The Big Short
by: Michael Lewis
Central Theme:
Outsiders are often those able to spot and resolve challenges, perhaps because it’s easier to think rationally and critically with an outside perspective.
Recommendation:
Michael Lewis’ bestseller “The Big Short” tells the story of the subprime mortgage bond market explosion in 2008. Not only does Lewis illustrate the overconfidence on Wall Street that led to the financial disaster, but he also demonstrates how the power and prestige of large firms allowed for a culture of a minimum of willful ignorance.
Summary:
The story of the 2008 crash was largely driven by the explosion of bond and real estate derivative markets – the impenetrable securities created for institutions to profit from loans borrowers could not afford. Although caused in part by the Federal Reserve’s decision to significantly lower the Federal funds rate to spur growth, lenders became far too ready to give away many risky loans at the same time. The assumption housing prices would continue to rise with low interest rates persisted as risk and responsibility were irrelevant for investors promised insurance through credit default swaps.
