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The Big Short: Inside the Doomsday Machine

(Liar's Poker #2)

Michael Lewis

4.28 · Rating details · 139,135 ratings · 6,964 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

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Hardcover, 264 pages

Published March 15th 2010 by W. W. Norton Company

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Jan 29, 2016 Jeffrey Keeten rated it really liked it

Shelves: business, nonfiction, post-apocalyptic, book-to-film

”The ability of Wall Street traders to see themselves in their success and their management in their failure would later be echoed, when their firms, which disdained the need for government regulation in good times, insisted on being rescued by government in bad times. Success was an individual achievement; failure was a social problem.”

The real estate market in the United States after several years of frantic growth peaked in 2004, which was the year I decided to start buying properties. I was ...more

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Jun 03, 2010 Will Byrnes rated it really liked it

Shelves: economics, nonfiction

Michael Lewis looks at a handful of people who saw what was happening in the US economy, tried to sound an alarm, but also used their knowledge to make barrels of cash.

If the tales told here, following the fiscal 9/11 that is Wall Street ethics, do not scare you away from investing with any Wall Street firm, I do not know what will. Lewis may single-handedly revive stuffing cash in mattresses as a savings option.

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Michael Lewis - image from Boston’s WBUR - photo by Robin Lubbock

What becomes clear ...more

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Sep 21, 2010 Stephen rated it really liked it

Shelves: audiobook, history-usa, non-fiction, history, ebooks, economics-finance, 2006-2010, 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 op ...more

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Apr 24, 2017 Felice Laverne rated it it was amazing · review of another edition

Shelves: read-2017, cultural-surveys, non-fiction, full-review, reviewed-on-amazon

...there's a difference between an old-fashioned financial panic and what had happened on Wall Street in 2008. In an old-fashioned panic, perception creates its own reality: Someone shouts "Fire!" in a crowded theater and the audience crushes each other to death in its rush for the exits. On Wall Street in 2008 the reality finally overwhelmed perceptions: A crowded theater burned down with a lot of people still in their seats. Every major firm on Wall Street was either bankrupt or fatally intert ...more

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May 04, 2010 Steve rated it really liked it

Original review: May 4, 2010

Lewis has a talent for making his readers feel smart. Taking in his best works, you’re granted kinship with the elite. Like a trader at Salomon Brothers, you might laugh at the chumps in the bond market; or like the money-constrained boss of the Oakland A’s, you might cobble together a winning line-up by way of statistics; or like a genius of modern day football, you would recognize the importance of a great left tackle in protecting your quarterback’s blind side. Now ...more

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Nov 17, 2015 Kemper rated it really liked it

Shelves: non-fiction, 2016, bidness

“Be fearful when others are greedy and greedy only when others are fearful.”
- Warren Buffett

Some of the most essential financial lessons I ever learned came from comic books back in the ‘90s when a bubble fueled by idiotic speculation on crappy books marketed as ‘collector’s editions’ eventually burst. It left me with several copies of all the variant covers for Jim Lee’s X-Men #1, and the realization that something is only as valuable as what someone will actually pay you for it. It was also e
“Be fearful when others are greedy and greedy only when others are fearful.”
- Warren Buffett

Some of the most essential financial lessons I ever learned came from comic books back in the ‘90s when a bubble fueled by idiotic speculation on crappy books marketed as ‘collector’s editions’ eventually burst. It left me with several copies of all the variant covers for Jim Lee’s X-Men #1, and the realization that something is only as valuable as what someone will actually pay you for it. It was also eye opening to discover that a large company like Marvel would cut its own throat in the long term by compromising quality which alienated its most loyal readers for a short term gain and resulted in the company filing for bankruptcy in ’96. (Don’t worry. They landed on their feet.)

A decade later I didn’t pay much attention to the real estate market because I wasn’t a home owner at the time, but occasionally I’d see or read some news about the fantastic housing market that was booming. People were seeing the value of their homes skyrocket, house prices were soaring, they were still selling, and a whole lot of people were getting very rich as analysts promised that the gravy train would roll on forever.

“Well, that’s not gonna end well,” I’d think remembering all those bagged copies of The Death of Superman and Image comics sitting in my parents basement. Sadly, it didn’t occur to me to try and capitalize on those idle thoughts, but I’d like to think that if I had met any of the guys featured in this book about that time I’d have drawn on that experience and handed them my every dime I had to bet on the whole thing falling apart.

