4 of 5 stars

Shelves: economics, read-2012, nonfiction

Of all the books that I read about the 2008 economic collapse, I find this one the most depressing. The Big Short looks at specific events leading up to 2008.

The book is a classic description of how those in power did not see what was happening. At some point, it becomes those in power did not want to see what was in front of them. And Michael Lewis concludes (through his cast of characters) that they were either stupid or criminal. This conclusion is repeated throughout.

It's easy to be cynica...more

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Feb 19, 2012 Frances Levy rated it 5 of 5 stars

Every intelligent person in America needs to read this book. Actually, it should be required reading.

By telling the story of the 2008 financial meltdown through the stories of a handful of people, Lewis manages to clarify and explain exactly what happened, how it happened, and why it happened (that would be unbridled greed of Wall Street banks and hedge funds. Duh.) The most enlightening revelation to me is Lewis's take on the rating agencies (Standard & Poor's and Moody's), which he charact...more

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Mar 22, 2012 James rated it 2 of 5 stars

Shelves: finance

In this book the first half reads like he copied it from :
"The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson
defied Wall Street and Made Financial History"

The book has no notes or index, so who knows where Lewis got the material.

The last half of the book picks up tho, and he starts telling an interesting story.

This book has 1472 reviews as of 11 may 2011,
a good measure of Lewis's popularity.

At the same time I read "A demon of our own design",
another finance book, pu...more

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Jul 16, 2012 Susan Devy rated it 5 of 5 stars

Shelves: highly-recomended-must-read-books

When I began to read this book , I was wondering why that title ? then later i understood after reading half of that book : it was all about SHORTING THE BONDS ! HOLYCOW !

Short selling usually only happens in stock market, and it's impossible to do that so in bonds market, since bonds is different than stocks, but some people mentioned in this book already foresaw the fall of subprime mortgage bonds, and they placed bet against the bonds and against the whole market.

inside this book we won't fin...more

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Jan 23, 2013 Sara rated it 4 of 5 stars · review of another edition

Book provides good history and context of events leading up to Fin Crisis. Written simply enough that those without a financial
background can understand but detailed enough for those who want to delve deeper. A very sad story that left me angry at most parties involved, especially the rating agencies who essentially got off scot free.

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May 12, 2010 Susan rated it 5 of 5 stars

Shelves: dismallyscientificdelights, nonfiction

Happy thought for the day:

At least I don't have to include a stint as an analyst for Moody's or Standard & Poor's to my list of professional shortcomings.

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Aug 06, 2011 Gary Lang added it

Michael Lewis' book was simultaneously entertaining, frightening, and reassuring.

It was frightening, because the collective failure of the banks, insurance companies, and ratings agencies is something we hope will not happen again.

The "Big Short" was reassuring because it's pretty clear that common sense is all that is needed to avoid another debacle like this. Common sense has to override greed; one hopes that after this, ratings agencies will actually be forced to have total intellectual cover...more

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Apr 14, 2013 Sean Brennan rated it 4 of 5 stars

Shelves: other

The scary thing about this book is you just know that no lessons where learned and it will happen again. I cannot say that I totally understood all the financial factors involved in the book, but apparently neither did the vast majority of the financial world, these people were given responsibility over highly complex financial systems which they either did not understand or ignored all for the sake of personal gain, yet I imagine the vast majority of these same people are in the same jobs under...more

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Apr 13, 2013 Laurie rated it 5 of 5 stars

Shelves: non-fiction

This was a great read. Yeah, he told the same story from three similar points of view. But those three stories, because they were trading with different counterparties, put together the real story, which is that these were among the very few who recognized that the huge market for CDOs made up of what amounted to triple-B, or even lower, mortgage-backed securities, had to blow up, because the underlying mortgages were made up of subprime mortgages that would have to default at rates way beyond a...more

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Apr 04, 2013 Jennifer Zartman rated it 2 of 5 stars

I picked up this book because I wanted to read something new and different, and I could check it out for free on my kindle with Amazon Prime. I didn't know anything about the world of finance, but from the rave reviews about the author's wit and writing ability, I thought I might learn something and be amused at the same time--a great combination! I did learn from the book, which is why I gave it two stars instead of one, but the book failed to amuse.

