Book Saloon: The Big Short

I had heard good things about Liar’s Poker author Michael Lewis’ new book about the financial meltdown, The Big Short:  Inside the Doomsday Machine, but as usual I procrastinated a bit about buying it, figuring it would turn up used at Powell’s before too long.  Well, when I walked into work on Thursday and found it lying on the counter with a recommendation from the client, my heart leapt…..  I could actually write a timely book review for a change, without paying full price or trying to find shelf space in my overstuffed library when I finished it.  Win, win.

Innocently enough, I cracked it open last night after dinner, and finished it a 2:00 am, after flying through its 250 pages at a voracious speed usually reserved for pulp fiction.  Lewis has done a yeoman’s job of taking something endlessly declared “too complicated” for the average American to understand, and turned it into a gripping, often infuriating story of determined obtuseness against flat reality, revealing again the impoverished understanding of the event by our news media and political elites, both before, during, and after the crisis.  As it turns out, the Great Meltdown of 2008 was something like a pointillist painting; harder to grasp the closer one stands to the canvas.  Those who saw it coming were invariably the furthest away from its dizzying dots.

Lewis relies for his sources on a handful of decidedly outsider investment advisors (only one of them peripherally connected to the big Wall Street firms), who shared one thing in common: curiosity, then alarm, and finally dread as their warnings were routinely ignored by people who surely should have known better, and as we’re now finding out, did.  These modern-day Cassandras were treated with scorn and derision straight to the bitter end, for that churlish and un-American sin of being right when the whole world just wants to be wrong.   Alarmed at the excesses and stupidity of the big players, they bet heavily on the mortgage security collapse, and in the end were deeply conflicted about raking in hundreds of millions of dollars as real Americans’ lives were shattered all around them.  Oscar Wilde defined fiction as a place where “the good end well, and the bad end badly,” and The Big Short, unfortunately, isn’t fiction.  Those seduced by the easy money of inflating the bubble did just as well, often better, than these relentlessly skeptical “blame America firsters” who did commie things the big boys disdainfully shunned like actually the reading the loan documents from which a trillion dollars of Wall Street cotton candy was spun.  As is now well-known, Moody’s and Standard and Poor were as bad as Countrywide or Washington Mutual when it came to believing that as far as housing prices went, the law of gravity had been repealed.

Cinematic moments that would be too over the top for a TV miniseries fall like rain in The Big Short.  A stripper in Las Vegas (one of several ground zeroes of the boom and its inevitable bust) had five subprime mortgages; maids and gardeners turned into overnight real estate moguls, and all along the way, these fiscal time bombs were never defused; more exotic ways to hide and repackage them were simply devised to spin them into Wall Street gold, and spin they did.  Despite the feverish efforts of the roaring industry, eventually the market ran out of tract homes, condos, and gullible buyers to purchase them, so loan tranches were regrouped, repackaged, and sold again: bets on top of bets on top of bets, all fervently blessed as AAA by the supposed watchdogs at Moody’s and S & P, and snapped up by whomever was dumb enough to buy them.

Minimal calculations about what would happen, not just if housing prices fell, but if they even stopped rising, plainly showed that the market would inexorably collapse in late 2007, as the newfangled “teaser” rates from 2005 turned usurious, but Lewis’ protagonists had a hell of a time convincing anyone of this.  One fund manager who eventually returned nearly 500% to his ungrateful and clueless investors, faced an investor revolt that nearly ended up in court waiting for the other shoe to fall, which it of course did with a thud heard ’round the world.  To one of his suddenly silent but much more wealthy investors, he sent a terse email, “YOU’RE WELCOME.”  No accolades were forthcoming.  Like everyone else, they took the money and ran.

I highly recommend The Big Short, and urge everyone to read it (even if you can’t get it free like I did…), so next time you hear Condi’s greatest hit, “No One Could Have Predicted,” bandied about by those too dumb or conflicted to have done so, you’ll know they’re lying.