Michael Lewis has written a succinct and fascinating explanation as to why and how a handful of people recognized the coming financial crisis years before it hit and found ways to profit enourmously from it. Some were smart and cynical Wall Street insiders who knew that a whole lot of people in their industry didn’t even realize the risk that their institutions had taken on when they were buying up blocks of subprime mortgages. An eccentric former medical doctor turned hedge fund manager was sure mortgages being handed out to anyone who asked would became a wave of defaults when the low teaser interest rates expired after a couple of years. A couple of outsiders who had made a small fortune by playing stock market longshots saw the upside in laying out a relatively low amount of cash that would pay off big if things went south.

You might wonder at why no one sounded an alarm if they saw the collapse coming, and the short answer is that they couldn’t get anyone to listen to them when they tried. It was so inconceivable to the banks and Wall Street that the real estate market might collapse that these people pretty much had to invent ways to bet on it happening. Even the ones who could see the writing on the wall would find themselves frequently shocked at the levels of greed and stupidity they’d encounter as well as the utter lack of government oversight that might have prevented it.

There’s a lot of fascinating human elements behind all of these stories, and Mike Burry, the doctor turned financial guru, is a particularly interesting person to read about. Obviously there’s many complex financial pieces that have to be explained and much of it was so complicated that even the people involved didn’t understand all of it. So there's a few parts where I found myself scratching my head. However, just as he made the story of finding new ways to measure the performance and value of baseball players in Moneyball interesting Lewis also manages to make his explanations of things like credit default swaps readable.

It’s slightly depressing to read since it’s a reminder of the whole meltdown in 2008, but it’s nice to hear that at least a few deserving people got something out of the whole mess.

I’d also highly recommend the film adaptation of this which mined the story for black humor and found very clever ways to explain the financial pieces. ...more

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Apr 23, 2010 Elyse Walters rated it it was amazing

Update: Christmas greetings to those of you who celebrate!
Paul and I are seeing this movie today!
I'm guessing the movie will be great!

Hasn't everyone read this book? In my area --extra copies could be found at bus stops around town -on tables in Star Bucks -
I wouldn't have been surprised if books were added to people's grocery bags. At one time this was the 'it' book to read.
"The Big Short" was everywhere. Michael Lewis became a popular-household name....

Hugely entertaining and informative lo ...more

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May 03, 2010 Lorin Kleinman rated it it was amazing

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 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.

...more

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Aug 07, 2017 Diane rated it really liked it · review of another edition

Shelves: nonfiction, audiobooks, economics

Wall Street is probably best known for the movie quote "Greed is good."

But after reading The Big Short, Michael Lewis' excellent book about the lead up to the 2008 global financial crisis and the small group of people who saw the collapse coming and bet against it, I think Wall Street needs a new saying: "Y'all are a bunch of greedy assholes."

I've read several Michael Lewis books, and he does a good job explaining complex subjects to lay people. I'd recommend this book (and the quirky movie base ...more

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Sep 29, 2010 Rachel C. rated it liked it

Shelves: non-fiction, subj-business-econ, movies-tv

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 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. ...more

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Mar 22, 2010 Robert Intriago rated it liked it

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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Apr 15, 2010 Jason rated it really liked it

I have to SHOUT during this review. Now I finally know the sleaziest, oily, untruthful, and arrogant class of people in the US--financial brokers at the big Wall Street investment banks. The Big Short is a rare look deep inside the machinery that broke the spine of our real estate industry. This is not the more common bottom-up look at the mortgage loan sweatshop industry; instead, this is a top-down view from the rarefied air above 20 stories at Goldman Sachs, Morgan Stanley, Merryl Lynch, JP M ...more

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Feb 04, 2016 Steve Sarner rated it it was amazing · review of another edition

This book propelled me back to a conversation from the fall of 2005. I was at my son’s junior peewee football game on a warm autumn day talking to some other dads at halftime. The conversation was on how people were refinancing their homes at unheard of values and next to nothing interest rates. The group was a mix of men, some in real estate, a few newly minted mortgage brokers and some others of various professions and income levels. I recall, as the game resumed and the conversation wound dow This book propelled me back to a conversation from the fall of 2005. I was at my son’s junior peewee football game on a warm autumn day talking to some other dads at halftime. The conversation was on how people were refinancing their homes at unheard of values and next to nothing interest rates. The group was a mix of men, some in real estate, a few newly minted mortgage brokers and some others of various professions and income levels. I recall, as the game resumed and the conversation wound down, speculating with one of the guys on what would happen in a couple – three years when these adjustable rates all reset.

