on December 19, 2012
Reviewed by Mitchell Rhodes
The Big Short takes the reader on a fantastic ride inside the most recent, and many would say ongoing, financial crisis. Lewis introduces us to people who bet against the subprime mortgage market, in all its variations, and in doing so became unimaginably wealthy. They are presented as a few select heroes pitted against the corrupt and often stupid villains of Wall Street insiders and their legion of minions. Has anything really changed since then?
If Dr. Evil ever resurfaces in another installment of Austin Powers, puts his little finger to his mouth and makes a ransom demand for anything less than, “one gazillion dollars,” it will seem preposterous and, once again, a cue for all to laugh.
The shock and awe of billions or even trillions of dollars are past us. They are now just strings of meaningless zeros heading off into the vastness of infinity. Take for example the capitalized notional value of derivatives—pegged at 1.2 quadrillion dollars (December 2012). Really?
That’s the equivalent of 20 years worth of economic activity for the entire planet. And derivatives are only one asset class expecting a return on investment (ROI). When others classes, such as stocks, (traditional) bonds, money market instruments, real estate holdings, etcetera, are added to the mix, financial expectations, going forward, become even more unrealistic and ridiculous.
Due to a system of circular collateralization, debt, money and other financial assets essentially get boiled down to the same thing—mental constructs of value. The assigned values are now stratospheric. At best, they are delusional, dishonest and corrupt, and at worst, dangerously catastrophic.
It’s not the values in and of themselves that represent a threat; it’s the global financial system—and everyone in it expecting some sort of benefit, return or payback. Interest on global debt (estimated at $100 trillion), along with the expected ROI on other assets, requires continuous growth and a level of physical activity that’s beyond the productive capacity of a finite planet to produce it.
The level of physical activity being undertaken to meet the demands of the global financial system is literally killing off the natural capital that’s required to sustain human life. The ongoing financial crisis is not about strengthening banking regulations, reeling in reckless spending, evoking austerity measures or even curtailing greed, it’s how to deal with the consequences of a global capitalistic system that will ultimately fail. And along with that managing the psychotic state of human collective consciousness arising out of our committed efforts to try and save a doomed system.
For now, it seems, nearly everyone continues to be bullish on capitalism. Those with a desire to become gazillionaires are shorting natural capital markets and are betting that an ecological and social collapse can be avoided. Inherently, and by extension, they have deliberately and without shame or guilt shorted the rest of us too.
And yet, who’s effing who here? Each time we climb into the hamster wheel and begin to run, aren’t we also willingly putting everything at risk?
Most of what you've just read doesn't show up directly in The Big Short—rather it's been inspired by it. The story does tell of a select few who saw things differently and had the courage to act. I’ve taken a short position on capitalism. Crazy! Read The Big Short: Inside the Doomsday Machine and then judge.
on January 8, 2012
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 Financial Meltdown that despite being a gripping tale, is still confounding to both the brain...and the spirit. This is the second book by Mr. Lewis I've read on this theme...the first being 'Boomerang'...and though I believe I understand more of 'what happened' back then, I'm still bewildered, and the questions I have are less about the specifics, or even 'Why was it allowed to happen?' than issues a few steps back from all that. Nevertheless, my gratitude to the author for once more adding some delineation to the subject.
In dealing with the latter...
I'm not going to say much that's new here, but I'll proceed anyway: I believe that one of the greatest bulwarks against 'progress' towards a more humane society in North America is the conflation going on regarding 'capitalism' and 'democracy'.
People see the word 'capitalism' and think 'democracy'.
And in the US especially, you don't mess with anyone's democracy...and therefore, you don't mess with anyone's capitalism. No matter how much each need to be 'messed with'.
Moreover, in America once you wrap an issue in the flag, all discussion effectively ends. So it's very difficult to talk about economics, about 'the travails of the 99%', about political reform, about just about anything having to do with Life Being Lived, without setting off a conflagration. Because, of course, it's all connected to democracy, the imperfect experiment, but the only system that 'In God We Trust' Americans have any faith in. Therefore, nothing really changes.
Add into the mix the utter manipulation of modern media to effect the whims and priorities by Those People From Both Arenas That Dicate The Dance (capitalism and democracy) as well as the pretty-shameful ignorance on the part of the average participant of each about each arena...and you've got the mess we're witnessing today.
People will not fight for something, notion, a cause, that they don't grasp. And in both instances, capitalism and democracy, there's been a pretty much wholesale 'hands-off' attitude about them...resulting in, for example, nothing being done about What Happened On Wall Street: nobody was charged.
What did I most get from 'The Big Short'? The inkling that if what happened had happened in another arena...say, the manufacturing of biological weapons, for instance...and there had been a catastrophe of equal proportions, then all Hell would have broken loose and that previous landscape would never have been the same. People simply would not have tolerated it. But because we're talking 'capitalism', because there's so little comprehension about it, because there's so much resignation and apathy...combined with 'capitalism' being the great dance partner with 'democracy'...nothing was done.
(A film adaptation of Mr. Lewis' book...the third one to be done, after 'Moneyball' and 'The Blind Side'...is schedded for release in 2014.)
Personal rating: 9/10
on March 21, 2011
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 I see it everywhere in some way and didn't quite understand what caused all of that.
I can't say I completely understand everything in this book. Lewis definitely expects that the read has some understanding of stocks and bonds and definitions, but the more complicated things are explain a few times in the book, in a few different ways, using metaphors and illustrative language.
I also like that the various people he talks about become characters as he describes their personality and mannerisms, and provides back stories. Giving the reader characters to interpret and painting them sometimes in an unflattering light, makes for interesting reading between complicated economic analyses.
For anyone who is interested in what happened before the crisis, this is an interesting read.
For more of my thoughts - visit
on April 13, 2010
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.
on June 26, 2011
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.
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.'
on May 6, 2010
Best book I have read so far this year! Lewis is a gifted storyteller and perfectly balances strong narrative with clear explanations of complex financial transactions. Even though some of the transactions are so complex that the financial industry didn't fully understand them, Lewis never loses sight of the fact that entertainment is the primary goal. He reveals the utter greed and recklessness that engineered and propelled the subprime crisis. No doubt it helped the story that the real life characters involved are so extraordinarily brash and cynical they make the fictional Wall Street's Gordon Gecko pale by comparison.
on August 24, 2013
I was entertained and educated at the same time. Makes me wonder how the financial systems all over the world has come to naught and everyone is acting like all is well.
on May 29, 2015
Now I understand "shorting"
on April 18, 2016
East to read and understand.