The Big Short is Michael Lewis’ story of the few people who not only predicted the financial crisis we’re now in, but made a fortune betting on it. Michael Lewis is an entertaining writer. I enjoyed Liar’s Poker and The Blind Side, and The Big Short is good in the same way. As in his other books, Lewis introduces us to the characters betting against the market, so we get to know them and even sympathize with them. At the same time, he educates us about the subprime mortgage market and how those markets were shorted.
Because the very concept of enticing people to take out bad loans just so banks can bundle and sell them and because Lewis does such a good job of drawing out his characters, I found myself wondering whether Lewis’s subjects were good guys or bad guys. On the one hand, they seem like the good guys. Regular, albeit very smart, guys who can clearly see that a bunch of no-documentation loans with low teaser rates are going to have a high default rate once the interest rates goes up in two years. They’re particularly shocked that these funds can get good ratings from the rating agencies, which come off as stupid at best and corrupt in their motivation of greed and self interest at worst. I was almost rooting for the loans to go bad so our heroes who are basically saying that the emperor has no clothes can be proven right. But then I remember that these investors are becoming filthy rich off of people losing their homes and I come back to my senses. It’s one thing to be a whistle blower, but another to capitalize upon the crazy subprime mortgage market, to the point that investment banks were buying bundled mortgages and betting against them at the same time.
Lewis’ book was an informative and enjoyable read. But because it’s so clear, it makes me all the more angry about what financial institutions will do to make the next buck and the lack of regulation that allows them to do it.