“Something’s gotta give” I recall saying and he agreed. Nevertheless, these mortgage brokers were raking in more money than the local pot farmers in our Sierra Nevada foothill town and everyone seemed to be getting in on the party. I figured the people on Wall Street fueling this must know what they were doing. Now, after reading The Big Short, I know that the vast majority really didn’t and/or they didn’t care.

While I know of Michael Lewis’ work, this was the first of his books that I have read and it certainly will not be my last. The book takes the most arcane financial concepts, terms and people and presents them in an easy to understand (for the most part) and extremely interesting and fast paced manner.

This book shed tremendous light on the different people, players, banks, agencies and how the “betting system” worked. I was struck by how the rating firms seemed to be the crux of the whole mess.

The book is an excellent account of a crazy time that could have destroyed the US economy. Some would say the jury is still out and we have yet the feel the real ramifications of the bailouts and whole fiasco of 2008. We'll see.

It’s interesting that the movie was nominated for 5 academy awards on the same day (January 14, 2016) that Goldman Sachs agreed to a $5 billion fine for their part in this. It is also interesting that no one really seems to care and the Goldman Sachs brand appears to be as strong as ever.

Oh yeah, that group of dads from that balmy October afternoon, some lost their homes, others just faded away. One, however, actually went to jail for making predatory loans or something of that nature, I never really knew exactly what the circumstances were but understand he will be released from Federal prison soon. Most of us just kept our heads down and managed through what I hope will be the worst financial crisis of our lifetimes. Only time will tell and The Big Short tells the back-story extraordinarily well.

Related, yesterday a NYT opinion piece from Steve Eisman – a main subject in the book –was published on his opinion of the biggest financial issue facing the country in early 2016:
http://www.nytimes.com/2016/02/07/opi...

My Star Rating Criteria:
1 star – Not for me & gave up reading
2 stars – Not for me & likely will not finish
3 stars – Solid book that I will finish at some point – probably later.
4 stars – Great book that I will finish sooner than later.
5 stars – Excellent book that I will modify my schedule to finish ASAP.
...more

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Mar 21, 2010 Trish rated it it was amazing

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 08, 2010 Otis Chandler rated it it was amazing · 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 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. ...more

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Mar 10, 2013 Iain rated it it was amazing

Shelves: political

The best book on Wall Street months before the recession hit. Its a Wall Street history book.

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May 13, 2016 Carly rated it really liked it · review of another edition

Shelves: nonfiction

Achievement unlocked: I finally understand what the term "shorting" actually means.

Lewis provides a thorough and interesting take on the financial crisis, and now I think I finally begin to understand what caused the world economy to tank. As Lewis notes, there was plenty of greed to go around, but it was the criminal irresponsibility of the bankers, the investors, the bond traders, that really created the opportunity for such large-scale corruption.

I found this book particularly difficult bec Achievement unlocked: I finally understand what the term "shorting" actually means.

Lewis provides a thorough and interesting take on the financial crisis, and now I think I finally begin to understand what caused the world economy to tank. As Lewis notes, there was plenty of greed to go around, but it was the criminal irresponsibility of the bankers, the investors, the bond traders, that really created the opportunity for such large-scale corruption.

I found this book particularly difficult because of my own fears of debt. My personality tends towards "control freak" and I find the idea of being in debt utterly terrifying. I have lived in suburbia for over five years without owning a car, commuting everywhere by bicycle, partly because the amount of money involved in buying a car simply scares me. Just thinking about the national debt makes my heart race. As a kid, I remember hearing my parents talk about variable-rate mortgages and the way that banks were using them to trick credulous and innocent buyers, but it was hard to see what banks could get out of selling homes to people who couldn't afford them. Now I understand: the homes were secondary to the CDOs that could be constructed from the loans. I find the story of the shadow banking system playing with peoples' lives and hopes this way, tempting them into a lifestyle beyond their means, utterly disgusting. Sure, you could say people should know better, but that's not sufficient and it's not fair. As Lewis notes, the incentives for everyone involved, from the homeowners to the bonds salesmen to the regulators, were simply all wrong. And they're still all wrong.

