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

I suppose we have seen and will see many books about the CDS-instigated collapse of the financial world, but this one takes the pleasantly realistic tack that although foreseeing the collapse was neither pleasant nor widespread, it definitely was possible to see the end coming, and to make a lot of money doing it. Here it strays into mildly troublesome territory, characterizationwise, because the heroes of this story come out as half Cassandras, half Robin Hoods, and there’s a real question as to their defensibility. The Big Short hits the Cassandra angle rather hard, highlighting cases in which the investors (particularly Eisman), meet up with CDO managers and ask trenchant questions prognosticating doom. The overall feel of the characters as drawn is that, having found a seemingly obvious flaw in the long-term viability of CDOs and CDSs, went around trying to find someone who would lay their fears to rest and tell them, “no, that won’t actually happen, because…”. But they never found anything convincing after that “because”.

The investors central to the story are presented sympathetically (except for Burry, who comes across as an arrogant, contemptuous solipsist and even his diagnosis with Asperger’s syndrome does not really redeem his character presentation), which is a bit distressing historically, since all these bizarre financial products came into being as a result of people shorting them, which suggests that, even if they were going around telling people how catastrophic these products were, they were serving as architects for the crisis by providing demand for and actively encouraging harmful financial behaviors. Oddly, this aspect of the culpability for the financial meltdown isn’t explored at any length in the book. Otherwise I’d recommend it, as it’s an engaging and well-written exploration of the crisis as seen by some of the few people who can claim with certainty to have actually known what was going on.

See also: Wikipedia.

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About Jake
I'm a mathematics professor at the University of Louisville, and a geek.

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