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The Big Short: Inside the Doomsday Machine |  | Author: Michael Lewis
Publisher: W. W. Norton & Company
Category: eBooks
This item is no longer available
Rating:  490 reviews
Sales Rank: 51
Format: Kindle Book
Media: Kindle Edition
Pages: 266
Number Of Items: 1
Dewey Decimal Number: 330.973
ASIN: B003LSTK8G
Publication Date: May 12, 2010
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Product Description
Truth really is stranger than fiction. Who better than the author of the signature bestseller Liar-s Poker to explain how the event we were told was impossible-the free fall of the American economy-finally occurred; how the things that we wanted, like ridiculously easy money and greatly expanded home ownership, were vehicles for that crash; and how shareholder demand for profit forced investment executives to eat the forbidden fruit of toxic derivatives.Michael Lewis-s splendid cast of characters includes villains, a few heroes, and a lot of people who look very, very foolish: high government officials, including the watchdogs; heads of major investment banks (some overlap here with previous category); perhaps even the face in your mirror. In this trenchant, raucous, irresistible narrative, Lewis writes of the goats and of the few who saw what the emperor was wearing, and gives them, most memorably, what they deserve. He proves yet again that he is the finest and funniest chronicler of our times.
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Showing reviews 1-5 of 490
 Who knew? March 15, 2010
AdamSmythe (Colorado)
766 out of 807 found this review helpful
Based on reading Michael Lewis' Liar's Poker and Moneyball, I wondered whether The Big Short would prove to be entertaining and informative. If you've read some of Lewis' books, you might agree that the "entertaining" part would seem to be a reasonably safe bet. It turns out, it is. The Big Short is fast-paced, straightforward, conversational and salty--very much like his earlier works. Indeed, if you didn't know Michael Lewis had written this book, you could probably guess it. It is easy reading and very hard to put down. In short (no pun), The Big Short doesn't disappoint in being entertaining.
In a sense, this book is similar to Moneyball in that Lewis tells his story by following a host of characters that most of us have never heard of--people like Steve Eisman (the closest thing to a main character in the book), Vincent Daniel, Michael Burry, Greg Lippmann, Gene Park, Howie Hubler and others.
How informative is the book? Well, it may seem that Lewis has his work cut out for himself, since the events of the recent financial crisis are already well known. More than that, lots of people have their minds made up concerning who the perps of the last few years are--banks and their aggressive managers, "shadow banks" and their even more aggressive managers, hedge funds, credit default swaps, mortgage brokers, the ratings agencies, Fannie Mae and Freddie Mac, the Fed's monetary policy, various federal regulators, short sellers, politicians who over-pushed home ownership, a sensationalist media, the American public that overextending itself with excessive borrowing (or that lied in order to get home loans), housing speculators, etc. The list goes on--and on. Okay, so you already know this. The defining aspect of this book, however, is that it asks (and answers) "Who knew?" about the impending financial crisis beforehand. Who knew--before the financial crisis cracked open for everyone to see (and, perhaps, to panic) in the fall of 2008--that a silent crash in the bond market and real estate derivatives market was playing out? Indeed, the good majority of this book addresses events that occurred before Lehman's failure in September of 2008. In describing what led up to the darkest days of the crisis, Lewis does a good job helping the reader to see how the great financial storm developed. All in all, this is an informative book.
Interestingly, in the book's prologue, Salomon Brothers alumnus Lewis explains how, after he wrote Liar's Poker over 20 years ago, he figured he had seen the height of financial folly. However, even he was surprised by the much larger losses suffered in the recent crisis compared to the 1980s, which seem almost like child's play now.