The one issue I'm left with is Lewis's take on his protagonists, a group of men who all "shorted" the sub-prime market industry. He treats them as heroes, as isolated voices of sanity in an increasingly insane world. But if they hadn't acted as buyers for sub-prime market insurance, there couldn't have been sellers, either. They ended up earning billions of dollars, and this type of finance is a zero-sum game. Their gains meant the losses of the sellers, and, ultimately, the American taxpayers. Sure, they didn't do anything strictly unethical, and sure, several of them apparently attempted to shut down the industry. But in the end, when they couldn't get anyone to listen, they settled for exploitation. And because they didn't turn around and, say, donate all that money to the ultimate victims of the sharks of Wall Street, I find it hard to see that choice as heroic.

If you, like me, are a financial dunce but still want to understand what on earth caused our economy to fail, I heartily recommend The Big Short. It may leave you disgusted with every person even tangentially involved with Wall Street and the shadow banking system, but at least you'll have a clue about how they took down our economy, and how they're probably going to do it all over again.

By the way: Dr. Michael Burry, the most intriguing and savvy character in the book, believes we're in for another bust. And I believe him. ...more

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Jan 02, 2019 Andrew Smith rated it really liked it · review of another edition

Shelves: business-finance, non-fiction

I think most are aware of the role subprime mortgages played in the 2007 banking crisis and the resulting worldwide financial crisis that followed in 2008. The subprime market was made up of house purchase loans and secondary (often re-finance) loans which were also secured against the property. This book walks us through the timeline following the rise in the popularity of these loans, how and when they began to get batched together and sold off in packages and the resultant collapse of the mar I think most are aware of the role subprime mortgages played in the 2007 banking crisis and the resulting worldwide financial crisis that followed in 2008. The subprime market was made up of house purchase loans and secondary (often re-finance) loans which were also secured against the property. This book walks us through the timeline following the rise in the popularity of these loans, how and when they began to get batched together and sold off in packages and the resultant collapse of the market. It also follows a few bright people who had nous to predict the fall of the market and take steps to enrich themselves on the back of it.

The first thing that struck me was that some of the terminology – actually much of the terminology – is impenetrable without detailed explanation. In truth, it’s only marginally less unyielding with the explanation! But though the minutia of the story might be a little too intricate for most its fair to say that the central idea is easy enough to grasp. The second thing that grabbed me is that the financial world was replete with people who either didn’t understand what they were doing or were knowingly and maliciously manipulating events to put money in their own pockets.

Loans were granted to many people who didn’t have the financial means to keep up payment. These loans in themselves were risky but subsequent loans granted on the presumption that any loss would be covered by the ever increasing value of the property were even less secure. When someone came up with the idea of batching these loans up and selling them on as subprime mortgage bonds it had the effect of protecting the original lender against future default. It’s clear that few people in the investment banks that dealt in such bonds really understood the risks involved. In any case, there was a standing presumption that property values would continue to increase and that defaults would be minimal, so what was there to worry about?

On the other side of the equation the few people with the insight to realise that the bubble would have to eventually burst on this market and, crucially, the means to do something about it set about effectively gambling on a market implosion. An instrument called a credit default swap was purchased by a number of hedge funds. These derivatives were structured to pay out huge sums of money if mortgage defaults went beyond, say, 7%. When the implosion came many investment banks went into meltdown as their holdings of subprime mortgage bonds became effectively worthless whereas the holders of credit default swaps made hundreds of millions in profits.

It’s an interesting angle on events and it did provide quite a few answers in a way that’s reasonably easy to understand. Worth seeking out if you’re interested in getting further under the skin of an event that’s had such worldwide impact. ...more

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Oct 11, 2011 Ms.pegasus rated it it was amazing · review of another edition

Recommends it for: anyone interested in the financial crisis

Shelves: finance-accounting-accounting-fraud, nonfiction

Michael Lewis turns the 2008 financial meltdown into a compelling narrative about two very smart, very abrasive skeptics who realized the juggernaut Wall Street had created was doomed to self-destruct, and worked out how to cash in big — the big short.

