The Big Short: Inside the Doomsday Machine
A newly minted MBA from the London School of Economics and previously Princeton, in 1985, Michael Lewis landed his first job as a bond salesman at the New York offices of Salomon Brothers. His arrival was perfectly timed to witness the spectacular meltdown of the mortgage-backed bond market. Aghast at the market’s rickety underpinnings and the hubris of its architects, Lewis decided that a career in the financial industry wasn’t for him, so he segued into a career as a financial journalist. With his training and background, it proved to be a better fit.
Lewis has been a writer and/or editor for a who’s who of top-flight publications and news outlets, including The Spectator, New York Times Magazine, The New Republic, Slate, Vanity Fair and Bloomberg. His experience at Solomon Brothers provided fodder for Lewis’ first book, Liar’s Poker, one of several blockbuster books that chronicled blockbuster financial debacles. Some of his other books on different topics – blockbusters in their own right – were made into blockbuster movies, e.g., The Blind Side (2009) and Moneyball (2011).
In The Big Short, released in March, 2010, Lewis revisits the world of finance. In this outing, he deconstructs the origins of the subprime mortgage market and the creation of the financial instruments and lending practices that led to the crash of 2008. If that sounds like the kind of dense terrain that only a forensic accountant could relish navigating, Lewis has a gift for refracting complicated subject matter with alacrity through the perceptual prism of some remarkably insightful and intriguing protagonists. Their exquisitely astute apprehension of what was afoot and what circumstances portended was inscrutable to everyone else, including everyone who should have known better.
The narrative is told through the eyes of a handful of brilliant analysts and investors who recognized the bellwethers of a looming meltdown – Wall Street analyst Meredith Whitney, hedge fund managers Mike Burry and Steve Eisman, operating in California and New York, respectively, and Deutsche Bank bond trader Greg Lippman. Lewis’ account details the back story of these Wall Street players whose drastically different temperaments, personal backgrounds and professional experiences, nevertheless, lead each of them to arrive at the same conclusion independently. It was foresight that eluded just about everyone else: an economic Armageddon of unprecedented scale and scope was in the making. Alternately incredulous, frustrated and outraged, the individuals who saw the impending disaster issued warning after warning to the industry to no avail. Aggrieved, but pragmatic, each one choreographed their own short-selling strategies in anticipation of the inevitable crash.
Because their analyses portended a disaster of such enormity, the short sellers meticulously step-repeated a process of checking, testing, rechecking their calculations. They could hardly believe it themselves. It just seemed so unfathomable, but repeatable results emboldened them to swallow hard, invest big and wait. Their forecast and the reception it received was not so unlike Cassandra of Greek mythology, who the gods blessed with the gift of prophesy. She foretold the fall of Troy, and she prevailed upon the Trojans with dire warnings to avert disaster. It seems that the cruel irony of being blessed with foresight is the curse that no one will believe you.
Lewis is none too kind in his post-mortem, and there is plenty of blame to go around. A climate of progressive deregulation and lax oversight enabled unvarnished venality and perfidy to proliferate unchecked. He names names and takes to task the “big swinging dicks” of Wall Street who crafted the financial instruments and the labyrinth of tranche investing mortgage-backed securities. The short sellers drew a raft of criticism from some quarters in the wake of the crash, but in Lewis’ estimation, they acquitted themselves honorably, they are heroes.