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The Big Short July 5, 2010

Posted by Brian L. Belen in Books, Reviews.

The Big Short: Inside the Doomsday MachineThere were times while reading The Big Short that I’d find myself re-reading sections because I couldn’t quickly grasp what was going on.

That’s not to knock Michael Lewis’ writing abilities. Quite the contrary, in fact: The Big Short brings Lewis around full circle to the Wall Street he left behind in Liar’s Poker, albeit this time to narrate events surrounding the subprime crisis and financial meltdown of 2007. If anything is clear from this account of events, it’s that the few who knew exactly what was going on were far outnumbered by those with wool pulled over their eyes, either by the complex nature of the financial instruments and transactions that brought Wall Street to its knees or the hubris and greed of brokers and analysts who thought they were too smart for their own good.

In that regard, The Big Short isn’t a definitive account of the financial meltdown. In fact, I submit that it can’t be, what with Lewis’ choice to tell the story from the standpoint of a few boutique fund managers who happened to get it right (one of whom has both a glass eye and Asperger’s — what are the odds?). But I would say that it is probably a representative account of how things went south for Wall Street so quickly, starting with irresponsible subprime lending, moving on to the creation of collateralized debt obligations and credit default swaps, and all with stamp of approval of credit rating agencies that, in retrospect, were the most clueless of all.

In his usual fashion, Lewis is up to the task of weaving all of these into a compelling yarn, albeit one that will occasionally give pause to those not entirely familiar with the technicalities of derivative finance. That is a good thing. The Big Short is easily must-read material, as much entertaining as it is an educational.


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