21 December 2010

Book Banter -- The Big Short

Title: The Big Short
Author: Michael Lewis
Genre: Non-fiction
Length: 266 pages
Where Stacie's Copy Came From: Personal collection

Plot Basics: Everyone has been affected by the US economic downturn. But the reality behind the machine is little known. Michael Lewis re-visits the Wall Street machine that began his career and helps the little guy understand what happens when the people who should know better, don't.

Banter Points: CDOs, short sells, prime rate mortgages and bogus triple A ratings are a few of the tangibles behind the crisis. Lewis builds a story that even someone who knows nothing about the Wall Street financial district can follow. For example, the known-as Toxic Assests were nothing more than bad loans grouped, divided, re-grouped and sold as triple A rated bonds. Bonds that should have been as stable as a US Treasury bond.

It wasn't that people didn't know. Lewis uncovers a few key players that knew what was going on. Some of them were exploiting the system. Some of them weren't allowed to do their jobs and raise the red flag. Others willingly ignored it because the profits were fantastic.

Bummer Points: My illusions about Wall Street and someone being in charge are dissolved. I have an undergraduate degree in English Literature and pretty much ran from any sort of business class (hence, the MBA now that I am in business.) I kept thinking during one of my Finance classes that it seemed too much like gambling and I must not understand something. After reading Lewis' book, I realize that I was both right and wrong; not only did I understand it, but it also really is gambling. It's all about what people think is going to happen. Apply some basic psychology, general rules about people's response to motivation and you have it - greed, reward and the sacrifice of Americans everywhere.

Stacie's Recommendation: If you have been looking for an explanation of what happened, this book is a fabulous tour guide. Lewis has outdone himself.

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