Steve Eisman began his career as a corporate lawyer. Eisman was an outspoken curmudgeon. Stupidity bored him. Tact was not one of his gifts. When others spoke it looked like he was sampling rather than listening. It's difficult to imagine how he ma ...more

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May 01, 2010 Clif Hostetler rated it it was amazing · review of another edition

Shelves: current-events

This is the best description so far of the inside story about the sub-prime mortgage crisis. Reading this book is like riding a time machine back a couple years, walking into the Wall Street offices and asking them, "What in the world were you thinking?" The story is told from the view point of several investors who were betting against the sub-prime mortgage industry. But there were so few other people who saw it their way that they kept second guessing their position because they couldn't unde This is the best description so far of the inside story about the sub-prime mortgage crisis. Reading this book is like riding a time machine back a couple years, walking into the Wall Street offices and asking them, "What in the world were you thinking?" The story is told from the view point of several investors who were betting against the sub-prime mortgage industry. But there were so few other people who saw it their way that they kept second guessing their position because they couldn't understand why so few other people agreed with them. It's apparent that the vast majority of "experts" were totally oblivious to impending doom.

The book tells of one individual who visits numerous investment companies trying to get them to bet against the sub-prime mortgage industry, but almost nobody was willing to believe him. He even had a complete power point presentation explaining how buying credit default swaps (betting against sub-prime mortgages) was a virtual sure thing. Still, he convinced few people.

The book also tells of the owner of an investment company that shorted the home mortgage business, and the investors in his company wanted their money back. They thought he was crazy to bet against house prices continuing to go up. He refused to give their money back because he was highly leveraged and would experience large losses if he gave their money back. So the investors sued him. In the midst of this rancor the housing market collapsed and suddenly their investments increased 70 fold. In other words, a million dollar investment was suddenly worth 70 million. His investors had gone from a position of asking for a big loss to a position of receiving a tremendous gain. After it was over, not one of his investors apologized, said thank you, or said "You were right and I was wrong."

The narrative of the book is structured to build suspense in the mind of the reader even though we all know what happens in the end. Michael Lewis did a good job writing this book. In the end he sums up by speculating why so many smart people were so stupid. It can be blamed on incentives and shedding of risks.
...more

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Jul 16, 2016 Diego rated it it was amazing · review of another edition

Shelves: finance

This was a really captivating read. It's a good intro to what occurred in 2008 and who were involved that led up to the failure of the banks. Makes one really wonder how oblivious they all were to their impact to the general population. Banks are pretty soulless and detached from reality. ...more

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May 08, 2010 Amy rated it really liked it

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 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.

...more

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May 31, 2014 Patrick Peterson rated it it was ok · review of another edition

Shelves: audiobook, business, history, sense-of-life, political

2020-06-24 - I keep coming back to this book, the movie and the far better book by John Allison mentioned below, because the subject keeps popping up.

But after about three years of pondering all three, I am convinced more than ever that Lewis is fundamentally dishonest, and dangerous, since he is such a good writer. He has obfuscated and misrepresented the basic causes of the 2008 Financial Crash with a pandering to his anti-capitalist tropes. He focuses on "greed" of course, for his explanation ...more

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Jul 11, 2011 Mike rated it it was amazing

Shelves: business, library, history

The Big Short: Inside the Doomsday Machine is more than 5 stars. It deserves the highest rank for the clear explanation of how to answer this question: “How do you explain to an innocent citizen of the free world the importance of a credit default swap on a double-A tranche of a subprime-backed collateralized debt obligation?” Not only will you be able to understand that arcane financial question, you will be riveted in the story Michael Lewis tells while you learn. Look, it is only 3 years to t The Big Short: Inside the Doomsday Machine is more than 5 stars. It deserves the highest rank for the clear explanation of how to answer this question: “How do you explain to an innocent citizen of the free world the importance of a credit default swap on a double-A tranche of a subprime-backed collateralized debt obligation?” Not only will you be able to understand that arcane financial question, you will be riveted in the story Michael Lewis tells while you learn. Look, it is only 3 years to the month that we were told the financial system of the world was about to collapse. This book shows you how we got to that point through the subprime mortgage loan process. Yes you will be exposed to terms like CDO, credit default swaps, mortgage bond tranches, etc. The writing is superb, it reads like a novel but the stories are true. Why should you read this? Because we still live with, and will for some time, the consequence of what this book chronicles—absolute financial imbecility and corruption. This book will make a lot of the chicanery understandable and, even better, interesting.

