The Big Short: Market Crash As A Result Of The Big Greed Of America
The Big Short is a very informative book about the events leading up to the U.S. Stock market crash of 2008. Michael Lewis tells this story to give a behind the scenes look into the people who saw this historic crash coming with the blind doubt of the American people. He argues that there was more than one person that foresaw this crash happening and that the utter greed of people blindly led America to one of the worst economic days in the history of the nation.
Michael Lewis is a financial journalist and best-selling nonfiction author and has also been a contributor to Vanity Fair since 2009. Lewis got his masters from the London School of economics, where he went on to work for Salomon Brothers as a bond salesman. The Big Short was not his first financial book, he wrote Liars Poker in 1989 on investment banking. He has written other best-selling books like The Blindside and Moneyball. He is a columnist for Bloomberg View and a contributing writer to audible. His experience in the financial world is what gives him the credibility to accurately portray this book because he has lived and seen just what Wall Street is like. He is a very descriptive writer who uses incredible diction that at several points during the book I had to look up the words of jargon he was using to explain some of the economic terms. Lewis has a true passion for the financial world and with this book he looks to write his passion along with showing his disappointment with the financial world.
Michael Lewis used several acquaintances to gather up the information needed for this book. Lewis explains that Brandon Adams offered to help him gather up information along with strange facts and figures, to the point that Lewis jokes that Adams should write the book and not him. Lewis also used the knowledge from A.K Barnett-Hart, who was a Harvard undergraduate who happened to just write a thesis on Subprime Mortgage back CDO’s which was a huge part of this book. He used the right men for the job they needed to be smart and be able to dig up the immense amount of information needed to explain everything that happened. He used several secondary sources his book that included many statistics that he would then go on to analyze that normally went into studying subprime mortgage loans.
Lewis begins the book by introducing the characters starting with Steve Eisman who Lewis explains “Eisman entered the financial business about the time I exited it” (Lewis 1). Right off the bat Lewis tells us that he has been in the financial business before and that is where he obtained all of his knowledge and passion for this subject. Lewis in this book often gives examples of the greed that people have with his firsthand experience witnessing this greed and what it leads to for America is one of his reasons for writing this book. He wants people to know what went wrong why it happened in hope that it will stop it from happening again.
One thing that Lewis portrays through ought the entire book is the almost laughable confidence people in Wall Street had in the Subprime mortgage bond market. They thought that their big companies would never be taken down and they would just continue to make money. One of these blind people was Wing Chau who was a CDO manager and ran an investment firm called Harding Advisory. Chau was someone who knew the damage that was being done in the Subprime mortgage department, but he didn’t care what it meant in the future his sole purpose was to make as much money as he possibly could for himself. Eisman said “Triple-B tranches- the worst of the worst to build yet another tower of bonds: a CDO” (Lewis 140). This is what Chau managed and he managed 15 billion dollars’ worth of it. Because of what Chau managed it allowed people to get loans on mortgages they would never be able to afford which is how the crash of 2008 came to be.
“On June 14, 2007, Bear Stearns Asset management, a CDO firm, like Wing Chau’s… declared that it had lost money on bets on subprime mortgage securities”. Companies were beginning to fold due to their ignorant bets they made on CDO’s, and Bear Stearns was the first, they had to dump over 3.8 billion dollars of these bets before they could close the fund. The biggest problem with all of this is Bear Stearns sold off 70 percent of their credit default swaps to Cornwall Capital but because they were a big company, they did not have to post collateral to Cornwall. Cornwall was now faced with the possibility that Bear Stearns could not pay off its gambling debts. This is where the massive problem started, big companies were selling off their stupid bets knowing there was no way they were going to be able to pay off that bet if it failed. Smaller companies’ bit on the bait because these huge corporations were doing business with them and they did not think of the possibility of them not having money.
Howie Hubler was Morgan Stanley’s star Bond trader and in 2006 him and his groups of eight traders is generating around 20 percent of Morgan Stanley’s profits. He was the opposite of Eisman and Greg Lippman he foresaw the disastrous future ahead due to the subprime mortgage loan, but he added to the disaster instead of trying to bet against it. He had purchased 16 billion dollars’ worth of A-rated CDO’s and his company was in love with him. Where Hubler and Morgan Stanley made the mistake that in reality most people in Wall Street made was that they though there was no risk at all in what they were doing at all. Hubler goes along with Lewis’ entire argument that the incompetence and utter stupidity of people in Wall Street set up the crash of 2008.
In the last chapter Lewis explains what Lipmann thought of the subprime mortgage market. “The subprime mortgage market as a great financial tug-of-war” (Lewis 226). He explained how there was the Wall Street end and his noble army of short sellers betting against the loans. Eisman explained the crash “We were still short… It’s like the floods about to happen and you’re Noah” (Lewis 227). Lipmann and Eisman both explain that they were excited that they were right all along and that they made money off of it but they never wanted to see the stock market crash like it did in 2008, which shows the character they had and why they were able to predict the crash because of their ethics. The greedy people caused the crash and the humane people foresaw it. Lewis then goes into explaining that Wall Street blamed it on the “stupid people of America” but in reality it was the people at the top of Wall Street that was telling them what to do for their own benefit and that is where it all went wrong.
Michael Lewis writes a highly informative book that may be one of the most descriptive books ever written, with loads of Wall Street jargon that requires a dictionary to understand things like a “CDO” or a “subprime mortgage loan”. Lewis’ goal was accomplished in this book he wanted the people of America to know what went wrong for the stock market and to give people a reality check showing how all of this could have been easily prevented. One of his greatest successes of this book was displaying just how ignorant and stupid the people of Wall Street were they could have stopped making fake subprime mortgage loans way before it go to the point of destruction, but they didn’t because the greed of people took over and if the stock market crashing meant they would get more money than they could ever dream of so be it.
