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The Big Short

Michael Lewis‘ The Big Short received a huge amount of attention when it first came out.  Including a two-segment hit on 60 Minutes.  Nor has that attention diminished.  At the moment the book stands #5 on Amazon.com Bestseller list.  The SEC case against Goldman Sachs has also helped keep the book in the spotlight.

This is not a full-blown book review.  For that there are plenty of good options including those from:  Felix Salmon, Daniel Gross, Andrew Leonard and Baruch.  What we do want to do is highlight a thread running through the book.

Early in Chapter 5 Lewis notes how there were but a handful of investors who actively bet against the subprime market.  The book is largely about those investors for whom the trade became an obsession.  The investors Lewis profiles went on to be vindicated by the market and in the process would collectively earn hundreds of millions (if not billions) for their clients and themselves.

You would think that this would be an unmitigated victory for those investors.  However in many cases the opposite seems to be true.  In Chapter 10 once the full extent of the subprime fiasco had become front page news and their investments had paid off in full you see how this once in a lifetime trade has affected these investors.  For example, Michael Burry is pretty much driven from the money management industry.  Lewis writes about Burry:

He had happened was that he had been right, the world had been wrong, and the world hated him for it.*

Had this been some sort of garden variety short trade this may not have been the case.  However the other side of the subprime trade was the near total collapse of the global financial system.  Some argue that these investors had abetted the destruction the US mortgage market.  Others might say they were instrumental in helping pop an unsustainable bubble.

Whatever case you believe that there are very few trades for which success also meant a profoundly changed world.  With so much of financial journalism focused on the numbers and bereft of personality it is easy to forget that at the end of every story on finance there is some ultimate human impact.  The challenge is in making those connections.  As Lewis writes:

That was the problem with money:  What people did with it had consequences, but there were so remote from the original action that the mind never connected one with the other.**

In The Big Short we see how a once in a lifetime trade affected these investors.  The sad fact is that we don’t need a book to know what happened to everyone else on the other side of that trade.  Because society at-large ended up being the ultimate counterparty and we are still living with the consequences of that trade to this date.

*Michael Lewis, The Big Short, W.W. Norton & Company, 2010, p. 247-248.

**ibid, p. 251.

Please note:  We purchased our own copy of The Big Short and were in no way compensated for this post.

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