I am partial to Michael Lewis.In fact his only book I am missing is Liar s Poker which I surely will read next And The Big Short even has its own star studded casted film coming.In a nutshell, this is the story of four people who made a fortune betting against the market that in 2005 2006 was generating the bulk of Wall Street s profits, subprime loans read Book review The Big Short Michael Lewis Intense drama written by an amazing Michael Lewis.As well as for Liar s Poker and The Flash boys, Lewis writes an inside story of Wall Street and its wide range of subprime mortgage bonds that Investment banks dealt in the last decades The madness, the worldwide lie in which mutual funds, hedge funds, pension funds, official lending authorities, retail and investment banks managers have being living and certain of them enjoy until the famous crack of the 2008.In a pretty easy way, the author describes singular and structure products such as CDS, CDO, CDO2, CDO3 and so on making them sound familiar and nonetheless destructive.Great real story which will keep audience glued to the book Il libro descrive in modo semplificato i meccanismi che hanno portato alla pi grande crisi finanziaria della storia, rendendo comprensibili ai pi molti dei concetti divenuti di moda negli ultimi anni Nel far ci , alcuni passaggi, alcuni contenuti, risultano ripetitivi Ci nonostante, il libro rappresenta un ottimo inizio per chi vuole approfondire il discorso sulla crisi dei mutui subprime. L avevo gi letto in italiano ma stata comunque una lettura molto interessante A livello linguistico non difficile da capire ma non per tutti Stessa cosa a livello contenutistico Consegna nei tempi previsti. Trasformare una storia di economia in un thriller un abilit di pochi Bravissimo The quantity of money described in the various transactions mentioned in the book is unbelievable but in the end, if you don t have at least a minimum financial knowledge you ll run the risk of losing yourself between credit default swaps and collateralized obligations.Even the movie that usually is simplified compared to the book is complicate.Despite that, once you get the basics, the book is gripping. Very compelling and true story of what happened and why it happened when the whole world financial system melt down.I Couldn t stop reading it Michael Lewis at his best For anyone interested in understanding the causes of the sorrows of our times, Michael Lewis s The Big Short is essential reading That it s also well written and highly entertaining I found myself laughing on several occasions only adds to the joy of the book.We all know, some years after the event, that a great many people saw the 2007 crash coming Michael Lewis s book, however, focuses on the handful of people who really saw it coming and left proof that they d done so by staking large amounts of money betting that it would.Take Michael Burry This is a man we get to know better and better through The Big Short , which is appropriate because the events it describes include his own awakening self awareness one of the charms of this book He was perhaps the first to see that the US mortgage industry was lending increasing amounts of money to people who had not the slightest chance of being able to keep up the repayments.Those mortgages were being sold on to other financial institutions, and then being collected together into bonds which could be sold as packages to yet others A market quickly developed in those bonds, which developed their own prices quite independent of any value the initial mortgages themselves might have.In fact, the process went still further, with collateralised debt obligations CDOs which contained bits of many bonds and could themselves be sold on.The explanation I ve just given is almost certainly inadequate, but I don t pretend to understand how individual mortgages got packaged into bonds and bonds into CDOs But that s the book s essential point very few people did understand These were opaque instruments, not understood by the people who traded in them or by the executives of the Wall Street firms which employed the traders.They didn t understand, but they knew that it was in their interest that they keep being created, that their price keep increasing and that the market stay buoyant So they did all it took to maintain the flow of the instruments which meant making and loans to people less and less able to afford them and to keep the price high.In one of his most damning revelations, Lewis explains how Wall Street maintained pressure on the ratings agencies, whose staff were simply not of a calibre to withstand it So the agencies continued to award to rate these essentially rubbish bonds triple A That allowed their prices to be kept floating ever ludicrously higher.What the few people like Burry Steve Eisman, Greg Lippmann and the founders of Cornwall Capital also play major roles in the book had understood was that this whole structure was ultimately built on lousy loans It couldn t be sustained in the long term the whole tower eventually had to crash So the trick was to find a way to bet against it That s the process known as selling short Normally, it involves borrowing You might borrow pounds today to buy dollars, in the belief that the pound will fall, so when you come to buy pounds to pay the loan back, it will take fewer dollars than you ve realised today or you might borrow shares to sell today, believing that when you come to buy them again to reimburse the lender, they will cost you less Large amounts of money can be made that way, but the risk is colossal if the shares rise instead of falling, or the pound increases in value against the dollar instead of devaluing, your losses can be immense In fact, they are unlimited.As it happens there was no mechanism to borrow mortgage backed bonds in the years leading up to 2007 What there was, however, was a way of insuring against them defaulting The so called credit default swap CDS meant paying a quarterly premium, against the insurer paying out the full value of any default on the bond if the bond became worthless, the insurer paid out the face value at which it had been sold.One can imagine that this was initially a legitimate form of insurance though it wasn t regulated as ordinary insurance is If you ve lent 100m to someone whose credit you believe is good, you might nonetheless want to take out some insurance against his being unable to pay you back if someone is prepared to insure the full value for, say, two or three hundred thousand a year then the chances are that you will only be out of pocket by a small percentage of the interest you make on the loan, and usually the insurer will not have to pay out anything just as in insurance generally most houses don t