The Big Short
by Michael Lewis
Achievement unlocked: I finally understand what the term "shorting" actually means.
Lewis provides a thorough and interesting take on the financial crisis, and now I think I finally begin to understand what caused the world economy to tank. As Lewis notes, there was plenty of greed to go around, but it was the criminal irresponsibility of the bankers, the investors, the bond traders, that really created the opportunity for such large-scale corruption.
I found this book particularly difficult because of my own fears of debt. My personality tends towards "control freak" and I find the idea of being in debt utterly terrifying. I have lived in suburbia for over five years without owning a car, commuting everywhere by bicycle, partly because the amount of money involved in buying a car simply scares me. Just thinking about the national debt makes my heart race. As a kid, I remember hearing my parents talk about variable-rate mortgages and the way that banks were using them to trick credulous and innocent buyers, but it was hard to see what banks could get out of selling homes to people who couldn't afford them. Now I understand: the homes were secondary to the CDOs that could be constructed from the loans. I find the story of the shadow banking system playing with peoples' lives and hopes this way, tempting them into a lifestyle beyond their means, utterly disgusting. Sure, you could say people should know better, but that's not sufficient and it's not fair. As Lewis notes, the incentives for everyone involved, from the homeowners to the bonds salesmen to the regulators, were simply all wrong. And they're still all wrong.
The one issue I'm left with is Lewis's take on his protagonists, a group of men who all "shorted" the sub-prime market industry. He treats them as heroes, as isolated voices of sanity in an increasingly insane world. But if they hadn't acted as buyers for sub-prime market insurance, there couldn't have been sellers, either. They ended up earning billions of dollars, and this type of finance is a zero-sum game. Their gains meant the losses of the sellers, and, ultimately, the American taxpayers. Sure, they didn't do anything strictly unethical, and sure, several of them apparently attempted to shut down the industry. But in the end, when they couldn't get anyone to listen, they settled for exploitation. And because they didn't turn around and, say, donate all that money to the ultimate victims of the sharks of Wall Street, I find it hard to see that choice as heroic.
If you, like me, are a financial dunce but still want to understand what on earth caused our economy to fail, I heartily recommend The Big Short. It may leave you disgusted with every person even tangentially involved with Wall Street and the shadow banking system, but at least you'll have a clue about how they took down our economy, and how they're probably going to do it all over again.
By the way: the smartest guy in the book, Dr. Michael Burry, believes we're in for another bust. And I believe him.