History
The Big Short by Michael Lewis
07/04/10 17:14
266 pages, W.W. Norton. $27.95
Reviewed by Mike Attebery
You know those friends of relatives that you always end up hearing about at family gatherings? Your mother's friend's daughter, who spent all her money on pink press on nails in an attempt to jumpstart a fashion empire? The kid you went to high school with who always seems to be doing just a little bit better than you (see 'Seinfeld' / Lloyd Braun). They're the names that become part of the background noise at holiday events, the people you feel you know, or should know, but aren't sure you've ever met. Growing up, I often heard my uncle talk about Steve Eisman, his best friends' son, who had graduated from Harvard Law School with plans to be a corporate attorney, only to realize he hated being a lawyer. So in 1991, right around the time I was starting seventh grade (and embarking on the worst year of my life), I started hearing accounts of Eisman's adventures on Wall Street, how he spent money like water, how he was finding his footing in the business, of his less than sparkling social manners, and later on, about some of the more tragic events in his life. Cut to some 17 years later, and I started to read newspaper articles about a Steve Eisman who had tried unsuccessfully to bring attention to what he felt were criminal investment practices occurring within Wall Street's biggest financial organizations. Then I picked up Michael Lewis' latest book and realized on page one of the first chapter that this was indeed the very same Steve Eisman I had been hearing about for years. That got my attention. 227 pages later, I learned that in betting against tactics he felt were sure to lead to financial Armageddon, this same Eisman had made somewhere in the ballpark of four hundred million dollars.
'The Big Short' tells Eisman's story, along with that of Michael Burry, a one-eyed medical doctor with Aspberger syndrome, who left medicine for finance, only to come to the same conclusions as Eisman and also make an unfathomable fortune betting against the craziness he couldn't believe others did not see happening. Other players who picked up on the dangerous insanity included Greg Lippmann, a cocky, consummate Wall Street insider, along with Jaime Mai, Charlie Ledley, and Ben Hockett, whose Cornwall Capital Management, which was started in a Berkeley garage, couldn't get any respect from the Wall Street establishment, yet also wound up making a bloody fortune as the mess unravelled. Each of these guys is a true character (In every sense of the word - Eisman, for one, thinks of himself as Spider-Man, and leaves work early every Wednesday to be at the comic book shop when the latest issues arrive.), which makes the book read more like a novel than an account of greedy, shortsighted business practices gone horribly awry.
'The Big Short' explains the origins of the financial crisis better than any book, article, or news report I've come across so far. Can I explain it all for you now? Of course not. By no stretch of the imagination am I any sort of finance guy. I don't do well with math, but I can usually hammer out financial calculations pretty quickly. And yet, the stuff in this book is impossible for me to wrap my head around. Were it not for the fact that many of my family members have worked on Wall Street in past lives, I probably wouldn't understand a damn thing Lewis is talking about here. But before I go any farther, he most certainly tackles the task of explaining this world of high finance magic acts better than anyone I've read before. And yet, just when I thought I was starting to understand what these guys on Wall Street were doing, and what the folks betting against them were up to, something else would come along that twisted by head around in still another direction, til I realized I didn't really know anything at all. But in a way, that's sort of the point, almost none of the people involved, save for the six people I mentioned above, understood what they were doing. They just knew that for the time being, they were raking in disgustingly massive mountains of easy cash, and they didn't care enough to learn whether today's payday would guarantee continued stability down the line.
Have I lost you? OK, let me try to circle back. Long story short, this is the story of the Wall Street bonds and derivatives market, where "Gordon Gekko wannabes" became "if-only-Gordon-Gekko-could-bes." These are the guys behind the guys, behind the guys, who took a financial "recovery" free of real growth, handed out loans to millions of Americans who couldn't afford them, then gambled on the final outcome as they sold insurance from one to the other as their customers/victims quickly became swamped in debt, unable to get their heads above the rising tide of the economy, while the folks who lured them in grew richer and fatter and greedier even as their customers became house poor. This is also a story of sheer incompetence and irresponsibility, and the way far too many individuals became rich while remaining oblivious to the damage they were inflicting on others, as well as to the country, and the marketplace. In short, this is the account of a massive crime, but one that by all technical terms was entirely legal, that wound up setting a historical precedent, in which the United States government stepped in to help the reckless financial institutions that set the whole nightmare in motion, and left those with the least to fall back on, all but locked out in the cold.
If you thought you understood what happened, you have no idea. If you aren't mad now, you will be. This book is history as thriller, business account as crime analysis.
I highly recommend you pick this one up.