Archive → April, 2010
Book Review: The Big Short
I remember sitting in my office at Lehman Brothers sometime around September 15, 2007 and telling one of my coworkers that I couldn’t wait to read the book that someone wrote about the entire financial mess. Lehman had just declared bankruptcy and the entire financial system looked like it was about to collapse. I was working in the Investment Management Division of Lehman in their IT department at the time, but had a perspective of an outsider. I had started looking for a new job a few months before and as the firm melted down, I was able to slip out of the office for interviews without anyone noticing. I resigned later that week. I didn’t feel too much guilt since I felt like my company’s management had really let us all down. A storied Wall Street bank had collapsed due to greed and a lot of poor decisions.
I finished reading (or rather listening to) Michael Lewis’ book, The Big Short, about a week ago, and I think it is the book I was waiting for. My timing couldn’t have been better. Since finishing the book, Dick Fuld testified before congress, Goldman Sachs was charged with fraud by the SEC, Greg Lippmann (featured in the book) is out at Deutsche Bank, and the media is all over the subprime mess with some great reporting. I have heard several senators mention the book as they grill the witnesses from these failed institutions.
Michael Lewis does a great job in selecting a group of interesting characters to tell the story of the financial collapse. He develops the characters and then describes in detail how they came to recognize the pending collapse. In hindsight, it’s hard to believe that more people didn’t see it coming, but that’s how it usually works. The two main characters in the book would probably be Steve Eisman and Michael Burry, two hedge fund managers with unique personalities who saw the subprime troubles a long way off. Lewis uses their history to tell the story of how mortgages were packaged into bonds, then those bonds packaged into CDOs, and then the real killer, the synthetic CDO was developed by our dear friends at Goldman Sachs. The subject matter is approachable by someone with no experience in the industry, but those inside the industry really like the book as well.
The two annoying things about the audiobook edition were the mispronunciation of Lehman (Lee-man not Lay-man) and tranche (like raunch, not ranch). There is a nice intro and wrap-up interview featuring Michael Lewis as well.
I think this book should be required reading for anyone who wants to have a real conversation about the financial industry and its problems. I am glad to see that congressmen are reading it and taking it seriously. Maybe this book will be the impetus for congress and the general public to find a way to clean up the mess for good (or at least for a while).