19 Comments

    • cocktailhag says:

      Hard to believe, but you’re still clinging to Palinomics on this one as well. Please, Tom, read this book or any other not published by Regnery. There weren’t enough low-income buyers, not by a million miles, to materially affect this crisis. You’re delusional, as always. The “and others” to which the author slyly alludes as he (facetiously?) blames Fannie, Freddie, and the Community Reinvestment Act, are none other than Goldman Sachs et al, a fact only a deliberate liar would omit, as he tries in vain to deflect the blame from his utopian ideology. Which, quite predictably, failed again, disastrously.
      Buit you should be happy; the rich got richer, the government and everyone else got poorer, and Frank Luntz got another gig spinning it.

  1. dirigo says:

    I note in passing your bete noire in the thread is insufferable, and without credibility. He does, however, seem obsessed about you as he continues to throw any mud on the wall which may stick.

    You read what might be called a seminal piece on the financial crisis, one which is not much like a chamber of commerce release.

    And you write a review on your very own blog.

    I’d say it’s a job well done.

  2. dirigo says:

    CAN’T WE, LIKE, JUST GET ALONG, Y’ALL?

    “We should be clear about this: economic theory never provided much support for these free market views (‘that markets are efficient and self-adjusting’ *). Theories of imperfect and asymmetric information in markets had undermined every one of the ‘efficient market’ doctrines, even before they became fashionable in the Reagan-Thatcher era. Bruce Greenfeld and I had explained that Adam Smith’s hand was not in fact invisible: it wasn’t there. Sanford Grossman and I had explained that if markets were as efficient at transmitting information as the free marketeers claimed, no one would have any incentive (re: Fox News; K Street publicists) to gather and process it. Free marketeers, and the special interests that benefited from their doctrines, paid little attention to these inconvenient truths.

    “While economists who criticised the ruling free-market paradigm often still employed, as a matter of convenience, simple models of ‘rational’ expectations, that is, they assumed that individuals ‘rationally’ used all the information that they had available, they departed from the ruling paradigm in assuming that different individuals had access to different information. Their aim was to show that the standard paradigm was no longer valid when there was even this seemingly small and obviously reasonable change in assumptions. They showed, for instance, that the unfettered markets were not efficient, and could be characterized by persistent unemployment. But if the economy behaves so poorly when such small realistic changes are made to the paradigm, what could we expect if we added further elements of realism, such as bouts of irrational optimism and pessimism, the ‘panics and manias’ that break out repeatedly in markets all over the world?

    “Of course, one didn’t have to rely on theoretical niceties in order to criticse the faith in unfettered markets. Economic and financial crises have been a regular feature of capitalist economies: only a period of strong financial regulation after the Second World War was almost totally free of them. As financial market regulations were stripped away, crisis became more common: we have had more than 100 in the last 30 years.”

    … from “THE NON-EXISTENT HAND”
    … By Joseph Stiglitz
    … Review: “KEYNES: THE RETURN OF THE MASTER”
    … By Robert Skidelsky
    … London Review, 4/22/10

    * my insertions in parentheses …

    In other words, we’re not robotic, or even “rational,” economic actors; and, we’re citizens, not just consumers or customers.

    • cocktailhag says:

      Great essay, Dirigo. I do need to read more on this subject; everything I learned in college was Chicago School hogwash.

      • dirigo says:

        The other night I watched, for the third time, J.J. Abrams’ “Star Trek”.

        After the big opening crack-up, in which James T. Kirk, safe in his mother’s womb, is saved by his heroic father, George, who rams a big, snarly enemy vessel, the scene shifts swiftly to Iowa. There, the ten year old Kirk has taken his uncle’s vintage Corvette for a joy ride on a farm to market road. The unusually precocious James is immediately chased down by a robotic Federation traffic cop, who, in a jet-propelled motorcycle, pulls abreast the speeding ‘Vette and says, “Citizen. Pull over.” Kirk jags down a side road, eventually wrecks the car and is cited by the cop.

        At least in Star Trek, socialist paradise that the society depicted may be, its inhabitants are citizens.

