The Big Short: Inside the Doomsday Machine
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I’ve read all of Michael Lewis’ books and loved every one of them. This one doesn’t disappoint. It’s the story of several people who were suspicious enough of what was going on with sub-prime mortgages in the US to discover how the mortgages were being packaged and sold on the bond market to sometimes unsuspecting, sometimes ignorant and sometimes just plainly stupid people (including those in investment banks, hedge funds and commercial banks). The way Lewis paints the story, the whole debacle is less about evil than it is about greed, short-sitedness and stupidity. More specifically, it’s about Wall Street firms acting EXACTLY like they are rewarded to act and about bond traders doing the thing that made them the most money. His belief is that the flaw is with the system much more than it is with the way any one institution or trader acted.
The people Lewis talks about in the book asked all the right questions and were willing to do the legwork to try to figure out what was going on and how to profit from it, which they did – big time. Lewis seems to focus blame, although that’s not the core theme of the book, on the ratings agencies – Moody’s and Standard & Poors – who were responsible for rating CDOs (Collateralized Debt Obligations – the grouping of the mortgages into a single bond-like unit). The CDOs were incredible complicated and the ratings agencies didn’t have the knowledge or people to rate them correctly. They defaulted to rating them AAA, even when the CDOs were often made up of BBB-rated mortgage tranches. The triple-A rating made them a desired commodity and enabled many banks to completely keep them off their books.
As always, Lewis funny and irreverent. He’s left me highly suspicious of the bond market and of the value of ratings agencies. Triple-A doesn’t mean anything, as it turns out.
A quick, fun and informative read.
- Started reading:
- 19th March 2010
- Finished reading:
- 3rd April 2010