Saturday, October 30, 2010

Understand the crash AND find it interesting

Oh friend, have you read The Big Short yet?  It's Michael Lewis's telling of people and banks involved in the 2008 (and continuing) crash and the actions that made it all happen.

Have you repeatedly heard the following phrases without thinking much about them?
Subprime loans
Mortgage crisis
Housing bubble
Credit default swaps

I can tell you that hearing these mentioned in the news after reading this book is much more interesting than it was before.

Lewis's gift in telling this story writing is taking a personal angle.  For most of the people we meet in The Big Short, we get a bit of their biographies, too.  We learn about their personalities and what it would be like to be around them.  And then we get to see their actions and reactions over the course of the crisis, and we are left to decide how we feel about them.

The brilliant guy who realizes that subprime mortgage-filled CDOs are going to tank in a big way and places a huge bet against them while major bond insurers and banks eagerly allow him to do so comes off as a David sort, with AIG and the banks in the role of Goliath.

But, while drawn into rooting for the little guy putting one over on the man, you realize that this behavior exacerbates the situation and impending crisis.  And it's hard to root for someone involved in a financial crash that resulted in billions of your tax dollars going to bank bailouts. 

The little guy isn't to blame, and really, this book doesn't look to assign blame.  To do so would be as complicated as the creative financial instruments that were at the heart of the problem.  Seriously, everyone was in on it--predatory lenders, banks confused by their own financial products, spineless ratings agencies who fail to provide accurate ratings, insurers who lived by those ratings without doing any other research, and so on.  Lewis recognizes that this was a series of bad decisions, beyond the control of any single person or corporation--and it was the system, the doomsday machine of the subtitle, that allowed the mess to happen.

What he gives us is a play by play--who did what, when, and why.  He delivers this story as though he were calling a boxing match, each new piece of information coming like another unbelievable, critical hit.  Unbelievable like the unbelievably stupid actions of the banks, rating agencies, and bond insurers.  Critical like each of these actions were to the collapse of the housing market and near collapse of our economy.

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