For a taste of The Big Short, Steve Eisman was a blunt-spoken "specialty finance" research analyst at Oppenheimer and Co., originally in the 1990s, and he eventually helped train analyst Meredith Whitney, who most people associate with her string of negative reports on the banking industry, primarily from late 2007. Giving a flavor of his style, Eisman claims that one of the best lines he wrote back in the early 1990s was, "The [XYZ] Financial Corporation is a perfectly hedged financial institution--it loses money in every conceivable interest rate environment." His own wife described him as being "not tactically rude--he's sincerely rude." Vinny Daniel worked as a junior accountant in the 1990s (and eventually worked for Eisman), and he found out how complicated (and risky) Wall Street firms were when he tried to audit them. He was one of the early analysts to notice the high default rates on manufactured home loans, which led to Eisman writing a 1997 report critical of subprime originators. Michael Burry (later Dr. Michael Burry) was, among other things, a bond market researcher in 2004 who studied Warren Buffett and Charlie Munger, and who correctly assessed the impact of "teaser rates" and interest rate re-sets on subprime loans. In 2005, Burry wrote to his Scion Capital investors that, "Sometimes markets err big time." How right he would be.
Greg Lippmann was a bond trader for Deutsche Bank, who discussed with Eisman ways to bet against the subprime mortgage market. Before home prices declined, he noted, for example, that people whose homes appreciated 1 - 5% in value were four times more likely to default than those whose homes appreciated over 10%. In other words, home prices didn't need to actually fall for problems to develop. (Of course, home prices fell a lot.) When Lippmann mentioned this to a Deutsche Bank colleague, he was called a Chicken Little. To which, Lippmann retorted, "I'm short your house!" He did this by buying credit default swaps on the BBB-rated tranches (slices) of subprime mortgage bonds. If that's not a mouthful, read further in the book for a description of Goldman Sachs and "synthetic subprime mortgage bond-backed CDOs." Then there's the AIG Financial Products story, told through the story of Gene Park, who worked at AIG, and his volatile boss, Joe Cassano.
Did I say this book is informative? Here's a bit more: Did you know that a pool of mortgages, each with a 615 FICO score, performs very differently (and better) than a pool of mortgages with half of the loans with a 550 FICO score and half with a 680 FICO score (for a 615 average)? If you think about it, the 550/680 pool is apt to perform significantly worse, because more of the 550 FICO score loans develop problems. Think about how that got gamed.
There's more, but hopefully you've gotten the point. This is a very interesting, entertaining and informative book that accomplishes what it sets out to do. Chances are you'll enjoy it.
Liars Poker Squared March 15, 2010
R. Spell (Memphis, TN USA)
216 out of 243 found this review helpful
Mike Lewis has the gift for watching America and picking stories that are interesting to the public: in the last ten years Moneyball (the effect of statistical analysis on baseball) and The Blind Side (Importance of Left Tackles in American Football and rescuing an impoverished athlete). But his undying fame was Liars Poker, the story of Solomon Brothers Investment firm where he worked when 24 and made bonuses of about $200,000 without really understanding what he was doing. Possibly the most interesting part of this book is the foreward where Lewis describes how he felt when writing Liars Poker Wall Street provided worthless value to the economy and it was just a matter of years before the market recognized this. Unfortunately he was about 24 years too late. Couple this with his closing lunch with John Gutfruend and you have a great bookend for closure.
Now Lewis presents us with this bookend to Wall Street, how it universally missed the bad securities being issued backed by subprime securities destroying over $1 trillion in wealth. And his vehicle for this exploration is not a complete rehash but rather documenting the very few people (he estimates fewer than 20) that recognized that market crash coming and profiting immensely, people like Michael Burry, a Stanford Medical student who left to manage his own Hedge Fund. Actually there were many more than 20 people that knew this was coming. I began giving speeches in 2004 on "The Coming Crash in Home Prices". But these people he mentioned left conventional wisdom in believing that the subprime mortgages were worthless AND discovered the newly created tools to profit from them: credit default swaps and the ABX index. With the belief and knowledge these investors were rewarded handsomely whereas the rest of us suffered through a very downbeat market. But they deserved it and in Lewis' upbeat writing style he conveys eloquently but simply how the decisions were made and how they profited beyond belief.
There is one problem with this book. The subject was just covered quite well in The Greatest Trade Ever by Gregory Zuckerman which was released in November 2009. I've now read both books and there is an overlap. Greatest Trade is a very fast read and tells the story well focusing on John Paulson. This book doesn't delve on Paulson but does cover Michael Burry who was featured in the other book also.
