35 of 38 people found the following review helpful
5.0 out of 5 stars A Most Entertaining Read
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...
Published on April 26 2010 by Ian Robertson
3.0 out of 5 stars Bit Boring
This book was an insightful read. But, it gets repetitive and rather boring. I found it easy to start and hard to finish.
Published 22 months ago by Amazon Customer
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35 of 38 people found the following review helpful
5.0 out of 5 stars A Most Entertaining Read,
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.
4 of 4 people found the following review helpful
4.0 out of 5 stars Together at Last,
This review is from: The Big Short (Paperback)
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 being sucked down the tubes by the mega-leveraging of overvalued derivative paper. Those guys did it, of course, in accordance with the Michael Lewis mythology, the story that he tells and re-tells in all his ego-fronted books: quick, bright young deviants (the new kids) beat up on slow, old, established traditionalists. But The Big Short is different from Lewis's other work like Moneyball in that this time the mythology fits the reality of which he is giving an account. This time, the quick young deviants - nobodies with names like Steve Eisman, Mike Burry and Vinny Daniel - really did take the measure of the financial community's big dudes - Richard Fuld, Ken Thompson, John Thain. And though the big dudes were retired or fired on generous terms, they did not leave their executive suites wreathed in laurels, and they left their stockholders holding a lot of empty bags. In this book, reality and the Lewis mythology are together at last.
In the summer of 2010 David Brooks wrote a column in the New York Times contrasting Princes with Grinds (NYTimes, 13 July 2010). The Princes are people like John Thain and Bill Miller: gracious, widely informed, gifted in conversation, they are men you feel privileged to be with. Grinds, on the other hand, are brilliant but narrow and boring, often totally graceless. The heroes of Lewis's book are - to a man - Grinds, and Lewis does an excellent job of showing the degree to which their social dysfunctions equipped them to be the ultimate contrarians and ultimate winners in the subprime collapse. The book has other strengths as well: like the best economic historians (Keynes, Kindleberger, Galbraith, Fox and Bernstein), Lewis sees economic history as narrative, and he writes it that way. With its principal focus on the unforgettable Steve Eisman, the book enables Lewis to keep himself and his ego out of the way until the very last chapter, so that for 252 of its 264 pages the work is a splendid entertainment, full of the energetic vitality of the dysfunctional buccaneers who made a ton of money while the rest of us were hiding in the kneehole of our desk or being taken to the cleaners by the wrong hedge fund manager. Though I have long recoiled from the manner in which Lewis's books often impose his new-kid mythology on events to which it is not wholly suited, I have to regard this book as a genuine breakthrough for its author and his myth. In spite of my longstanding reservations about Lewis and his work, I must recommend The Big Short unreservedly.
1 of 1 people found the following review helpful
5.0 out of 5 stars Another home-run for Lewis,
Michael Lewis's fabulous book, The Big Short: Inside the Doomsday Machine, is not, on the surface, a book about a decision-making, but in many ways, it's entirely about decision-making. According to Lewis, the near-collapse of the financial markets in 2008 was caused by a thousand small decisions: the decision of investment banking firms to go public in the 1980s, the decision to let bond desks run autonomously, the decision of rating agencies to issue ratings on instruments they clearly misunderstood, the the decision to permit investment dealers to enter into leveraged trades, the decision to allow home owners to enter into mortgages they could not afford to service, and the list goes on. But Lewis gets at the real problem: a problem that ' since the government was forced to prop up these institutions deemed too big to fail ' continues to go unaddressed: '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?' All business leaders know that behaviours tend to align themselves with the compensation system and the bailouts ensured that this compensation system remains out of whack. As Lewis wrote, 'That was the problem with money: What people did with it had consequences, but they were so remote from the original action that the mind never connected one with the other.' The book does not leave one with warm and fuzzy feelings but is a fantastic read nonetheless.
7 of 8 people found the following review helpful
4.0 out of 5 stars Entertaining Lewis Book,
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.
2 of 2 people found the following review helpful
5.0 out of 5 stars A Daisy Chain of Financial Malfeasance,
Michael Lewis's brilliant book "The Big Short," is billed as a sequel to his earlier biographical effort "Liar's Poker" which covered his 1980s experiences on Wall Street. It's a great example of why Malcolm Gladwell has called Lewis "the finest storyteller of our generation."