As an author, I believe that people who write...more

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Mar 04, 2013 Paul rated it 4 of 5 stars

I read Boomerang about 8 months ago, and now The Big Short, which specifically discusses the housing crisis in the US (and the repercussions from it). Of the two, I found this book more enjoyable. Lewis tells the story of the crash from the perspective of a few of the small handful of people who predicted it, and bet against the bubble. Oddly, he starts off with Meredith Whitney, but she disappears before chapter one. Thankfully though, she led Lewis, and thus us, to a handful of smart-and-or-lu...more

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Feb 11, 2013 Stephen rated it 4 of 5 stars

I recently visited my oldest son in LA - a Ph.D student at UCLA. We like to read and we both like bookstores. We had some free time one afternoon so we hiked from the Sheraton through downtown to an LA institution, The Last Bookstore. An amazing bookstore. The second floor has thousands of books for a buck, and a whole section of hardcovers organized not by author, or topic but by color: red, green, blue, yellow, black. I was sorely disappointed that I did not have my camera! I picked up this li...more

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Jan 22, 2013 Elizabeth Pawlowski rated it 4 of 5 stars

Let me just start out by saying I really dislike economics, the stock market, and money in general. With that said, I absolutely loved this book. Michael Lewis, who has written non-fiction on a range of topics (he's the author of The Blind Side and Moneyball), was able to add a lot of character and drama to the often dense subject of the stock market and the financial crisis of 2007. Having worked on Wall Street in the 80's (check out his Liar's Poker for the low-down on yuppies in the decade of...more Let me just start out by saying I really dislike economics, the stock market, and money in general. With that said, I absolutely loved this book. Michael Lewis, who has written non-fiction on a range of topics (he's the author of The Blind Side and Moneyball), was able to add a lot of character and drama to the often dense subject of the stock market and the financial crisis of 2007. Having worked on Wall Street in the 80's (check out his Liar's Poker for the low-down on yuppies in the decade of decadance's Wall Street), Lewis has an insider's view of the personalities that took part in the subprime lending boom of the 2000s and its ultimate explosion with the financial crisis of 2007-2010.

I chose to read this book because I wanted to educate myself on what happened during this financial crisis - I had heard the terms "credit-default swap", "adjustable rate mortgage" and "subprime mortgage" but had no understanding of what they were or how they were interconnected. Lewis introduces these terms and concepts quickly, and sometimes using financial jargon I didn't quite grasp. I found myself supplementing the Big Short by perusing The Wall Street Journal's Guide to Understanding Money and Investing; Stock Investing for Dummies; and searching Wikipedia for things like "selling short". But these foray's were quick and the effort proved ultimately helpful.

This lack of explanation may seem like a downfall of Lewis' book, however I did not see it that way. Lewis sets out not to give you a Stock Market 101 experience. His book is a page turner, full of loners, risk-takers, and down-right scoundrels all betting against each other and the average lower-middle class American. I often found myself with my jaw literally dropped down - aghast by the lack of regulation or morales that this entire made-up bond and credit-default swap market had.

I found this book to be informative, enlightening, and most importantly interesting. Anyone looking to quickly delve into the shadowy depths of this generation's greatest financial crisis, should, without a doubt, read The Big Short.(less)

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Jan 10, 2013 Roland rated it 4 of 5 stars

It's hard to imagine that anyone can fully explain the mortgage crisis that fell upon this nation's economy in 2006, 2007, and 2008. In The Big Short, though, Michael Lewis does, with a great work of financial reporting.

You wouldn't think that a book about collateralized debt obligations and credit default swaps would ever be fascinating. Collateralized debt obligations (aka CDOs) are "bonds" that are really collections of slices of crappy mortgages, grouped together to make them look like the...more

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Jan 08, 2013 Dave marked it as to-read

Shelves: calibre

EDITORIAL REVIEW: The #1 New York Times bestseller: a brilliant account—character-rich and darkly humorous—of how the U.S. economy was driven over the cliff. 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...more

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About Michael Lewis

Librarian Note: There is more than one author in the Goodreads' database with this name. See this thread for more information.

Michael Lewis attended Princeton University where he received a BA in art history in 1982. He also received a masters degree in economics from the London School of Economics in 1985.

He went on to work with New York art dealer Wildenstein, and then became a bond salesman at...more

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Quotes from The Big Short: Inside ...

“What are the odds that people will make smart decisions about money if they don't need to make smart decisions--if they can get rich making dumb decisions? The incentives on Wall Street were all wrong; they're still all wrong.” — 10 people liked it

“In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $724,000.” — 6 people liked it

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