Since so many reviews seem to be more interested in giving their political view of this tragic occurence, I'm compelled to weigh in on this issue even though I know this will upset some politcally closed minds. We must recognize if it was so easy to comprehend and solve we would have all profited in the manner these investors did rather than suffer through the last two years. We wouldn't have had the meltdown that we had. The smart people on Wall Street would not have overleveraged creating the steep downward ascent in destruction of wealth as we deleveraged. Specifically, I'm startled how many people want to blame politicians and FNMA/FHLMC. As a seller of $1 billion a year to these entities and some knowledge of their loss history as well as debating this issue with a former Vice Chairman of one of these entities who is a neighbor, it is shocking when you hear people talk of the subprime mortgages that FNMA/FHLMC owned. Did they do some such targeted loans? Yes. But half their losses came from their foray into Alt A loans. Coupled with the drop in property value and low equity position (they were leveraged at an unsafe 30 to 1 ratio) their insolvency was guaranteed if there was a downturn. Why were they not managing for this? It wasn't politically motivated. It was profit motivated. Quasi-guaranteed by the govt. they could issue callable agencies, their drug of choice, and arbitrage this money into a higher yielding security which they did. UNTIL the losses started. With 3% equity/custion, the 30 to 1 leverage immediately worked against them. Where were the regulators? Where was management managing risk? As the Vice Chairman said, the problem was property value drop. Well, with much advance notice and concern, WHY WEREN'T YOU MANAGING FOR THIS?????
With that as a background, let's approach the question of should there be a FNMA/FHLMC? I believe there should be. Exactly what do they do? When they are not leveraging for earnings which BTW they started in the early 90s when loan volume dropped and they recognized they needed to do something else to "gin" earnings, they perform their intended function to make borrowing cheap for homeowners. If there were no FNMA/FHLMC for the past two years 30 year mortgage rates for the last two years would not have been 4.25% to 5.25% but rather approximately 5.75% to 7.50%. In addition there would have been a lot more balloon or adjustable rate loans. Now, does America want this higher rate when an effective "NON-Profit" or govt. entity could maintain this function? I think not and I think we need to recognize that the recovery would have been much slower if many people would not have had the availability of this lower cost money to buy homes and refinance to lower rates. Enough with policy and now back to a conclusion.
But Lewis' writing style makes this book and his credibility from having written Liars Poker and the unique perspective of having worked in the industry and left it will make this a big hit. I strongly recommend this well written, important book.
BookForum review March 23, 2010
Seth Hettena (San Diego, CA USA)
29 out of 32 found this review helpful
In the run-up to the housing collapse of 2007-2008, houses weren't merely expensive, they were insanely expensive. Yet just when it seemed that prices couldn't go higher, some fool would come along and pay an enormous sum for a glorified hovel. You didn't have to be a genius to realize that American real estate was overvalued. It did, however, take something special to figure out how to make money off the madness. A group of between ten and twenty people did just that, making the bet of a lifetime that author Michael Lewis calls "The Big Short"
The cast of characters in Lewis's highly readable chronicle of the collapse (and what led to it) includes a misanthropic former medical resident, a money manager who saw himself as Spider-Man, and a pair of men in their thirties who started with $110,00 in a Schwab account they managed from a backyard shed in Berkeley, California. "Each filled a hole," Lewis writes. "Each supplied a missing insight, an attitude to risk which, if more prevalent, might have prevented the catastrophe."
Ever since he left Salomon Brothers to write Liar's Poker, the classic 1989 account of his years as a bond salesman, Lewis has been waiting for a day of reckoning. Little did he realize that the Wall Street he once knew now seems quaint. By 2007, it had morphed into a financial Frankenstein, a "black box" filled with hidden risks on complicated bets that could destroy its creators, but only if the government allowed it to do so.
The first to figure out how to use the system against itself was a man named Michael Burry, who once described himself in an online personal ad as "a medical student with only one eye, an awkward social manner, and $145,000 in student loans." Burry possesses an intellect so unusual that Lewis turns his journey of self-discovery into a fascinating subplot. While working the grueling schedule of a medical resident, Burry started writing about stocks in an online forum. (He also took apart his personal computer and put it back together between 16-hour shifts at Stanford Hospital, prompting his superiors to send him to see a shrink.) When he quit medicine to start the hedge fund Scion Capital, admiring investors tracked him down and gave him money.
