Monday, March 21, 2011

The Big Short: A Book Review...

This is the first of Michael Lewis' books that I've read though I've seen The Blind Side as a film and as a sports fan, am certainly familiar with Moneyball.

Mr. Lewis' writing style is comfortable and casual--able to turn complex financial ideas and products into something the lay person can understand.  Credit default swaps, CDOs, hedge funds, derivatives and the inner workings of the financial industry are not simple and are not very "literary" friendly.  Any discussion of the above could easily turn a reader off or put them to sleep in less than two pages.

Its here that The Big Short excels.  Lewis shows a talent for getting at the personalities behind the decisions that brought our financial system to its knees.  Though not a complete picture of the '08 collapse the book does delve heavily into the sub-prime mortgage collapse and why its effects were multiplied many times over due to the questionable financial decisions, products and investments taken by a number of firms.

Specifically the book focuses on a number of firms and individuals who took financial positions (shorts) against what they saw as irresponsible lending to the American public and the investment products created from pools of these questionable mortgages.  What conditions some in the industry saw as going on forever, the players and decisions recounted here, saw early on as being a house of cards.

Truly by the end of the book you understand that investing is a lot more like gambling than Wall Street likes you to think and that its often those who run against the herd that, if they have the courage to do so for a long enough period of time, make the right decisions.

The Big Short contributes a great deal to the casework that will surround the '08 collapse and its understanding.  That being said, Lewis does not delve too deeply into some of the crisis' root causes (the willingness of the American homebuyer to take on far more than they could realistically repay/afford and then a willingness to default on said debt when times grew more difficult), after all, just because you go to a keg party does not mean one has to get drunk to the point of passing out and puking all over the floor--which is exactly what the American homebuying public did.

Nevertheless, the book is as insightful as it is enjoyable and is highly recommended for anyone looking into the reasons and personalities behind the collapse and those who stood up to the headwinds, rightly predicted it and were some of the few who made out financially because of it.

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