Some people saw the subprime mortgage crash coming. They placed bets against the subprime mortgage bonds. Some even went to the SEC to tell them how corrupt the system was getting but the guvmint wasn’t interested. Basically, they were allowed to buy fire insurance on a house (i.e., a CDO) they did not own that was already on fire—just not visibly. The Wall Street traders and firms were making tons of money from building these “houses”. There are really no heroes here. Most of the ones who foresaw the calamity made their bets and got rich. The taxpayers got screwed with the bill in the end. You need to see how it happened. There are some sympathetic characters here but no honorable men or women.

“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?” At the end of the book, you find out that the few prescient people who foresaw the collapse and bet on it, made a ton of money. But the people who ran the banks and funds into bankruptcy or massive losses also made a ton of money. CEO’s and traders left their investment companies with millions in golden parachutes or were bailed out by the government.

“The people in a position to resolve the financial crisis were, of course, the very same people who failed to foresee it.” Hank Paulson, Timmy Geithner, Ben Bernanke, CEO’s from Goldman Sachs, Morgan Stanley, Citigroup, the SEC, etc. All were culpable and some still have or gained more power. And the same idiots who failed to see the problem have written a new financial law (Dood-Frick) that will ensure we have another one of these…because the bureaucrats and politicians are too stupid to see what they have done or to oversee the financial wizards on Wall Street. Pray that an energy cap and trade regime is never passed…Wall Street will make more money than g0d if that is ever put in place.

“After an ordinary financial crisis, political leaders typically would turn to the people on Wall Street whom they trusted for advice and education. After this crisis there was no one on Wall Street they could trust.”

The current Occupy Wall Street crowd may be a collection of little Eichmann’s, Che Guevara types and people who really have a gripe about the “system”. The protest movement would not have any traction if it wasn’t based on something real. Sadly this book provides part of the basis for a valid complaint. OWS’s solution is to tear it all down. But no doubt, there must be changes. This book doesn’t give you any solutions but it will start the process to make you informed enough to intelligently evaluate the discussion. I can’t think of many books I would recommend above this one for a place on your permanent shelf and for an immediate read.
...more

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Dec 15, 2019 Claire rated it it was amazing · review of another edition

Shelves: best-of-2019, read-harder-2019

“The line between gambling and investing is artificial and thin.”

The story behind the 2007/8 financial crisis, as told by Michael Lewis in The Big Short is so outrageous it is at times hard to believe it is true. The detail with which Lewis dissects the mechanics of the mortgage crisis, is at once fascinating and horrifying. It makes clear exactly how real this story is. Built on greed, lies, and a healthy dose of wilful ignorance, this is a story that has to be read to be believed, and should ...more

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May 28, 2019 Ray rated it it was amazing · review of another edition

Shelves: audio, nonfic, politics

The Big Short. Remember that movie? We all should, and never forget...

If you're like me, and don't know anything about the Wall Street high finance, but just kind of suspect that it's all bullshit and nobody really knows what they are doing, then this is the book for you!

The 2007-2008 financial crisis was one of the most important historical events of the young 21st century. It wasn't even that long ago, and already we've mostly forgotten. Whether or not you're the type to have strong politica ...more

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Aug 23, 2010 Mike W rated it liked it

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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Jan 30, 2016 L.A. Starks rated it it was amazing · review of another edition

This non-fiction account of the players and events behind the financial crisis of 2008, specifically banks spinning out derivatives whose risk they themselves didn't understand, was for me scarier than any horror movie.

Lewis explains how credit default swaps and synthetic options got so far out of control as people bet on an ever-rising housing market that the American financial system would have self-destructed but for the intervention of the government.

