Penguin* was kind enough to send me a copy of Michael "Liar's Poker" Lewis's The Big Short: Inside the Doomsday Machine yesterday, and I've just finished it, having stuffed it up my eyeballs as fast as I could.
Lewis is a gifted chronicler and debunker and demystifier of the world of finance. Twenty-odd years ago, in Liar's Poker, he revealed the crucial story behind the junk bond debacle, turning it into something human-scale for those of us who don't live and die by the pink sheets.
Now he's done it again, with The Big Short, looking at the econopocalypse with its unimaginable sums and (literally) incomprehensible financial instruments, and unravelling it into a story that, for the first time, really made sense to me.
The Big Short follows a handful of prescient contrarian investors who doubted the subprime bubble and sought out ways to bet against it (called "going short" on Wall Street). Contrarian investment is an old institution, but these people aren't just contrarian in their views on the market — they're genuinely a little odd. Most of them are proudly obnoxious, one realizes halfway through that he has Asperger's, all are tough as nails, some still manage to be sweet, and all are, ultimately, likeable (if only slightly, in the case of the bond salesman who set out to find people willing to bet against the bubble that his employer had created).
In Lewis's book, these individual investors — many of whom never come into contact with one another — are financial detectives, each with his own specialization. One is convinced that it's all a fraud because he knows the people involved, personally, and thinks that they're crooks. Another has read the impenetrable prospectuses that accompany the exotic derivatives and realized that people are investing in garbage. Others are investigating the bond-rating agencies and coming to understand the institutional failures that lead them to be criminally negligent when it comes to rating these investments.
As each detective investigates his corner of the puzzle, Lewis pulls together the whole story, explaining how a combination of genuine fraud, negligence and dereliction (of the firms and their regulators), greed and groupthink turned the economy into a socialized casino where profits always ended up in the hands of a few institutions and their cronies, and the losses were absorbed by the rest of us.
Lewis is an extraordinary writer, and the people and stories he brings to life here had me as engrossed as I would be by a top-notch novel (I shocked someone on the plane this morning by doubling over with laughter at one particularly wild scene). But he's also a great explainer, and the story that he spins here turns the opaque markets into something that make a certain twisted sense — something that's helped by his clear delineation of the parts that simply didn't make sense, the parts that were just bullshit, and designed to make you feel stupid.
* Published in the US by WW Norton
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