burn down, so the insurers turn the premiums into pure profit You ll have made a small reduction in your profit for peace of mind.Until nearly the end, the Wall Street firms were so convinced of the solidity of the sub prime mortgage market, that they were than happy to issue large quantities of CDSs They were happy to insure the bonds Interestingly, the men who bet against them didn t even have to own the bonds they were insuring they could take out CDSs against the bonds without buying them in other words, they were making pure bets.This was the Big Short They were taking out fire insurance on houses belonging to other people, which they were convinced were already burning And they made a packet.The main lesson for us They did it because they were alone in understanding what the people paid huge salaries to manage the industry failed to grasp.And the saddest lesson No lessons have been learned The finance sector was bailed out by the taxpayer It goes on paying its senior players wildly excessive salaries And it continues to pursue huge profits from financial instruments they don t understand.P.S The film same title is not at all bad, either. We fed the monster until it blew up While Wall Street was busy creating the biggest credit bubble of all time, a few renegade investors saw it was about to burst, bet against the banking system and made a fortuneFrom the jungles of the trading floor to the casinos of Las Vegas, this is the outrageous story of the misfits, mavericks and geniuses who, against all odds, made the greatest financial killing in history In this book, the author focuses on the activities of a small group of people, in many ways eccentric amateurs, and initially totally unknown figures to the big beasts in the rarified world of investment banking, who foretold the crash of the US mortgage bond market that was the start of world wide financial turmoil in 2008, and in so doing profited greatly By a huge amount of tedious work, reading boring, jargon heavy literature put out by the banks and other financial institutions, they realized that there was a massive fraud being perpetrated on investors in this bond market, an area that had rapidly come to hugely outstrip the traditional equity market The first part of the conspiracy was to lend billions of dollars to house buyers who clearly did not have the means to meet the payments in the long term These were the notorious subprime mortgages The banks were then packaging these mortgages into financial instruments called collateral debt obligations CDOs and persuading the rating agencies to give 80% of them a triple A rating on the basis that the CDO contained a few low risk loans They could then be sold to eager buyers worldwide and earn the bank substantial fees.But it didn t end there Those that failed to get the desired rating were simply repackaged, so that all these dubious products were eventually classed as risk free This was the second part of the conspiracy and a huge failure by the rating agencies who were paid by the banks They failed to examine in detail the structure of a given CDO, but simply accepted the bank s assessment The situation rapidly spiraled out of control A CDO A might contain some of the mortgages in CDO B that in turn might contain some of the mortgages in CDO C, and the latter might even contain some mortgages that were in CDO A This was an Alice in Wonderland world where it was impossible to give a true value of any CDO, and its worth was what the bank said it was worth Even the senior staff at the banks that were selling the CDOs didn t have a full understanding of what was happening.This is where the outsiders entered First they realized that the original loans were often being made to people without asking for proof of income liars loans and that the home owner was offered a low interest rate the teaser rate initially, typically for the first two or three years They argued that after this period expired there would be a high probability that the owner would default and, crucially, that this would happen to the vast majority of loans within any given CDO, because they would all be unable to pay for the same social reasons The banks, however, had risk models that only considered a worse case scenario of just a few percent failures If they could take out insurance, via what were called credit default swaps CDSs , against a failure of a CDO, they argued that they would only have to wait a couple of years or so before the low rate period expired and the insurance would have to pay out Throughout they remained worried that they had missed something, because the logic seemed so obvious, they couldn t understand why the banks themselves had not seen it Eventually they did of course, and much later started to cynically even corruptly bet that the very bonds that they had issued would fail.Initially, the outsiders had hurdles to overcome They had difficulty finding any bank that would sell CDSs to them because they were mere minnows with only small funds However, these hurdles were overcome and to some amusement of the banks they started to accumulate substantial positions in bets that the CDOs would fail, and at only a small cost in premiums It was a nail biting time because the price of CDOs continued to be stable, even sometimes rise, despite the increasing rate of defaults on the underlying loans But the end, when it came, was very rapid, just as the outsiders had predicted Indeed the losses were so great that they feared the big banks would themselves fail and so be unable to pay out on the CDSs In great haste in the last stages of the collapse they scrambled to offload them and managed to get out before the final collapse.The rest is history several major bank collapsed hundreds of billions of dollars were pumped into the system to keep others afloat Congress stepped in and bought subprime mortgage assets for up to 2% of the US GDP and senior bankers who had lost billions in the debacle were allowed to walk away with bonuses of tens of millions of dollars But the householders who had defaulted on their loans received nothing and were dispossessed.What this sad story revealed was widespread cynicism in the financial industry, banks, rating agencies and regulatory bodies, bordering on corruption, and a remarkable lack of understanding of the fundamentals at the highest level in the banks There have been many books about the causes of the financial crash of 2008, but few can match this one in the detailed knowledge of its author and the clarity of his presentation There is some repetition in explaining technicalities, but this is acceptable If the reader understands it first time these can easily be skipped over without loss of continuity Overall it is an excellent book.