January…the month of New Year and new resolutions and no brownie point for guessing what one of my resolutions was (okay, a hint…check out the date of my last post :D). It’s been a good year till now…specially in terms of reading, not to state that there has been a colossal shift from fiction to reading non-fiction with exuberant interests in economics, finance, politics and history (and yeah…this makes me lifeless and boring according to people :D). Never in the wildest of my dreams, I had thought that a day would come when I’ll just read non-fiction, but things do change (you guessed it right…reading does makes you philosophical :D).
The Big Short tells the story of four individuals viz. Steve Eisman, Miachael Burry, Greg Lippmann and founders of Cornwall Capital, Jamie and Ben who predicted the sub-prime crisis and made a fortune betting against the American Housing market in 2005-06. Wall Street banks generated bulk of profits by securitization of sub-prime loans and selling these securities to investors which made bond traders insanely rich for a short period of time. The whole setup, however had a flaw, a very big flaw rather – these loans were made to people who weren’t capable of paying the loans back (and hence the term ‘subprime’) which meant that the value of the securities sold by Wall Street banks were worthless. Here’s one of the examples given by Lewis in the book, “In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $724,000.” The protagonists realised that the sub-prime loans were unsustainable before everyone else did and placed bets against the market by buying Credit Default Swaps (CDSs) on these securities, a process called Shorting.
The Big Short explicates the causes of the financial crisis and the struggle of protagonists who came against the entire financial system. The book is highly entertaining, humorous, beautifully written and given the astounding accounts of protagonists, can almost be considered a picaresque novel. After reading the book you will able to explain to a layman the importance of a Credit Default Swap on a double-A tranche of a sub-prime backed Collateralized Debt Obligation.🙂 A must read if you want to know how a nation lost its financial mind – and have a good laugh finding out (Sunday Times). Though the financial terms have been well explained, a little background knowledge on terms like Mortgage Backed Securities (MBSs), Collateralized Debt Obligation (CDOs), Credit Default Swap (CDSs), and financial crisis, shorting securities, etc. will enhance the reading experience much more. A movie has also been made on The Big Short with a star studded cast, though it hasn’t been released in India yet. After The Flash Boys and Boomerang, this is the third book of Michael Lewis which I’ve read and now I’m partial to him. I’m just missing out just on his debut novel Liar’s Poker which is lying on the table right next to me and shall be my next read.
A must read for everyone. Will greatly improve your understanding of the 2008 financial crisis and will definitely make you more finance literate.
My Rating: 4.50/5