This month’s review is by Richard Bellikoff
The Big Short: Inside the Doomsday Machine
By Michael Lewis
“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.”
This excerpt from the book describes an all-too-common situation in the years before the financial crisis of 2008: the issuing of subprime mortgages to millions of home buyers who clearly could not afford them. Wall Street bundled these mortgages into impenetrably complex securities and peddled them to unwary investors. When the real estate market crashed, it took most of the big Wall Street investment banks and much of the American economy with it.
Michael Lewis tells this familiar story from an unfamiliar angle: that of a handful of quirky characters who saw it all coming and made millions by shorting the mortgage securities market — in other words, betting against it. They knew it was a house of cards, a black hole, a time bomb — a doomsday machine, as Lewis calls it.
Lewis’s compelling and disconcerting tale is full of dark humor, painting a picture of Wall Street as a theater of the absurd, a casino where for once the house — the big
banks — lost. He illustrates arcane financial concepts with colorful similes and analogies. You’ll impress your friends and family with your newfound knowledge of collateralized debt obligations, credit default swaps and floating-rate negative-amortizing mortgages.
And while you’re at it, watch the movie too. It’s this year’s Oscar winner for Best Adapted Screenplay, and the Library has it on DVD.
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