Book Review - The Big Short
Posted by Avi Frisch on Monday, July 12, 2010
Under: Public Policy
Over the weekend, I read The Big Short by Michael Lewis. Lewis is a great storyteller, and really knows how to find the characters to make a catastrophe like the financial crisis comprehensible. This is the best book I have read yet on the origins of the financial crisis.
To start off with Lewis' conclusion, Wall Street should have been allowed to disappear in the fall of 2008. It had no redeeming qualities, so driven by the need for profit and outrageous salaries, whatever value Wall Street used to provide was long gone, undone by small partnerships becoming large public companies with the wherewithal to bet huge sums in a rigged casino.
Amazingly, only a few people understood what was happening, and these are Lewis' protagonists. They see the catastrophe heading our way and set out to make some money while warning the world. Most get rewarded with scorn for their troubles until the huge collapse of the subprime market and then Wall Street allowed them to make out like bandits. These Jeremiah's probably were not prophesying for the good of the world, and probably would never have had enough influence to change things anyway, but to Lewis that is precisely the problem.
Huge bonuses for traders and assets under management for hedge fund managers were all that mattered. That it was a house of cards that could not persist was irrelevant since none of the gamblers had to worry that far down the line. For a long time, they rigged the game anyway against anyone who was not a huge Wall St. player. They even took down the world's largest insurance company.
At some point, drunk with profits, these Wall St. geniuses lost sight of what was happening and started believing their own propaganda. At that point, they sunk themselves. After rigging the game in favor of the banks, or the House at the Casino as Lewis would have it, the House started betting its own money - to disastrous results.
Why were these fools bailed out? Lewis sees the creation of huge side bets that made the whole system ready to collapse as the reason. In another post, I will discuss the book, "13 Bankers" by Simon Johnson and James Kwak who explain how the government has been bought in whole and is operating as a subsidiary of the finance industry.
What then is the solution? I think it won't come until the next huge crisis, which is on its way, we just do not know when or what will trigger that crisis. At that point, there will be so little political flexibility to bail these morons out (and they expect to be bailed out) that the end will come and Wall Street will finally be restructured or replaced. I wish there was a better way, but it appears doubtful.
To start off with Lewis' conclusion, Wall Street should have been allowed to disappear in the fall of 2008. It had no redeeming qualities, so driven by the need for profit and outrageous salaries, whatever value Wall Street used to provide was long gone, undone by small partnerships becoming large public companies with the wherewithal to bet huge sums in a rigged casino.
Amazingly, only a few people understood what was happening, and these are Lewis' protagonists. They see the catastrophe heading our way and set out to make some money while warning the world. Most get rewarded with scorn for their troubles until the huge collapse of the subprime market and then Wall Street allowed them to make out like bandits. These Jeremiah's probably were not prophesying for the good of the world, and probably would never have had enough influence to change things anyway, but to Lewis that is precisely the problem.
Huge bonuses for traders and assets under management for hedge fund managers were all that mattered. That it was a house of cards that could not persist was irrelevant since none of the gamblers had to worry that far down the line. For a long time, they rigged the game anyway against anyone who was not a huge Wall St. player. They even took down the world's largest insurance company.
At some point, drunk with profits, these Wall St. geniuses lost sight of what was happening and started believing their own propaganda. At that point, they sunk themselves. After rigging the game in favor of the banks, or the House at the Casino as Lewis would have it, the House started betting its own money - to disastrous results.
Why were these fools bailed out? Lewis sees the creation of huge side bets that made the whole system ready to collapse as the reason. In another post, I will discuss the book, "13 Bankers" by Simon Johnson and James Kwak who explain how the government has been bought in whole and is operating as a subsidiary of the finance industry.
What then is the solution? I think it won't come until the next huge crisis, which is on its way, we just do not know when or what will trigger that crisis. At that point, there will be so little political flexibility to bail these morons out (and they expect to be bailed out) that the end will come and Wall Street will finally be restructured or replaced. I wish there was a better way, but it appears doubtful.
In : Public Policy
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