Subtitled "Inside the Doomsday Machine," the book chronicles the 2008 market collapse from the perspective of those who saw it coming and bet against the subprime mortgage market at the height of the housing bubble. The protagonists, whose foresight earned them fantastic profits, are a colorful lot, including: Steve Eisman, Danny Moses and Vincent Daniel (of FrontPoint Partners, owned by Morgan Stanley); Michael Burry (of Scion Capital); Charlie Ledley, Ben Hockett and Jamie Mai (of Cornwall Capital); and Greg Lippmann (of Deutsche Bank), and a handful of others.
Amazingly, none of these contrarian investors were experts in the housing market. They saw disaster coming while the "smart money" was betting that house prices would continue to rise and that subprime mortgages would pay off. It took this unlikely group of outsiders to see what was about to happen and undertake "the big short."
So what was the Doomsday Machine and how did it work? As Lewis points out, it was spawned by a toxic mix of the US housing bubble, sub-prime mortgage lending, investor greed, and the insatiable demand for leverage by Wall Street Banks. Aiding and abetting these factors were unwitting credit agencies populated by Wall Street rejects and wannabes.
Investors around the world wanted access to the ever-inflating American mortgage market. This gave lenders ever stronger incentive to push new loans out the door. Interest rates went down and credit standards for borrowers were relaxed again and again with demand filled by writing increasing numbers of sub-prime mortgages. Mortgage-backed security (MBS) sales were driven through the roof.
Many mortgage lenders practiced an "originate and sell" strategy - taking their profits by bundling the loans up as mortgage-backed securities and selling them to third parties, mainly investment banks, (thereby passing along the risk associated with the sub-prime mortgages they were writing). The investment banks then repackaged these mortgages in various ways and sold the mortgage debt of the US household sector to global investors. Among the exotic financial instruments used for this purpose were Collateralized Debt Obligations (CDOs).
CDOs were actually pyramids consisting of tranches representing various levels of risk and related interest payments. The riskiest level ("the mezzanine") got the highest rate of interest, but were the first to be wiped out as defaults rose. The least risky level at the top of the pyramid ("the penthouse") received the lowest rate of interest and were last to fall as defaults rose. Many of these portfolio slices received generous ratings of triple-B and even triple-A from the big rating agencies, creating a false sense of security among potential investors
This process was highly profitable for the financial sector and, as long as home prices were rising and producing good returns for investors. But, when the market turned, things got really ugly. It was a house of cards. Lewis notes that for the whole system to collapse, the housing market didn't need to fail in absolute terms. It didn't even need to fall. It just had to stop growing as fast as it had during the boom years. Of course, as fate would have it, that's precisely what happened.
In the ultimate irony, firms like Goldman, who created and sold CDOs, bet against their own investors by buying Credit Default Swaps (CDSs) which insured the mortgage-backed securities they were selling against default. (For a few cents on the dollar a CDS commits the seller to pay the full value of the contract if a mortgage-backed bond defaults, or becomes worthless.)
What this meant was that, to mitigate its own exposure, Goldman was betting against its own customers. And, by aggressively taking the other side of this risk by selling CDSs for a small return, firms like Morgan Stanley put billions of dollars of their proprietary capital at risk. Not smart!
Just how bad were the mortgages underpinning the subprime mortgage market? Lewis provides an example of "a Mexican strawberry picker in Bakersfield California with an income of $14,000 and no English who was given every penny he needed to buy a house for $724,000." This was cited as an example of the type of "no-doc mortgages"(no evidence of income or employment) that helped fuel the market collapse.
In short, the Doomsday Machine was a massive Ponzi scheme that, save for a massive government bailout, could have collapsed the entire global financial system.
If you're keeping score, Lewis points out that Morgan Stanley's $9 billion trading loss was "the single biggest trading loss in the history of Wall Street." But this pales to insignificance when you consider that the losses include five million jobs in the United States alone and some 40 percent of the world's wealth. In addition to the billions in taxpayer and investor losses, the human tragedy toll included evaporated pensions, ruined careers and, in many cases, lost homes.
In retrospect, the questions posed by this book are: "Has anything really changed on Wall Street?"; "Has financial regulation improved?"; and, most importantly, "Could something like this happen again?"
