The Big Short is another excellent piece of writing by Michael Lewis. He takes what are immensely complicated concepts and trades and explains them over and over again, in several different ways, so that they become clearer as you make your way through the book. He accomplishes this while telling the stories of a handful of men who placed big bets on the decline of the subprime mortgage market. Lewis spends nearly as much time describing the people as he does describing the financial instruments and the scene on Wall Street. The Big Short chronicles the time leading up to and during the biggest financial crisis of our lifetimes. This novel is a strong indictment of Wall Street and its chief executives, as well as regulatory and credit rating agencies. Lewis paints a picture in which there is plenty of blame to go around, and he makes it clear that it is untrue that no one anticipated the crisis. In fact, he makes it seem as though anyone who dug beyond the surface should have anticipated a crash in the housing market.
I thought there was an apt description of those on Wall Street in the book: either they were criminal or just stupid. The complexity of the instruments that were created and then traded by Wall Street made it easy for people to be just stupid. Lewis chronicles a breakdown of the system. The ratings agencies didn’t fully understand the financial instruments that Wall Street had created, and then people on Wall Street made the mistake of believing their own hype. Investment banks multiplied the effect of the housing downturn by creating synthetic instruments, and investors ate them up without questioning their content. The SEC ignored calls to investigate and Goldman Sachs refused to acknowledge market prices. All of this drama is unfolding while three hedge funds in the book await the demise of the market and the payoff from their bets.
I think that anyone who is at all interested in the financial crisis should read this book. It’s engaging, funny, and extremely informative. I don’t believe that this will be the definitive story of the crisis – it’s too one-sided – but it will certainly be one of them.
GDNAL’s review is here and discussion is on Facebook.