The Big Short

The Big Short is another representative work by Michael Lewis, author of Liar's Poker, focusing on the subprime mortgage crisis that swept the globe in 2007–2008. In this book, Lewis does not point the camera at the Federal Reserve, the Treasury, or the large financial institutions of Wall Street; instead, he turns to a group of obscure "small potatoes": hedge fund managers, a doctor-turned-eccentric investor, an independent trader, and two young men who started in their own garage. They discover that the U.S. subprime mortgage market and the securitized products built on it are expanding rapidly, and that the risks hidden within are severely disproportionate to the ratings given by rating agencies. So they choose to stand on the other side of the market, betting on the coming collapse through instruments such as credit default swaps. The author tells the origin, development, and outbreak of the crisis of subprime bonds and their derivatives as a series of personal stories, while also explaining how products such as collateralized debt obligations and credit default swaps work. The book also asks: How did investment banks use complex risk structures to conceal risk itself? Why did the rating system fail? How were financial terms used to mislead clients? When most people were immersed in the consensus that housing prices could only rise, why did only a few remain skeptical? This is a group portrait of Wall Street about greed, ignorance, and clarity, and a popular reader for understanding the financial crisis.