The Big Short

Michael Lewis has an astonishing gift for finding interesting topics, usually related to economics and human behavior, and fashioning them into fascinating and lucid stories that absolutely explode with side-splitting anecdotes.  His first book, Liar’s Poker, was a huge success, chronicling his own experience as a naïve, fresh-out-of-Princeton, bond salesman at Salomon Brothers.  The Big Short is a sequel, of sorts, which tells the story of the Great Recession (officially 2007-2009, with effects that lasted much longer), triggered by the collapse of the subprime mortgage market.  

The Big Short explains the origin and development of this market failure by describing, first, how the bubble grew: mortgage lenders signed up risky consumers who were almost certain to default when their low teaser mortgage rates converted suddenly to sharply higher rates, bond salesmen at several large investment banks found a way to repackage these subprime mortgages into bonds that somehow got rated as AAA (allowing them to be sold at premium prices) – with no one seemingly concerned that these instruments were doomed…except a handful of very smart, independent thinkers, who then bet against this market and, after a couple years, made truly vast sums of money when the mortgages went belly up.

One whip smart, colorful and abrasive character featured in the book was Steve Eisman. Eisman was in a constant state of fury over the practices of conventional Wall Street salesmen:

“Obsessing over Household, he attended a lunch organized by a big Wall Street firm.  The guest speaker was Herb Sandler, the CEO of a giant savings and loan called Golden West Financial Corporation.  “Someone asked him if he believed in the free checking model,” recalls Eisman. “And he said, “Turn off your tape recorders.” Everyone turned off their tape recorders.  And he explained that they avoided free checking because it was really a tax on poor people – in the form of fines for overdrawing their checking accounts. And that banks that used it were really just banking on being able to rip off poor people even more than they could if they charged them for their checks.”Eisman asked, “Are any regulators interested in this?”“No,” said Sandler.“That’s when I decided the system was really, ‘Fuck the poor’.”

Eisman relished taking on big shots in public when he thought they were talking nonsense:

"There was now hardly an important figure on Wall Street whom Eisman had not insulted, or tried to.” ”Eisman had invited the bullish-on-subprime Bear Stearns analyst Gyan Sinha to his office and grilled him so mercilessly that a Bear Stearns salesman had called afterward and complained.“Gyan is upset,” he said.“Tell him not to be,” said Eisman. “We enjoyed it!”

Very interesting, lively read!