CRF Blog

The Big Short

by Bill Hayes

It’s been a good year for Michael Lewis. His book The Blind Side was made into a movie, which was nominated for best picture at the Academy Awards. His latest book, The Big Short: Inside the Doomsday Machine stands atop the bestseller list.

Lewis’ first book to hit the bestseller list was Liar’s Poker in 1989. It told the story of his stint selling bonds on Wall Street and giving advice on financial matters he knew little about. The book was highly unflattering to Wall Street, and Lewis expected never to get access to the players on Wall Street to write another book about it. In his latest work, The Big Short, Lewis examines the financial crash of 2008. Instead of relying on Wall Street insiders, Lewis tells the story of those investors outside Wall Street who predicted and even profited from the crash. From Michiko Kakutani’s review in the New York Times Book Review:

Mr. Lewis does a nimble job of using his subjects’ stories to explicate the greed, idiocies and hypocrisies of a system notably lacking in grown-up supervision, a system filled with firms that “disdained the need for government regulation in good times” but “insisted on being rescued by government in bad times.”

Mr. Lewis argues that the roots of the meltdown of 2008 can be found in the 1980s of Liar’s Poker, when complex financial products like mortgage derivatives were developed. He also suggests that these financial instruments . . . grew increasingly opaque and complex to help obscure the fact that they were built around increasingly suspect loans: “low-doc or no-doc loans” requiring little documentation, adjustable-rate mortgages that ballooned after two years, “interest-only negative-amortizing adjustable-rate subprime” mortgages, and mortgages given to migrant workers and poor immigrants with little or no English.

As Mr. Lewis describes it, Wall Street firms were able “to hide the risk by complicating it” and by getting the rating agencies — notably, Moody’s and Standard & Poor’s — to give triple-A ratings to bonds that were far lower in quality.

Lewis has been interviewed in many media outlets. You can watch these interviews online on Charlie Rose (which even has a transcript), on 60 Minutes, and on Fareed Zakaria’s GPS (Part 1 and Part 2). Or you can listen to him interviewed on NPR’s Fresh Air With Terry Gross. Or you can simply click on his CSPAN interview on Q&A below.

Michael J. Burry, one of the investors profiled in Lewis’ book, wrote an opinion piece in the New York Times recently titled I Saw the Crisis Coming. Why Didn’t the Fed?

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