The Big Short: Inside the Doomsday Machine

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Jun 16, 2010 05:44:45

The #1 New York Times bestseller: a brilliant account—character-rich and darkly humorous—of how the U.S. economy was driven over the cliff. When the crash of the U. S. stock market became public knowledge in the fall of 2008, it was already old news. The real crash, the silent crash, had taken place over the previous year, in bizarre feeder markets where the sun doesn’t shine, and the SEC doesn’t dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower- and middle-class Americans who can’t pay their debts. The smart people who understood what was or might be happening were paralyzed by hope and fear; in any case, they weren’t talking.

The crucial question is this: Who understood the risk inherent in the assumption of ever-rising real estate prices, a risk compounded daily by the creation of those arcane, artificial securities loosely based on piles of doubtful mortgages? Michael Lewis turns the inquiry on its head to create a fresh, character-driven narrative brimming with indignation and dark humor, a fitting sequel to his #1 best-selling Liar’s Poker. Who got it right? he asks. Who saw the real estate market for the black hole it would become, and eventually made billions of dollars from that perception? And what qualities of character made those few persist when their peers and colleagues dismissed them as Chicken Littles? Out of this handful of unlikely—really unlikely—heroes, Lewis fashions a story as compelling and unusual as any of his earlier bestsellers, proving yet again that he is the finest and funniest chronicler of our times.

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±1±: Best Buy Mr. Lewis capably argues that our economic mess is the fault of financial dealings so specialized that nobody bothered to actually think about what was happening; nobody actually read the fine print. Because the best and brightest are tasked with simply making money, the system got turned into a feedback loop that exploded; leaving us about a trillion dollars in the hole. The genius of the book is that Mr. Lewis demonstrates how and why nobody but a few wise traders had the incentive or desire to do anything about the problem, which was essentially that some very smart people created worthless assets that they convinced the entire investment banking system to purchase in quantities that stagger the mind. Mr. Lewis invites us to ponder the incentives that make our markets and economy work.

A good argument can be made that our political system is headed into the same trap. The elected officials and we, the electorate, do not understand the complexities of government and modern global politics. Just as it took a gentleman with Asperger's to hone in on the mind-numbing text of a CDO that nobody else read, we have a Congress that passed a hopelessly complex health-care reform bill and I am confident that when that mess blows up we will be reading a story written by one of the very few that actually powered through the full text of the bill that the real decisionmakers refused to read. We insist on simplifying complex issues without reaching for an understanding. By so doing we risk building a political structure that is as flimsy as was the financial structure of the asset-backed securities markets.

The book did a great job of explaining the complexities of high-finance. Obviously everything is clearer in hindsight. I'm no Einstein, but I can reach for any number of books that can help me wrap my mind around his ideas. True genius sees the truth before everyone else and that was the message of this book. We don't all have to be experts, but we need to insure that there are experts working for us and not for themselves. There are people out there who understand exactly what is wrong with the world and we need to provide them with incentives to share their observations and prevent the rest of us from driving off a cliff.

Every voter in any industrialized democracy should have a duty and obligation to learn what happened with the CDO debacle, we cannot hope to prevent a future bubble if we do not take the lessons from this experience. Fortunately, the government was able to step in and prevent credit markets from completely breaking down--it seems, to this reviewer at least, that the economy was not dealt a fatal blow, but how close we came should be the focus and study of every concerned citizen. on Sale!