Book Review: The Big Short: Inside the Doomsday Machine
By Michael Lewis
The big idea: The financial crisis that started in 2007 and still ongoing was created and precipitated by the greed, self-deception, and cluelessness of big Wall Street investment banks, ratings agencies, mortgage lenders, insurance firms, and bond investors. Only a few outsiders – small hedge fund players – saw through the ticking time bombs that were subprime mortgage-backed bonds and collateralized debt obligations (CDOs), buying loads of credit default swaps (basically insurance that paid off if those asset-backed securities lost their value) and shorting, i.e. betting against, stocks of financial institutions heavily involved in those toxic investments, making hundreds of millions in dollars for themselves and their investors.
What’s good: After a series of books revolving around technology and sports, Michael Lewis returns to his roots – financial non-fiction, where he made a name for himself with “Liar’s Poker,” his insider account as a Salomon Brothers trader during the 80s. As always, Lewis is a terrific storyteller, always engaging, insightful, and funny. He takes a different twist to explaining the financial crisis – he makes a handful of obscure, unrelated small-time hedge fund players as the heroes of his tale, unfolding his story through their eyes. He exposes the stupidity, corruption, and outsized egos of Wall Street traders and analysts, and manages to explain – quite clearly – the confusing and complex transactions that led to the downfall of many in Wall Street.
What’s bad: His character-driven style certainly makes a book about high finance more of a human interest story, and fully explains the behavior and actions of his lead characters, but since his heroes are not well known, readers may not care too much about their personal details.
Recommendation: Buy it