The Big Short: Review

I'v e already mentioned, here how much I liked Michael Lewis's The Big Short while I was reading it. Finishing it only reinforced those positive vibes. The book is mostly the story of the few far-sighted individuals who saw the catastrophe coming and invested in such a way as to bet against the great mortgage securities scam. The featured characters all made big bucks from their bets, but most were somehow scarred by the experience. They had bet against the world, and the world resented it, even, seemingly, the parts of the world that they had made a ton of money for.

The one-eyed neurosurgeon who had been the first to see clearly closed his fund and lost interest in financial markets. The guy who had been in the South tower on September 11, 2001 had a recurrence of the nightmares and symptons of that time.

Perhaps the biggest irony was the way the rain fell on the just and the unjust alike. Those who foresaw the catastrophe made millions (or, in a couple of cases, billions), but the guys who blundered away billions did too. One man made subprime bets for his firm that cost it 9 billion dollars - he walked away with tens of millions. So did hedge fund managers who had bought the garbage for their unlucky customers.

Michael Lewis sees the cardinal problem as being the divergence of the interests of brokers from those of their customers and stockholders. Central to that event was the conversion of the big investmentment banks from partnerships to corporations. Investment banking became a case study for what economists call the "agency problem." Those who were supposedly the agents of their stockholders and investors found it more profitable to fleece them than to tend their interests.

Some of his most scathing language is reserved for Hank Paulson, Ben Bernanke, and Tim Geithner, and their roles in the cleanup:

...U. S. Treasury Secretary henry Paulson persuaded the U.S. Congress that he need $700 billion to buy subprime mortgage assets from banks. Thus was born TARP...Once handed the money Paulson abandoned his promised strategy and instead essentially began giving away billions of dollars to Citigroup, Morgan Stanley, Goldman Sachs and a few others unaturally selected for survival...

I would put this book up there on my all-time list. It's the kind of book that can transform your world view.

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