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!

David Harvey - The Enigma of Capital

David Harvey, who is, along with Fredric Jameson, one of my favorite academics, here presents his analysis of the recent financial crisis and offers a theory that attempts to explain the crisis-prone nature of capitalism in terms of the inner contradictions of the system.  At the center of his argument is the "surplus absorption problem," in which the surplus generated by capital today must be reinvested into new lines of production in order to maintain an increasingly unrealistic 3 percent annual compound growth.

While the argument is complex enough that I don't want to try and represent it here, the book is surprisingly accessible and the ideas in it are presented relatively simply.  Some familiarity with the vocabulary of academic Marxism is helpful to understand Harvey's argument, but it is much easier going than Jameson, for example.

I would highly recommend this book to anyone who wants to understand the present financial crisis and why we desperately need to be shrinking our economy, not growing it.

Buffett: The Making of An American Capitalist

This one wasn't exactly my usual cup of tea-- I usually stay away from biographies in general. I was not, however, disappointed with it in the least.

The book is a VERY complete picture of Warren Buffett's life and his various investments over the years. In fact, the book may have too much detail if you're just a casual reader who was interested in Buffett as a person. There is a good deal about his personal life, but it also deals in great part with the various statistics about his companies, profit margins for Berkshire Hathaway, etc.

I thought it was a really great read, and gave some awesome insight into Buffett that none of us would probably expect. I would recommend it to anyone who was interested in either Buffett or the realms of investment.

By the way, did you know that Buffett's investment company, Berkshire Hathaway, originally made lining for men's suits?