        At the same time, over the last few weeks I finessed myself out of a demand court appearance for jury duty in Connecticut. Basically, on the night before the day of appearance, my name was announced on the phone check-in recording, which meant I was excused and stricken from the current list, therefore fulfilling my obligation for the current court year. My name was thrown back into the lottery pile. But while probing the procedures to see if I could put off the demand date somehow, I was twice called a “customer” by court officials.

        I think I’ve got to write the governor and request that I be addressed as a citizen. It’s not too much to ask.

        • cocktailhag says:

          I served a day of duty a couple of years ago and was rather impressed with the process…. A wide mixture of people brought into a large room and given a really nice civics pep talk by a judge, who explained the process to us. (I had gone down to try to get out of it, but all the guys trying to do so ahead of me were such assholes that I slipped out and just showed up a few days later as told….)
          Here in ol’ Multnomah County, they don’t call you “customer.”

  3. retzilian says:

    I bought it a couple of weeks ago for my trip to NYC; something to read in the airport and on the plane.

    I was going to send it to you when I was finished. Oh well! If anyone else wants to read it when I’m done, let me know and I’ll mail it to you.

  4. rmp says:

    I wish I had an answer to the question that keeps messing with my mind, “How could the incentives for WS be changed so that there was something other than making money that was part of the goal?”

    One of the purposes besides making money used to be to fuel the U.S. economy by supporting industry and jobs here and not overseas. The goal was to help fellow Americans become successful members of the middle class. There was a feeling that we were all part of a greater community goal.

    Now we have the upper and grossly wealthy class that seem to be perfectly satisfied with destroying the middle class. The goal is economic slavery for the people below. The only solution I can see is for the slaves to revolt, take over and institute the dreaded socialism that European countries have successfully used to provide a decent life for their middle class. To do that we need to find a way to educate dead heads like Tom whot they are dupes for those who want to do them in.

    • The Heel says:

      good luck with your revolution, rmp :)

      Reasoning with Tom is the equivalent of reasoning with an ant. Maybe when you have successfully talked the last ant into becoming a freedom loving entrepreneur (as opposed to a pesky little socialist working for a greater good) you will have a shot in talking the Toms of this world into behaving a little more like social beings. Send me an e-mail when your revolt starts, I’ll join and bring an ax…

      • dirigo says:

        Paraphrasing Roy Scheider’s character in “Jaws”: “You’re gonna need a bigger axe.”

    • cocktailhag says:

      One suggestion Lewis makes is that when financial firms were partnerships rather than public corporations they were more responsible, and a return to that model might help. (Breaking up big banks and separating banking from investment banking is absolutely necessary, but not enough, either….)
      Also, proprietary trading going on alongside client trading is impossible to do honestly; the temptation is too great to use insider information and work against clients’ interests. That would have to end as well.
      Few, if any, of these things are going to happen.

  5. Flash55 says:

    Seems that this new book you have read in just one night more or less is a continuation of the first book “liars poker” in that the main point of that book was the catch phrase “one million dollars no tears”. The boys in and around Wall Street are just infants with ties who gamble and leave the wreckage for everyone else to clean up. They remind me of my grandson who looks me in the eye and still takes a cookie knowing that I said “no”. I agree that wall street can be used for good i.e. the small investor to actually make some coin but honestly what chance do us little guys have when the systems is abused as it is now? Mr. Obama does want to put into place “new and improved regulations” however that just means the boys on Wall Street get to find a new way to play liars poker all over again. Greed is good but there has to be a limit to who you are willing to screw to get ahead, (reminds me of the two Jews who find a dime on the street and proceed to kill each other for it)?? As for me, I would like to read the new book as soon as I can get my hands on it. Another good book (speaking of books) is an older one called “What They Don’t Teach You at Harvard”….good reading

  6. rmp says:

    Article and name of site speak for themselves:

    Guest Blog: “Imagine if the Tea Party Was Black” – Tim Wise
    http://dh1976.wordpress.com/guest-editorial-tea-party-populism-the-gops-worst-nightmare/

  7. Skeptic says:

    ‘Hag: I love the pointillism comparison. It sings…

    I may have to spend an afternoon in a book store some time soon.