Nancy's Reviews > The Big Short: Inside the Doomsday Machine

The Big Short by Michael Lewis
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Jun 29, 12

Read in June, 2012

Lewis profiles the unfolding of the subprime mortgage crisis, which hangs over us like a dark cloud even today. He does so examining a small group of investors who saw it coming and were boldly but prudently betting against the market. What stands out in Lewis's account is that Wall Street, the academic economists, and the Federal government did not put the pieces of the puzzle in place to see what was coming. In fact, their actions and inactions contributed to the mess. The supposed "best and brightest" had created CDOs, CDOs squared, Credit Default Swaps-financial instruments of such complexity that they were almost opaque. The risk was not so much decreased by being spread far and wide in trades among huge financial firms, as it was, instead, multiplied world wide. In the end, what stands out is that markets are not always logical, not infallible, and that all the models were wrong, but also, that a total lack of common sense and a willingness to accept huge long term risk in favor of short term, albeit incredible, gains drove the economic engine from overdrive to blown up and we will all be paying for this for a long time. The bubble burst, they always do, and that so few were willing to say that the emperor wore no clothes and call it what it was is sobering.
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