The Big Short
by Michael Lewis
(*By the way: I haven’t seen the movie. This is just about the book.)
That’s kind of all I can say. Oy. Or maybe Oof. Like I’ve been punched in the stomach.
I mean, I knew it was coming. I knew what happened in 2007 when the economy collapsed. I knew it was because commercial banks turned personal finance accounts into commodities. I knew they overextended themselves, leveraging assets 35-40 times, creating hundreds of billions of dollars of imaginary wealth, largely in order to earn commissions. I knew they made the financial system collapse, and then the government bailed them out with TARP, handing over hundreds of billions of taxpayer dollars without any stipulations, because the companies were “too big to fail.” I knew that millions of those dollars were used to pay bonuses to the brokers and executives that devastated the economy. I knew that nobody went to jail, and I’m pretty sure that Wall Street is back doing a lot of the same things again, for exactly the same reasons.
But still, having it broken down for me in even greater detail was like getting punched all over again.
It’s a pretty good book. I think it didn’t quite go basic enough for me, though I liked the way that it was written. Essentially, Michael Lewis — who started as a Wall Street guy back in the 80’s — went out and found the people who figured out that the collapse was coming before it came, and reacted accordingly. Then he got the whole story from three of them: a hedge fund manager in California, an investment group, and a small brokerage firm. In each case, these people saw, because of their own unusual perspectives, that there was something deeply flawed about the market in the first half of the 2000’s. And they bought and sold based on what they saw, and while the economy collapsed, they made money hand over fist. But it’s not a story of capitalism, not really; the overriding impression you get is that these guys went from excited for the opportunity they saw, to deeply disturbed that nobody else could apparently see what was happening, to horrified about how bad the problem was going to get before things simply broke.
And why did all of that happen? Why did everything break? Because people were making money. Sure, doing so was ruining millions of other people; but what does that matter? As long as I get mine.
So yeah, the book made me angry, all over again. I’m sure it won’t be the last time I’m angry over the financial system in this country, nor over the collapse, nor over the way our government handled it. But this time I was definitely angry.
So I can’t say I recommend the book. It was a little hard to follow, as it assumes a certain basic understanding of bond trading, of interest rates and tranches and collateralized debt obligations, that I didn’t really have. It does explain most of the technical matters quite well, but I still had to ask my wife about some of it. And, of course, the subject won’t interest most people, and if you are interested, it will likely make you really angry. It did me.
But if you want to get angry — or if you’re already angry, and you’d like to know more about why and how — then read it. It tells the story extremely well.