Thursday, April 29, 2010

The Big Short by Michael Lewis

The Big Short: Inside the Doomsday Machine The Big Short: Inside the Doomsday Machine by Michael Lewis

My rating: 4 of 5 stars
So this is a very good book. Michael Lewis is a wildly gifted writer of nonfiction narratives, and the word I want to use to describe the prose in The Big Short is "breezy." That is a particular accomplishment when your subject is mortgage-backed securities and collateralized debt obligations.

Here is the thing. At this point the book has sort of been outpaced by events. The SEC named one of the book's bit players, John Paulson, in its complaint against Goldman Sachs, and in general the notion that the short-sellers in the subprime market somehow have their hands clean in this whole mess seems less and less true each day.

The truth, so it seems right now anyway, is that the short traders played an indispensable role in inflating the bubble more than it otherwise would have been. This is basically Yves Smith's beef with the book in her lengthy, combative review -- which I think should be essential reading before reading "The Big Short," not after.

Also, this ProPublica/Planet Money/This American Life story about mega-short-seller Magnetar, which describes the same phenomena.

Lewis presents the short-sellers as sort of oddball heroes for taking Wall Street's received wisdom -- housing only goes up, CDOs are pretty safe -- and seeing it for the bullshit it was. And Smith makes the point -- and it's true -- that really, the shorts, too, were profiting from the many fictions of the subprime market. Fair point.

So, okay. But here is the other thing. Shorting the real estate market in 2006 still actually did take a particular kind of oddball character, and there weren't that many of them, and there is something inherently compelling about Lewis's cast of weirdos. There's a one-eyed genius investor with Asperger's syndrome, there's a self-promoting banker with bushy sideburns, there's a money manager who is rude and confrontational by Wall Street standards. And after all, these guys did bet right, and they did have that moment where they saw something that no one else was seeing. You don't have to buy the version where they're anti-market heroes of the little guy to find that a compelling story.

So the book is very good and it's probably good that it's the first thing a lot of people are reading about the crash. It really shouldn't be the last, but that is not something we can hold against Michael Lewis.

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