The big short

It’s basically a story about how Wall Street screwed America.

The villains, in order of perfidy: 

The ratings agencies and their second-class employees. If you
really want to know why we had this huge problem with sub-prime loans, you can
find the chief antagonists in those agencies, like Moody’s and Standard and
Poor’s, who decided, somehow, that it was smart policy to give a AAA rating
(the strongest rating) to a bunch of bonds that weren’t worth the paper they
were written on. The theory used by these second-rate financial analysts was
that most people were going to pay back their mortgage loans. And that might be
true in most cases. But in the case of sub-prime loans, when most of those
loans were given to people who didn’t have much of a track record or the
ability to pay them back, that was not the case. The ratings agencies refused
to distinguish between the two, and now we are all paying the price.

Goldman-Sachs: Lewis doesn’t like
Goldman-Sachs, and he makes the case that Goldman was probably behind much of
the speculation behind the market run-up, and then was double-dealing when it
became clear that the market was going to tank.

Wall Street: Lewis believes that
Wall Street is populated by a bunch of sharks who would sell their grandmother
if it helped their bottom line.

Loan originators: While he
doesn’t go into too much detail, he mentions some great stories about the
quality of people who got loans (a Mexican migrant worker who got a loan for
close to $800,000; a stripper who was able to get five mortgages, etc).

The political leadership, especially at the Fed: Lewis is not kind to either Greenspan or Bernanke,
whom he blames for not stopping the madness before it was too late.

In the Lewis account, the heroes are short-sellers who uncovered the stunning
stupidity of the American financial system — and sought to make a buck in
uncovering it. Steve Eisman, Michael Burry and Greg Lippmann were three unique
characters who saw the financial apocalypse coming and sought to do everything
they could to make some money off of it.

The irony, of course, is that was when the meltdown happened, the government
did everything it could to stop the short-sellers from making their money.
Nobody likes a short-seller. They bet that the market is not going to go up.
They bet that the market is going to go down. They aren’t optimists. They are
pessimists. They are the ones who are betting that the dice are going to crap
out in craps. They are a buzz-kill. But without them, irrational exuberance
rules the marketplace.

Lewis’s book is unique because it makes the buzz-killer the hero. 

I supported TARP because I didn’t want the whole financial marketplace to completely
collapse. But that doesn’t mean that I have any great faith in the essential
honesty of Wall Street or of the bond market, for that matter.

Republicans should read this book. If they don’t think Wall Street needs more
regulation, they are crazy. As Lewis points out, this story is not about how
the rich got richer and the poor got poorer. This is a story about how the rich
got richer, the poor had some fun for a while and the middle class got whacked
with a financial crisis that will hit them for a long time to come. 

Next comes Hank Paulson’s side of the story. Should be interesting …

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