After reading approximately twenty books on the financial crisis, all from different perspectives, I was prepared to call it quits. WhenThe Big Short
(authored by Michael Lewis) was released I debated whether it was worth the time reading another book on the financial crisis. Lewis is a phenomenal author of two other best sellersLiar's Poker
andMoneyball
. After months of the Big Short remaining on the best seller list, and with some nagging by some of my friends who read the book I decided I had to read it.
It was a very good decision to read the book. The book is very interesting and I finished reading it within several days. The Big Short takes a very different approach than all the other books that have so far been written on the financial crisis. Lewis focuses on several obscure investors who made massive returns by betting against the housing market in various ways. Some of these investors shorted Credit Default Obligations (CDOs) that were riddled with loans that would be completed worthless if there was even a slight drop in housing prices. Other bought Credit default swaps (CDs) when they were cheap and when the bubble burst sold them for a massive return. Others sold short banks and evern housing stocks. Among the investors of the book who now have become quite famous are; Michael Burry (a former doctor), Steve Eisman (research analyst), Greg Lippmann (bond trader for Deutsche Bank), and Vinny Daniel who worked as a junior accountant in the 1990s.
While Lewis does a good job at staying apolitical during the book, there are clearly two villains in the book: The credit rating agencies, and Goldman Sachs. The credit rating agencies were riddled with problems. For example Vinny Daniel met with a woman who was responsible for evaluating subprime mortgage bonds. She could not individually downgrade the bonds. She admitted a list of 100 bonds to be downgraded, to her superiors and they would only approve a quarter of her requests with no explanation as to why they rejected the other 75%. Another example of Moody’s incompetence was discovered by Steve Eisman. He could not understand why all different examples of CDOs traded at the same price, even though they had many differences all because Moody’s bestowed the same rating for that category of CDOs.
Goldman sachs the other villain allowed Michael Burry to buy credit default swaps, which they would immediately sell to AIG. Michael Bury asked seven Wall Street Banks to help him bet against the subprime market and only Goldman and Deutsche Bank expressed any interest. Goldman would transfer all the risk to AIG, and make money on the spread. According to Lewis Goldman transferred $20 billion of risk to AIG, on which AIG earned a few million dollars a year. In several previous articles, I defended Goldman Sachs from a lot of the criticism they were receiving from the public, however Lewis made me think twice about Goldman’s contribution to the financial crisis.
The one disappointment of the book was the abrupt ending. Lewis built up the whole plot of the book about the manner in which several investors made spectacular money on the decline in the housing market. He described their increasing anxiety about losing money in the beginning, and the pressure some faced, Burry for example from investors to sell these obscure instruments. However, Lewis only devoted a few pages to the crash of Lehman Brothers when CDOs and CDSs suddenly had massive swings.
Notwithstanding this lack of an ending, the book was really entertaining and hard to put down. I think this book could be enjoyed by the average American or a person who has worked in finance their whole life. This is probably the reason why the book has been on the best seller list for quite some time.
To purchase the book on Amazon.com click on the following link:The Big Short
Disclosure: No positions in any of the companies mentioned in the article.
I receive free books from book publishers asking me to review them. In addition I sometimes request specific books that look interesting. I try to review the books that I think will be the most interesting. I have a material connection because I received a free copy of this book from the publisher. In addition I receive a small commission if you click on the above link and buy the book (or anything else) from Amazon.com It does not cost you a penny more. So I get a commission, Amazon gets a sale, and you get your book so it is a win for everyone.
(authored by Michael Lewis) was released I debated whether it was worth the time reading another book on the financial crisis. Lewis is a phenomenal author of two other best sellersLiar's Poker andMoneyball. After months of the Big Short remaining on the best seller list, and with some nagging by some of my friends who read the book I decided I had to read it.It was a very good decision to read the book. The book is very interesting and I finished reading it within several days. The Big Short takes a very different approach than all the other books that have so far been written on the financial crisis. Lewis focuses on several obscure investors who made massive returns by betting against the housing market in various ways. Some of these investors shorted Credit Default Obligations (CDOs) that were riddled with loans that would be completed worthless if there was even a slight drop in housing prices. Other bought Credit default swaps (CDs) when they were cheap and when the bubble burst sold them for a massive return. Others sold short banks and evern housing stocks. Among the investors of the book who now have become quite famous are; Michael Burry (a former doctor), Steve Eisman (research analyst), Greg Lippmann (bond trader for Deutsche Bank), and Vinny Daniel who worked as a junior accountant in the 1990s.
While Lewis does a good job at staying apolitical during the book, there are clearly two villains in the book: The credit rating agencies, and Goldman Sachs. The credit rating agencies were riddled with problems. For example Vinny Daniel met with a woman who was responsible for evaluating subprime mortgage bonds. She could not individually downgrade the bonds. She admitted a list of 100 bonds to be downgraded, to her superiors and they would only approve a quarter of her requests with no explanation as to why they rejected the other 75%. Another example of Moody’s incompetence was discovered by Steve Eisman. He could not understand why all different examples of CDOs traded at the same price, even though they had many differences all because Moody’s bestowed the same rating for that category of CDOs.
Goldman sachs the other villain allowed Michael Burry to buy credit default swaps, which they would immediately sell to AIG. Michael Bury asked seven Wall Street Banks to help him bet against the subprime market and only Goldman and Deutsche Bank expressed any interest. Goldman would transfer all the risk to AIG, and make money on the spread. According to Lewis Goldman transferred $20 billion of risk to AIG, on which AIG earned a few million dollars a year. In several previous articles, I defended Goldman Sachs from a lot of the criticism they were receiving from the public, however Lewis made me think twice about Goldman’s contribution to the financial crisis.
The one disappointment of the book was the abrupt ending. Lewis built up the whole plot of the book about the manner in which several investors made spectacular money on the decline in the housing market. He described their increasing anxiety about losing money in the beginning, and the pressure some faced, Burry for example from investors to sell these obscure instruments. However, Lewis only devoted a few pages to the crash of Lehman Brothers when CDOs and CDSs suddenly had massive swings.
Notwithstanding this lack of an ending, the book was really entertaining and hard to put down. I think this book could be enjoyed by the average American or a person who has worked in finance their whole life. This is probably the reason why the book has been on the best seller list for quite some time.
To purchase the book on Amazon.com click on the following link:The Big Short
Disclosure: No positions in any of the companies mentioned in the article.
I receive free books from book publishers asking me to review them. In addition I sometimes request specific books that look interesting. I try to review the books that I think will be the most interesting. I have a material connection because I received a free copy of this book from the publisher. In addition I receive a small commission if you click on the above link and buy the book (or anything else) from Amazon.com It does not cost you a penny more. So I get a commission, Amazon gets a sale, and you get your book so it is a win for everyone.
