Sep 30, 2010

The Big Short - Book Review

Well, what do I say of this book!

As someone who was in the thick of these things in the spectacular collapse that happened in 2008, it is amazing how a book like The Big Short gives you a view in what happened in retrospect. I was a student while the collapse happened and we were grappling with the possibility of being unemployed despite passing out from one of the top ranked institutes in India.

So what happened?

Michael Lewis tells us the story of collapse through the actions of 3 protagonists - Steve Eisman, Dr. Mike Burry and Cornwall Capital. The protagonists realized the otherwise obvious fact to finance professionals. They also realized how mechanization of certain processes had converted real risk into a meagre assumption. The story then moves into how these protagonists converted their beliefs into bets that made enormous amounts of money for their investors and themselves.

The story also explores the difficult side of this story, especially that of Dr. Mike Burry of Scion Capital. The most interesting story is that of Cornwall Capital who were small time guys but made it big after having foreseen the future of the grand hubris at Wall Street.
The book defines that all 3 realized that the impact of this problem will manifest when the teaser rates give way to real rates and the subprime borrowers are no longer capable of paying EMIs.

Having said that, the book does leave you wanting to know more especially about the collapses of Bear Stearns and Lehman Brothers. It touches it but does not elaborate on it.
Also, the story speaks volumes (though not directly) on how it is necessary for regulators to remain in control. Check this article by Mike Burry on how the powers that are missed the boat.

Finally, the book is fun. You will enjoy it more if you at least know what stuff like derivatives mean (not in detail but at least high level). Recommended reading for those who want to know more on the collapse. But not for those who want to do a deep dive study.

Disclaimer

All the opinions expressed are of the author only. Any action taken by readers on the basis of this blog is entirely at the readers' risk and they are solely responsible for the same.