1 of 1 people found the following review helpful
5.0 out of 5 stars Highly entertaining account of the few people who saw the crash coming,
And of course, they proved it by putting their money at stake, which paid off for them enormously. The surprising thing is how few people actually truly did understand what was coming. Some thought they did and ended up getting hurt anyway . . . this is a highly fascinating book that will make you shake your head when you come out the other side. You thought the people on Wall Street were smart . . . well, maybe they're too smart.
4.0 out of 5 stars `What kind of people, in which parts of the country, exhibited the highest degree of financial irresponsibility?',
We are still living with the consequences of the global financial crisis of 2008. A sad story of losses and losers resulting from the construction and application of flawed mathematical models, untested assumptions and greed. Much has been written about the process of turning subprime mortgages into financial products which were then sold, after being accorded triple A (or equivalent) ratings by ratings agencies. Much is being spent by governments around the world to try to repair the damage. And, hopefully, changes are being made to try to ensure that such disasters are avoided in future.
In this book, Michael Lewis tells the stories of some of those people who analysed the market and saw the possibility that instruments created on the foundation of subprime mortgages could fall. In such circumstances, going short could reap a fortune.
So, how did these people know this? Were they prescient, or just lucky? Maybe both: together with the fact that they undertook some analysis of the subprime mortgages and realised that the facade was rotten. Who were these people? Mr Lewis writes about Steve Eisman and his team, who understood the US housing market and Wall Street. He writes of Michael Burry, who immersed himself in the bond market, and of the `garage band hedge fund' created by Jamie Mai and Charlie Ledley.
I found this book interesting because it sheds light on a different aspect of the crisis. Its discomforting to think that while some individuals undertook the analysis required to determine an opportunity for profit, the multiple entities involved in the subprime mortgage financial path (from lending money initially to manufacturing the financial products sold as a consequence) did not undertake appropriate risk analysis. And now, sadly, individuals and taxpayers are bearing the cost.
`Success was individual achievement; failure was a social problem.'
5.0 out of 5 stars Wow.,
This is one of the best books I have ever read.
The one negative thing I have to say about The Big Short is that it had a lot of swearing and foul language. Very off putting.
I finally understand what happened with Subprime mortgages. It's the best explanation I've come across.
Furthermore, it presents another side to the much maligned short sellers. (People who make negative bets). These are not wall street insiders. These are people like you or me. People you could identify with. People who had guts of steel and the insight to disbelieve something that should have been obvious. These mortgages were going to fail.
Personally, I identify pretty strongly with the books whipping boy, Mike Burry. I imagine that as the story becomes more well known, he'll be seen as a role model by those of us with Asperger's Syndrome. I mean, the guy listens to Heavy Metal to relax. I listen to heavy metal to relax! How can I not identify with that?
Mike Burry's story is an example of how just because you were right, and made a lot of money, it can still read like a tragedy.
This is not an underdog story. It's nothing but underdog stories. This would make a great movie. Might even win some awards for all what little that's worth.
If you want to understand the crash, and see the little guys triumph over a corrupt and decedent institution? This is the book for you. This is the silver lining on the black clouds of subprime. But man these are some bittersweet victories.
5.0 out of 5 stars I finally know why!!!,
This review is from: The Big Short (Paperback)
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 headquarters put a freeze on all hiring. The financial meltdown that hit touched everyone's lives. Reading this book finally helped me understand why it happened. Michael Lewis successfully breaks down a complex subject manner in a way that is easy for people to understand. This book is not a financial textbook, instead the subject manner is explained to you as you follow the lives and stories of the people in the book. I now have a basic understanding of how wall street works..... or doesn't work.
5.0 out of 5 stars Selling flood insurance to a homeowner underwater,
Michael Lewis is an excellent author for his ability to explain complicated financial instruments in a way that a layman can understand. The Big Shot does this extremely well and gives a detailed account of the run-up to the 2008 financial collapse by looking at different perspectives in a way that makes it a page turner. This is an account of events that I have heard "talking-heads" on news networks steal analogies from and policy-makers and politicians use in their explanations of events. I'm now reading "Liar's Poker", Michael Lewis' account of the collapse of Soloman Brothers, because I liked this so much. 100% recommend to anyone.
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The Big Short by Michael Lewis (Paperback - Feb. 1 2011)
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