“The Big Short” has been on the “Good Reads” recommended reading list by White Coat Money since the very beginning. The New York Times best seller by Michael Lewis was recently given the big screen makeover by director Adam McKay with a star studded cast including Ryan Gosling, Steve Carell, Christian Bale and Brad Pitt. I saw the movie – it was fantastic. It prompted me to revisit the book with a more critical eye. Here is the WCM review of “The Big Short: Inside the Doomsday Machine” by Michael Lewis. Minor spoilers ahead.
“The Big Short” follows the lives of several hedge fund managers and their counterparts at Wall Street investment banks prior to the 2008 US housing market meltdown that led to the global recession we all would rather forget ever happened. Previously unknown names such as Steve Eisman, Michael Burry, Greg Lippmann, Charlie Ledley, Jamie Mai, Ben Hockett and others now represent a small group of investors who were not only able to recognize the madness of the ever increasing housing prices coupled with fraudulently easy credit, but also ballsy enough to stake their fortunes betting against a historically risk-free real estate bond market. Without giving away too much of the story – let’s just say the book is enlightening as to how the real estate bond market and its variety of derivative financial instruments operate.
In typical Michael Lewis fashion, “The Big Short” is fast-paced, entertaining and difficult to put down. He did his very best to explain very complicated financial instruments to the average reader. However, the complexity of the topics involved makes it an impossible task. I have now read the book twice (and watched the movie once) but I still don’t think I can confidently explain to you what a collateralized debt obligation (CDO), synthetic CDO, asset backed security (ABS), or a credit default swap (CDS) is.
A little bit of background on the author - although you may know Michael Lewis’ name from his previous big screen adaptations “Moneyball” and “Blind Side,” he actually got his start as an author when he left Salomon Brothers as a bond salesman in disgust in 1989 to write his first book “Liar’s Poker.” So you can guess there is a certain level of disdain for the industry he left behind. However, Lewis was careful to hide his comments from “The Big Short.” In fact, the only chapter where he makes an appearance is in the final epilogue, where he meets with his former boss John Gutfreund featured in “Liar’s Poker,” and attempts to make sense of the madness.
OVERALL RATING: A+ – MUST READ
Through the perspectives of several obscure (and now insanely wealthy) characters, Michael Lewis was able to offer readers a window into the events that led to the biggest financial disaster of our lifetimes. If you get bogged down by the financial alphabet soup, just go watch the movie.