November 15th, 2010


Book Review: The Big Short: Inside the Doomsday Machine, by Michael Lewis

One-line summary: Do not attribute malice to Wall Street when stupidity will suffice.


Amazon: Average: 4.0. Mode: 5 stars.
Goodreads: Average: 4.17. Mode: 4 stars.

Truth really is stranger than fiction. Who better than the author of the signature bestseller Liar's Poker to explain how the event we were told was impossible -- the free fall of the American economy -- finally occurred; how the things that we wanted, like ridiculously easy money and greatly expanded home ownership, were vehicles for that crash; and how shareholder demand for profit forced investment executives to eat the forbidden fruit of toxic derivatives. Michael Lewis's splendid cast of characters includes villains, a few heroes, and a lot of people who look very, very foolish: high government officials, including the watchdogs; heads of major investment banks (some overlap here with previous category); perhaps even the face in your mirror. In this trenchant, raucous, irresistible narrative, Lewis writes of the goats and of the few who saw what the emperor was wearing, and gives them, most memorably, what they deserve. He proves yet again that he is the finest and funniest chronicler of our times.

This is a book about the collapse of the U.S. housing market that began in 2006-2007, leading to the economic meltdown of 2008 from which we have yet to recover. If that sounds boring to you, reconsider: The Big Short isn't an economic textbook. It's written in the style of investigative journalism, and more people really should be interested in how Wall Street lost several national GDPs worth of money by underwriting loans that allowed Mexican strawberry pickers to buy $750,000 homes. And if you think this is only of interest to Americans, keep in mind that Wall Street doesn't have a global monopoly on greedy idiots; the collapse of the U.S. housing market brought down pension funds from Germany to Japan along with it.

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Verdict: If you just cannot imagine being interested in the subprime mortgage industry and Wall Street bond trading (even though it's key to understanding just how badly we're all going to be fucked in the coming years), I won't lie and say that The Big Short is exciting enough to stand on the strength of Lewis's writing alone. You have to be willing to be schooled a bit in financial arcana. But Lewis writes for a general audience, so it's not that hard to follow even for an economics novice. I recommend this book for anyone who wants to see how sausages are made on Wall Street, or who'd like to know where their pension fund went.