The Big Short [Paperback]

 

 

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The Big Short is the best kind of investment book: it's entertaining, with larger than life characters in unimaginable situations; it's edifying (you won't even realize you're being schooled until after the fact); and it's a story no-one else has told ("The Greatest Trade Ever" comes closest). Readers can get structured narratives about the recent crisis through excellent tomes like Sorkin's "Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis -- And Themselves", or economist's critiques in books such as Stiglitz's "Freefall: America, Free Markets, and the Sinking of the World Economy", but you'll likely not find another book like this one; a stunning and jaw-dropping account by one of the best authors in the business.

Lewis is the same author who burst on to the scene with his first book, the instant classic "Liar's Poker", and who followed up with a string of excellent books, including "Moneyball" and "The Blind Side". "The Big Short" is Lewis at his best.

Lewis understands the investment business like the insider he was, but this book is very much from the perspective of a critic. It is much more direct in its criticism of the financial industry than was Liar's Poker. In that book he similarly crafted a terrific story, but with a bemused "can you believe we did that" tone. In this book, Lewis taps mainstreet's anger, and to great effect (sample quote, "... he was the walking embodiment of the bond market, which is to say he was put on earth to screw the customer"). It's hard for folks on mainstreet to know exactly who to blame, and exactly what Wall Street did to cause such a mess, and Lewis lays out in clear and entertaining detail who did what.

Who comes off looking badly? Wall Wtreet firms, rating agencies (Moody's, S&P, Fitch), the fixed income market, the SEC, Ken Lewis (no relation) of Bank of America, and the financial system in general.
Who are the characters? Steve Eisman, Dr. Mike Burry, and Greg Lippmann, none household names, but all memorable characters who become important cogs in the collapsing Wall Street machine. John Paulson (who, as referenced above, made the greatest trade ever) is featured in a small way, and is perhaps the only protagonist with any celebrity.

Eisman's story is centred on his bets against Collateralized Debt Obligations, or CDOs, an esoteric type of bond backed by assets such as sub-prime mortgagees. The second narrative thread follows Burry and the evolution of his fund in its bets against the housing bubble, and the impatience of his investors as the subprime defaults were slow to materialize. Lippman's story is even more unusual; an insider, the head subprime mortgage trader at Deutsche Bank, and one of the earliest to figure out the likely end to the subprime story. Lippman is willing to tell his story to anyone who would listen; unfortunately, that wasn't his employer.

As in Liar's poker, Lewis weaves his remarkable story around memorable characters, and through the telling of his story, he imparts an incredible amount of industry detail and insight into a very readable text. For example, in a few pages Lewis conveys the essence of options' mispricing, something it takes Nassim Taleb a book to do. The story contains both detail and context; individual transactions and broad commentary on the financial system, and neither individuals nor the system come off looking good.

For those looking for Wall Street conspiracy theories, Lewis provides a different angle than "Too Big To Fail". Goldman Sachs' sale to Burry of credit default swaps (CDS) on subprime mortgage bonds earned them a juicy sales commission, but it was an instrument they didn't back directly ('triple A' rated AIG backstopped most). Burry knew this, but was focussed on profiting from the obvious (to him) subprime credit bubble. When the credit bubble started becoming clearer to the investment banks, they too looked to load up on CDSs, with Goldman becoming one of the larger purchasers. It didn't occur to Goldman that the CDS securities might themselves be a bubble, and that the primary issuer of them (AIG) might itself face bankruptcy. Only the US government's bailout of AIG prevented Goldman and others from being caught in a classic squeeze: paying out on defaults and facing a bankrupt insurer on the other end. Goldman was lucky.

Lewis again on the dealers' modus operandi, "When you talk to the dealers, you are getting the view from their book. Whatever they've got on their book will be their view." "All that mattered was what Goldman Sachs and Morgan Stanley decided should matter." Whether it was true or not. When all the Wall Street firms were riddled with subprime exposure, they all had to say they were fine, there was no exposure. It wasn't fine, and it took time and effort for the shorts to prove them wrong.

A remarkable story of outsiders tilting at Wall Street when they had limited knowledge, access, and a system working against their interests. Turns out Wall Street was wrong.

Lewis spins out another great Wall Street story. This time it is all about a small group of unknown investors. These investors investigate; mortgage backed securities, the sub prime housing market, Wall Street investment banks, the ratings agencies, and even the SEC. They soon realize the entire housing market is a house of cards, that is just waiting to collapse. Then they position themselves, to profit from a fall in the housing market.

Some of the details Lewis uncovers, are rather shocking. S&P and Moody`s are basically a bunch lackeys, to the big investment banks. The Sec did nothing to monitor the quality of the Wall Street mortgage securities. The banking industry issued so-called liar loans to many home buyers. These people should have never been allowed, to take out a mortgage. And of course, the big investment banks knowingly issued all sorts of risky mortgage backed securities, that were rated as investment grade.

This was a very entertaining and informative read. In fact, I think this may have even topped Liar`s Poker.

I enjoyed the book. It's not Moneyball, but Lewis has a way with real characters that make them come alive. While others report the facts, Lewis' stories are about living/breathing characters. Having read other books on the sub prime crisis (i.e. The Greatest Trade Ever & On the Brink), this is certainly the most entertaining one, if not the most factual or data driven book - but pure research and fact is not the reason to read Lewis. He's a story man with a great ear for character.

I recommend it if you're a fan of Lewis.

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4.0 out of 5 stars Sad. But more than that...
This is going to be less a 'book review' than a brief commentary.

In providing the former, this: 'The Big Short' is a amicably-written explanation of The Great... Read more

Published 4 months ago by Schmadrian

5.0 out of 5 stars Great read!
Well written. Very thoughtful. Provided a different perspective on the financial crisis. I really enjoyed the thoroughness of his research.

Published 5 months ago by RMH

3.0 out of 5 stars overrated and sub-par
I actually felt like I knew less about the economic meltdown of 2008 after reading this book than I did before. Read more

Published 7 months ago by ogilive

5.0 out of 5 stars A great read, re-read, and re-re-read
I fully expect to enjoy reading this book as a timepiece defining the rapid, macho culture of banking at least once a decade. Read more

Published 8 months ago by Neltronsky

4.0 out of 5 stars Together at Last
The Big Short is an account of the guys who made a killing as Lehman Brothers, Bear Stearns, Merrill Lynch, Wachovia and other less renowned banking and investment names were... Read more

Published 11 months ago by Bob Cluett

5.0 out of 5 stars Fascinating read
A complex issue that easily reads like fiction.
Loved the way Lewis illustrated the different personalities and their quirks. Read more

Published 14 months ago by Brig

4.0 out of 5 stars I think I get it now ....
I picked this up because I was so curious about how we got into such a mess with the economy. As a Canadian with a good job, I am somewhat removed from the crisis personally, but... Read more

Published 14 months ago by i HEART non fiction

5.0 out of 5 stars Great book on the Financial Crisis
I won't try to compare it to other books on the Financial Crisis, as I have not read any of the other ones though I plan to. Read more

Published 14 months ago by B.H

5.0 out of 5 stars I finally know why!!!
I remember getting a call on the way to a job in 2008 with a large multinational company. The HR person at the company told me that there was no need to come in anymore as their... Read more

Published 15 months ago by Willpower604

5.0 out of 5 stars Fantastic
What a great read for anyone interested in knowing both basic and specific info. on one major component of the global financial crisis.

Published 15 months ago by General1314

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