Book 18: The Big Short
This is the story of the 2008 collapse of the sub-prime mortgage market in the US, leading to a virtual worldwide economic meltdown, and how banks and wall street firms enabled it to happen. It’s hard to know what to be most outraged about after reading the book. Is it that the banks colluded in artificially propping up the rates on their bonds when the mortgages started to fail? Is it that they lured low-income Americans into taking outrageously large home-owner loans with no money down and introductory low payments in order to feed the mortgage bond business? And that this was done because it was a huge money-maker for them? Is it that nobody on wall street bothered to look closely at what was in the bonds they were selling? Or that they knowing took advantage of a ratings agency loop hole to make B-rated bonds look like they were triple-A so they could sell them to low-risk investment portfolios? Or is it that, when all these actions resulted in an economic disaster of global proportions, only one person ever went to jail? I am still deciding.
The Big Short took an insanely complicated (and, to some of us, mind-numbingly boring) topic and made it interesting and provocative. It is, in fact, Michael Lewis’s super-power to be able to explain dense mathematical and financial concepts in a way that makes them meaningfully understandable. I may still not be able to explain what a credit default swap really is, but I do have some idea of how it was used to bet against the US housing market. And this is important because when governments talk about regulating this industry, we need to understand why, and what the risks are of not doing so.
If reading about financial markets kind of turns you off, I can also recommend the movie. Winning the Oscar for best adapted screenplay (rightly so), it ups the accessibility of the subject by using various, entertaining film-making techniques. Picture supermodel Margot Robbie explain CDOs while taking a bubble bath. Whatever your preferred medium, this is a story worth learning about.
Rating: Buy it. Even with his super-powers, Michael Lewis can’t quite pull this one off in just one read. Of maybe it’s just me. Either way, it’s a book worth having on your shelf.