Having lived through the crisis, I well ...more

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May 02, 2010 Susan rated it it was amazing

Shelves: nonfiction, dismallyscientificdelights

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. ...more

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Oct 26, 2011 David Lentz rated it it was amazing

I have great respect for the clarity and diligence that Michael Lewis brings to shed new light on the second greatest financial disaster in modern American history. He knows where to go to find the bones buried by people both who profited immensely from and were destroyed on Wall Street by the unsurpassed greed of the sub-prime mortgage fiasco. I was intrigued by the creation of high-risk debt obligations consisting of packages of sub-prime mortages with teaser rates which blossomed so predictab I have great respect for the clarity and diligence that Michael Lewis brings to shed new light on the second greatest financial disaster in modern American history. He knows where to go to find the bones buried by people both who profited immensely from and were destroyed on Wall Street by the unsurpassed greed of the sub-prime mortgage fiasco. I was intrigued by the creation of high-risk debt obligations consisting of packages of sub-prime mortages with teaser rates which blossomed so predictably after two years consistently into default as much higher interest rates took effect. Further, I was astounded that after so much sub-prime business was packaged and sold at bond desks on Wall Street, totally misrated in their risk by the ratings agencies, that another sub-prime debt derivative -- the collateralized debt obligation (CDO) -- was invented to take its place because all the worst mortgage debt had already been sold. How is that so many low-income, no-doc applications could be approved so that even migrant workers earning $14K could buy $750,000 condos? How did the ratings agencies so grossly miscontrue the risk of these financial instruments? How is it that CEOs of major Wall Street firms couldn't even explain CDOs on conference calls? How is it any wonder that a toothless and hugely understaffed SEC ever permitted them to be sold? How could the customer be so overlooked and abused that, once the two-year teaster rates passed, those sub-prime loans bought in 2005-06 created a total melt-down of our economy in 2008? Why did the US so selectively back-stop this outright fraud? How is that that so few people have been punished for this calamity? Imagine it: Wall Street was packaging the worst possible mortgage risks and then selling them short -- betting with over-leverage in some cases of 40/1 that they would default and profiting hugely from it. I hear a great deal about how important it is to let the "Invisible Hand of the Market" be enabled to work freely in the financial markets. This is the laissez-faire mantra of the Chicago School and Alan Greenspan. But clearly the Invisible Hand of the Market is almost universally attached to a billionaire or big bank and that hand is perpetually trying to find new ways to pick our wallets. So the big banks can over-leverage to make incredible risks and never lose because they are too big to fail and will be back-stopped, however, selectively by American tax dollars. With all the fervant ecstacy over Ayn Rand by the 1% big money crowd, it is worth noting that, when greed carries away financial corporations incented to over-step, only financial regulation and honest government has any possibility of reigning in their constant, arrogant hubris and the deep abiding suffering that it causes. Unfortunately, in 2006-08 we had neither adequate regulation nor honest government. The other 99% is extremely weary of suffering en masse for the profilic greed of the 1%. The deconstruction of Glass-Steagall was instrumental in creating this global, financial chaos. The best interests of customers have been hopelessly abandoned by those who should have a "fiduciary responsibility" to protect their customers. Bizarro financial products like CDOs, which no one understood, should never, ever in a million years have even made it into the marketplace. Our nation has suffered financially for four years at this writing as a result while unelected fiscal terrorists in the lobbying industry corrupt our eagerly corruptible government to create a "worst ever" Congress while our noble, ethical children are pepper-sprayed and beaten for passively resisting this blatant corruption and even now well-funded lobbyists conspire to smear their heroic ideals. If we don't clearly understand the lessons of this financial fiasco and reform the sources of their root causes, then we shall repeat the consequences of this brutal ignorance endlessly to our infinite shame. Somehow powerful forces at play seek "smaller government" and mindlessly less regulation: but how can this approach be justified given the unmitigated disaster created by the Bush administration's public policy of deregulation? I am so amused and even embarrassed for those who comically race to brand others as "socialists" when: 1) they are usually politicians paid by or seeking to be paid a salary by the State and 2) corporate socialism is so pervasive as the Invisible Hand of the Market (a la Citizens United) works its heady wonders. If you ever had any doubts that Wall Street is a completely and entirely rigged game, then read this excellent piece of journalism in "The Big Short." ...more

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Michael Lewis, the best-selling author of Liar’s Poker, The Money Culture, The New New Thing, Moneyball, The Blind Side, Panic, Home Game, The Big Short, and Boomerang, among other works, lives in Berkeley, California, with his wife and three children.

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“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.” — 56 likes

“The CDO was, in effect, a credit laundering service for the residents of Lower Middle Class America. For Wall Street it was a machine that turned lead into gold.” — 26 likes

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