Title: "The Big Short: Inside the Doomsday Machine"
Author: Michael Lewis
Publisher: Norton, 2010; 266 pages; $27.95
The saying "hindsight is 20/20" has never been truer than when applied to explanations of the recent real estate bubble and burst and the subprime mortgage market debacle.
Every other person you talk to decries the "obvious" destiny-for-failure of every element of the crisis, from Fannie and Freddie to interest-only adjustable-rate mortgages, to ever-escalating home values.
The unanimity of backward-looking "I coulda told you so’s" is so overwhelming it belies the reality that hundreds of banks, tens of thousands of professionals, and millions of homeowners participated in and had their own role to play in creating the problem. Otherwise, there would be no problem, right?
In light of all this Monday morning quarterbacking, brilliant writer Michael Lewis — who also wrote "Moneyball" and book-turned-Oscar-winning-film "The Blind Side" — took a dramatically different approach in writing his housing crisis retrospective, "The Big Short: Inside the Doomsday Machine."
Instead of pitching himself as a mortgage market savant, or even doing an intelligent but backward-looking deconstruction of how in the heck we all ended up in this collectively problematic situation, Lewis asked a single question of big-finance truth-teller Meredith Whitney.
She became the doomsday oracle of Wall Street when she vociferously predicted the October 2007 crash in financial stocks set off when Citigroup was forced to slash its dividend due to what Lewis unflinchingly deems its "mismanagement" of assets.
Lewis’ question: Who got it right? And with foresight, not hindsight?
And, Lewis asked Whitney, who got it so right that they put their money — at the time — right where their mouth was? Who are the modern-day finance "Nostradamii" who felt so strongly about their then-unpopular prognostications of the subprime mortgage market meltdown that they made millions by creatively "shorting" the market?
"The Big Short" is a series of character studies — the characters being the handful of names Whitney listed in her reply to Lewis’ query. "The Big Short" weaves together the tales of exactly how, when, where and why these folks called Wall Street out — more or less loudly, but always very profitably — on the setup for a big-time fail that was the then-flourishing subprime mortgage business. …CONTINUED
Sure, this book is full of financial storytelling and narratives of the strategies these folks innovated to short a market for which there was no packaged product or preexisting strategy set up for profiting from this particular industry’s failure. If that’s your gig, you’ll love it.
And honestly, if you don’t like that sort of thing, you should still give it a chance — Lewis’ retellings of what must have been quite complex big-market wranglings flow and engross, like a really smart, high-stakes reality show plot — without the loose women.
But really, "The Big Short" is a book about humans and their lives. Specifically, Lewis unbraids the events of these particular humans’ lives that drove their personal flavor of righteous belligerence, laying bare what I read as the life scars that emboldened these various players — none of whom were market big shots beforehand — to go so heartily against the grain.
And by righteous, I don’t mean self-righteous or judgily moralistic about why people should be made to put money down or document their income — I just mean correct about fully reading, understanding, analyzing and detecting the numerous and grave flaws to the subprime industry’s business models, and betting the farm on their correctness when everyone else crossed their fingers that the house of cards would just keep on standing.
Lewis’ cast of everyman-esque (but smarter) characters is what makes this book read like funny, smart, suspenseful fiction — and better than most of that. There’s the nobody stock analyst who worked for his parents, whose young son had tragically died, killing his belief that everything would just be OK just because everyone else thought so.
And then there’s the dropout medical doctor with a glass eye who was runny and infected frequently during his childhood — depriving him of friendships and the curse of giving much of a crap what others said or thought.
These characters had been damaged by life, as have we all. But "The Big Short" relays how their damage not only sensitized them to the pain potential of life, but left them more open than normal to the catastrophic market possibilities to which everyone else was blind (often intentionally so). And it does so with sarcasm, and a brilliantly wise yet unfancy voice. A must-read.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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