The Big Short, subtitled Inside the Doomsday Machine, was written by Michael Lewis in 2010. The book is about the financial mess suffered as a result of the subprime mortgage meltdown in 2005-2008. Lewis is one of my favorite authors. He wrote the classic Liar’s Poker, which I still think is one of the best business books of all time.
After The Great Recession, Lewis went looking for the few parties who predicted the subprime mortgage meltdown and then actually made bets against the bonds collateralized by these subprime mortgages. He found a few people and their stories are the basis of the book.
I first read this book in 2010, when it was first published. I know this because I keep a list of all the books I read. You’re not surprised, are you? I read a lot of books.
More recently, for reasons that don’t matter, I watched the movie The Big Short, based on the book. Netflix didn’t have it but, did you know you can find almost any movie on YouTube and either buy it or rent it? I didn’t but now I do.
But the movie didn’t seem like it followed the book, which caused me to go back and reread the book. It turns out the movie follows the book quite closely but, after eight years, I remembered the book poorly. My poor memory proved to be a gift as the book was much better the second time around. Or maybe I’m just forgetting the first time around.
From my first reading of the book, I remembered the succession of events that led to the subprime mess. The movie was very character-driven, with some pretty zany characters. It turns out these characters were based on real people and their real names are used. The guy who was really the first to see the disaster coming was a Michael Burry (played by Christian Bale in the movie), a non-practicing doctor with one eye and suffering from Asperger’s Syndrome. He claimed that only a person with Asperger’s could read the bond documents used in mortgage-backed bonds. Another character was Steve Eisman (played by Steve Carell), a Wall Street guy whose wife described him as “not tactically rude, he’s sincerely rude.”
The book does a good job of describing very complex things, such as collateralized mortgage obligations, credit default swaps and even weirder permutations of these financial instruments. But how does a movie explain such things? Brilliantly.
To explain collateralized mortgage obligations or mortgage-backed bonds, they have Margot Robbie explain it while sipping champagne in a bubble bath. Later, the job of explaining CDOs (Collateralized Debt Obligations) and synthetic CDOs falls to Selena Gomez and Richard Thaler, PhD economist, sitting at a blackjack table. It’s fantastic.
So, while this is a book review, it is also a movie review. Both are terrific. With the book, you get much more depth, of course. With the movie, you get two hours of entertainment on a topic that isn’t easy to make entertaining.
Most importantly, this is a reminder, ten years or more later, of all the stupidity, lack of responsibility and bad behavior that led to the worst economic collapse of our lifetimes. You also get reminded that almost no one got punished for this bad behavior. At least, almost no one at the top got punished. Many homeowners lost their homes, many lost much of their retirement investments and many lost their jobs. All because of greed and a lack of regulatory oversight.
Could it happen again? Not in exactly the same way, but, yeah, sure it could.
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