Tagged: the big short

Book: Michael Lewis’ The Big Short

My excursion into the literature of finance continues with Michael Lewis’ The Big Short: Inside the Doomsday Machine.

It’s an intriguing premise: He tells the story of the subprime mortgage crisis that culminated in 2008 with the collapse of Bear Stearns and Lehman Brothers by focusing on a small group of money managers who made a killing shorting the market.

These clear-eyed gamblers at the table understood the worthlessness of the collateralized debt obligations (CDOs) that had been gaining popularity since the 1980s (ironically, Lewis’ old employer Salomon Brothers was one of the pioneers in this product), and they opportunistically bet against them by purchasing credit default swaps (CDSs).

Lewis does his best to excite our interest in the financial dealings, but even he can’t hide his bored contempt as he relates such occasions as the conference call in which one card sharp barks at a bunch of suckered Morgan Stanley suits that they owe him $1.2 billion. Or his pure boredom as he reminds us, again and again, what a CDO is, and that it’s helpful to think of them as apartment towers with the worst bonds on the bottom floor, and thus the first exposed to the flooding of defaults.

It’s hard not to cast a hypercritical  eye at the storytelling tactics of Lewis, who by now is a very successful journalist with a special corner on popular financial journalism (Liar’s Poker, Flash Boys) and sports journalism for thinking fans (Moneyball, The Blind Side).

Here, the seams of his narrative are a bit too evident. He cherry-picks three sets of protagonists, chosen presumably because they will fit the underdog prototype that Hollywood prefers. One guy is a brilliant cynic with a loud mouth and ruinously bad social skills; he’s backed up by a pair of conventional, unpretentious sidekicks. There’s another guy who is built up (beaten down) by a lengthy description of his glass eye and poor social skills. (Unsurprisingly, it turns out that he has Asperger’s.)

Most tellingly, there’s a group of young money managers, situated as innocents in a nest of vipers who just happened to stumble into money management after goofing off for a few years after college. Perhaps that’s so, but I don’t believe Lewis mentioned that one of them, James Mai, is the son of Vincent Mai, who runs one of the country’s oldest private equity firms. Not exactly off the bus from Palookaville.

This is how Lewis introduces his Jimmy Stewart-like naif:

James Mai was tall and strikingly handsome and so, almost by definition, had the air of a man in charge–until he opened his mouth and betrayed his lack of confidence in everything from tomorrow’s sunrise to the future of the human race. Jamie had a habit of stopping himself midsentence and stammering–“uh, uh, uh”–as if he was somehow unsettled by his own thought.


Jamie’s first job out of Duke University had been delivering sailboats to rich people up and down the East Coast. (“That’s when it became clear to me that–uh, uh, uh–I was going to have to adopt some profession.”) At the age of twenty-eight, he’d taken an eighteen-month “sabbatical,” traveling around the world with his girlfriend.

I checked the index for any mention of Vincent Mai. Unfortunately, there’s no index, so you’ll have to trust me on this.

Movie not coming soon.

Books this year: 9

Now reading what may be the best thing about my experience reading The Big Short: a title called You Can Be a Stock Market Genius, by Joel Greenblatt. An unbelievably cheesy title, but a couple of different characters in The Big Short swear by it. As the Asperger’s guy says, “I hated the title but like the book.”

I don’t quite hate The Big Short, but I like the title

Book: Liar’s Poker

I remember Michael Lewis’ Liar’s Poker being the subject of discussion when it came out. I was in college then, in New York City no less, and I’m really glad I didn’t read it at the time.

Here’s why: In an essay Lewis wrote in 2008 for Portfolio.com, he wrote:

I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

If I’d read Lewis’ book when it was first published, I, like the Ohio State students, certainly would have become very interested in entering the world he describes.  Had I done so, I would have begun my career in the bull market of the 1990s, and then lost a bunch of money–my own and my customers’–in the tech bust of 2000. I don’t think I could have survived in that environment without becoming an horrible, horrible person, a substance abuser or worse.

All that said, I still find finance, equities and debt pretty interesting, and I relished the few stray bits of financial play-by-play in Lewis’ book as much as the colorful anecdotes.

Liar’s Poker is a pretty good account of one undisciplined firm and the culture it created. It’s a little thin on the personal side–both what Lewis and his wife did on nights and weekends, and what his co-workers did. The narrative is almost strictly in the office, like the movie Margin Call, a bunch of sweaty, aggro traders and salespeople working the phones frantically.

I haven’t been a huge fan of Lewis’ work that I’ve read in magazines, but this, the first book of his I’ve read, was a vivid and funny read. Next on the Lewis docket: The Big Short, his version of the 2008 financial crisis.

The rest of Lewis piece I quoted above later surfaced in The Big Short. What I learned from the essay is that the people who were aware that the toxic subprimes were about to blow up actually contributed to the bubble by shorting the bonds–that is, by providing liquidity to the market in collateralized debt obligations.

The rest of his piece is here. (Sorry for the dodgy link, but Portfolio.com, a $100M venture from Conde Nast, went bust after three years, more or less at the time of the 2008 crisis.)

Books read: 6

I’m already midway through Medici Money, by Tim Parks.