When Burry started buying insurance in 2005 on nearly two billion dollars' worth of bonds backed by lousy mortgages, his investors thought he had gone nuts and nearly mutinied. But in 2007, when the housing market began to crumble and Burry's bet paid off, everyone realized that his predictions weren't crazy so much as a sane interpretation of a market gone mad.
Burry might have set the trade in motion, but he was no salesman. The one who took his idea and ran with it, the "Patient Zero" of this tale, was a bond salesman at Deutsche Bank named Greg Lippmann, who went around telling everyone he could that the end was near. Only a few took his advice, but most who did became extremely rich. (John Paulson, who made an astounding personal profit of four billion dollars, is the subject of another recent book on the same theme, Gregory Zuckerman's The Greatest Trade Ever.)
The reader can't help but root for this gang of financial renegades as they take on a corrupt and rotten system. Still, The Big Short lacks the pure narrative drive of Lewis' best-selling sports books, Moneyball and The Blind Side. The new work draws its energy from a different source, a palpable undercurrent of anger at the excesses of Wall Street the author shares with his subjects. Lewis is justifiably outraged at the behavior of Wall Street and what its trillion-dollar subprime-mortgage business truly represented: a means of extracting money from the bottom of America's social pyramid and moving it to the top. The problem isn't that Lehman Brothers failed, he shrewdly observes, but that it was allowed to succeed in the first place.
Lewis reserves special scorn for the biggest banks. Goldman Sachs was selling large volumes of bonds backed by subprime mortgages and, at the same time, betting against the junk it was peddling. The Big Short also tells the little-known tale of how Morgan Stanley allowed a single trader to lose more than $9 billion.
It's appalling, but not much has changed. Most Wall Street CEOs who set a course for the iceberg remain in power today. The blind are still leading the blind. At any rate, as Lewis observes, they still can't see things any better than a one-eyed former medical resident.
Informative and entertaining March 15, 2010
Philip Trubey (Rancho Santa Fe, CA United States)
38 out of 46 found this review helpful
Hugely entertaining look at the genesis of our current economic mess. Lewis finds the very few investors who predicted and profited from the sub-prime mortgage meltdown and follows their journey from initial realization of the impending disaster to eventual payout. Following these eccentric characters and their interactions with the big Wall Street investment banks is at turns laugh out loud funny and head shaking incredulous. Lewis knows how to turn a phrase and does a good job teasing out the dark humor of the situations. He also does a very good job at explaining the essence of very complicated financial transactions and gives the reader a good understanding of the whys and hows of the financial meltdown. While this book is an important addition to our understanding of what happened, it isn't complete as it doesn't spend any time talking about US government policies that contributed to the crash (specifically, the special legal status given to the three rating agencies, and Fannie and Freddie's role in weakening underwriting standards). Nonetheless, this is still both an important and entertaining book.
Beware: One Star Reviews Based Only on Kindle Availability March 16, 2010
T. Bone (Bremerton, WA United States)
59 out of 75 found this review helpful
I just read through all the reviews. 35 of 41 one-star reviews were to punish Amazon for not making the book available on Kindle at the time of their review. They haven't read the book and don't intend to until it's on Kindle--but that's not going to stop them from punishing Michael Lewis to get back at Amazon. I suppose Amazon should have two rating systems--one for what the author actually wrote, and a second to tally the numbers of those expressing disapproval for the book not being available on Kindle.
The Big Short is a wonderful read, well-written and informative. Lewis is a storyteller who roots his understanding of human activity in humans rather than in larger "processes". There's nothing wrong with observing the latter, but without humans there would be no economics, financial markets, etc. Nature doesn't provide for them, people do, and people have stories. They make decisions. They do intelligent things, selfish things and nutty things. These things are the threads woven into the larger tapestry. Lewis doesn't tell the WHOLE story of the financial meltdown, but he identifies many of the key players and how their decisions made a difference to the Big Short. He names Names. His prose, as always, is clear, witty and informative. The Big Short filled in many gaps in my understanding of how smart people can make a lot of money without really knowing (or caring) about how their industry actually works or what the consequences of their decisions might be. Makes you wonder.
Showing reviews 1-5 of 490
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