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Saturday, October 29, 2011

The Big Short Review and Discussion

The Big Short

by Michael Lewis

genre: non-fiction

You know going in, this book is going to be like watching a train de-rail.  You know you're going to be mad as hell and shocked at the catastrophic pyre.  But you also know you won't be able to stop yourself.  Which is exactly what happened.  What I didn't expect, was that I understood all of it.  Wall Street talk has an earned reputation for being difficult to understand.  Let's face it, even people working on Wall Street preceding this last fallout didn't seem to understand.  But Michael Lewis lays out this story in concise layman's terminology.

What I loved about this book made up for the train wreck slowly happening over 268 pages.  Michael Lewis' writing style is easy-going and personable.  He talks about the people involved not in a clinical manner, but more in a story-like style.  He gives the background story on the people he follows.  He shows how the inception of these complicated, and incidentally convoluted, deals occurred.  He invites you inside the heads of people like Steve Eisman, Michael Burry and Greg Lippmann to name a few.  Through it all, he explains clearly what the components of the mortgage bond market and the products created that would ultimately collapse the financial world in on itself were.

The toughest part about reading this book is thinking of all the little guys in the houses bought during this crap storm, aware or unaware of their risk.  Knowing how they ultimately were the losers.  Billion dollar deals passed hands like grocery store purchases while people were being sold a load of goods about variable rate mortgages being sound and low risk.  Massive bonuses falling into the bank accounts of irresponsible financial wolves for nothing more than basically showing up to work.  It was the damn Titanic all over again.  Government involvement essentially handed the life boats to the guys who steered the boat into the iceberg and left the homeowners in the bottom decks waiting for the flood to come in.  So, yes I enjoyed this book and cringed at each passing page simultaneously.  I would definitely recommend it.


kevin spacey said...

Read the book last night.. It was fantastic.. Did a great job explaining the complicated MBS, CDO and CDS and how it led to the eventual downfall..

The book lost me on 2 parts hopefully u or someone else who reads this can explain
1> Why was Mike burry required to pay additional collateral for the CDS every time the CDO market strengthened.
I though CDS was a pure insurance product where he was required only to pay premiums and get windfall on event of the CDO going bust.

2> What was the hedging strategy Harry Huber was banking on.. the explanation of his strategy was so circular i could not understand a thing..

Lynnea said...

Kevin Spacey, glad to have a new reader here! I don't know if I'd be able to answer those but I'm going to look at the book again and see if I can glean anything with a second look. They are excellent questions.

Lynnea said...

First I'd like to make a quick correction. It isn't Harry Huber it is Howie Hubler. Just in case others are thinking on these questions also. It's been so long since I finished reading this, I'm still looking over passages about the CDO/CDS setup and Hubler's part of the story.