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Book Review The Big Short: Inside the Doomsday Machine Written by- Michael Lewis

Introduction: Story background The Big Short: Inside the Doomsday Machine by Michael Lewis is a non-fiction book originally published in 2010, has been written explicitly about the U.S financial market crash that took place in 2007-2008. The book gives explanations of the real estate bubble and burst and the subprime mortgage market debacle that no heads of the banks or financial experts saw coming. However, the main focus of the book is on the story behind those key players who on the contrary, was able to predict the imminent collapse from outside and used this chance to make millions of dollars against the complexities of mortgage back securities and its derivatives. Most coverage of the crash in the book gives the strong sense that innocent homebuyers were tricked by greedy bankers and their Wall Street enablers into mortgages they could not afford to pay back. The subprime mortgage bond market was primarily designed to help the lower-middle and lower-class Americans; but this had later on been gathered with such obscurities of heavy financial concepts like credit default swaps or collateralized debt obligation, that it was difficult to be understood by the borrowers themselves, let alone the investors. That is where the book came in to comprehend the causes behind the financial meltdown by revolving the plots around 4 main characters and a few others who later on join them with their bet against the collateralized debt obligation bubble in the Unites States.

Done by: Cynthia Ali Section: A, Roll: 83 IBA, BBA, DU.

Submitted to: Dr. Shakila Yasmin Associate Professor Course: F101

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About the Author: Michael Lewis Michael Lewis is an incredibly talented financial journalist and author. Lewis had been exuberant about dealing with money or other financial from his very early days of his career, and have later on chosen to write on the same sector. Finance is his prime territory for writing. His stories are fresh and on important aspects, usually character-driven narratives, with lots of aggravation and dark humor. He has an impressive knack for turning complex stories into compelling narratives. His stories are fresh and on important aspects, usually character-driven narratives, with lots of aggravation and dark humor. He has an impressive knack for turning complex stories into compelling narratives. His bestselling books include Liar's Poker (1989), The New New Thing (2000), Moneyball: The Art of Winning an Unfair Game (2003), The Blind Side: Evolution of a Game (2006), Panic (2008), Home Game: An Accidental Guide to Fatherhood (2009), The Big Short: Inside the Doomsday Machine (2010), and Boomerang: Travels in the New Third World (2011). No doubt, he is one of the bestselling financial writers of the U.S.

Book Summary: Chapter-wise and Overall The main plot revolves around the retrospective of the October 2007 financial market meltdown and its aftermath on the overall Wall Street, the ordinary home equity investors and the people who could see it coming. In the book, Lewis presents the two different types of people in the financial market: the long and the short. The long buys a security in hopes of selling it at a higher price, while a short works in the opposite way to buy and security which is not it’s won just to sell it then and then later on buy at a much lower price when the price falls. In Lewis’s book, the characters act as the ‘short’ people who would later on bet against the badly founded sub-prime mortgage securities and earn a fortune. They are Steve Eisman and his friends at a hedge fund called Front Point; Michael Burry of Scion Capital; and Charlie Ledley and his friends of Cornwall Capital Management. The financial idea given here with impressive detail and comprehension tells us not only a compelling story but also shows the risks and returns of the financial system, in a global perspective. It shows how confusing and intertwined these mortgage back security concepts Done by: Cynthia Ali Section: A, Roll: 83 IBA, BBA, DU.

Submitted to: Dr. Shakila Yasmin Associate Professor Course: F101

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could be that it may seem completely for even experienced Wall Street insiders unless much later. These particular concept of little understanding has been quoted by Charlie Ledley as follows"In the course of trying to figure it out," we realize that there's a reason why it doesn't quite make sense to us. It's because it doesn't quite make sense." The story also tell us how, when and why the market crashed the way it did. Concepts like credit default swaps where the lenders investment is guaranteed by another borrower for a change in commission if the original borrower fails or the idea of CDO explained by Eisman, where a strawberry picker with a $15000 annual income was being allowed a mortgage of around 50 times more than his income clearly indicated the shady and obscurity this bonds were built on. Reading from chapter 1 to 3 we see the steady buildup of the main characters of the book who starts to figure out something ‘smelly’ in the then emerging sub-prime mortgage bond markets: among them are Steve Eisman, who rose quickly through the ranks thanks to his bold demeanor and talent for predicting when a company would fail ; Michael Burry, an Asperger’s diagnosed neurologist with a knack for financial research and original thinking; and Greg Lippmann, a bond tradesman who learns about the imminent danger just to warn his investors to put money out of the mortgage bond markets. However it shows that though the hours of research done by Eisman’s personal secretory Daniel Vincent or by burry himself, it catches them by surprise when they find the numbers are showing a sign of imminent boom and bust. In chapters 4 to 7 the characters try to understand more about the cloud that obscures the subprime bond market and their hidden pitfalls. Then soon realizes that the borrower themselves are unaware of the situation they are on and investors that they are making go through. They figure out that the low credibility mortgages have been accumulated to make these bonds and sealed with highest ratings. After a lot of analyzing they come to terms that the mortgage bond market will crash down once the security reaches its maturity and that no one yet bothers or knows about the matter in Wall Street. Along this time, another team arrives, the Cornwall Capital with a similar understanding of the increasingly perilous market. They then decide to make their bets against the CDO of the subprime bonds. One of the important tools they used was the credit default swap. Done by: Cynthia Ali Section: A, Roll: 83 IBA, BBA, DU.

Submitted to: Dr. Shakila Yasmin Associate Professor Course: F101

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The last chapters gives us a visualization of the aftermath of the financial meltdown. It shows once the crash happened as predicted by the main characters, the government had to step in and probe before helping with over $1 trillion money while the investors made stunning profits taking the advantage of the situation. It ends with some very powerful question as to what is the future of Wall Street when then head of all the primary banks didn’t even know what hit them up.

Book Evaluation The Big Short isn’t a fun read but it is as essential and powerful a read one can get regarding the mechanisms of the so called ‘doomsday’; that promises to delight readers inside and outside of finance. The book reflects the impeccable research Lewis has done for it. It is evident that he has asked and interviewed many people in order to get things down right meticulously and that shows how the people around where even surprised after reading the book though they have had been in the crisis. His style of writing is very clear and makes a thorough character buildup before moving on with the story. Personally, before this book, I have never had the slightest idea behind the reasons of the U.S market crash of 2007-08; so reading this book for me has been insightful and very comprehensive. I believe, The Big Short is book about human and their lives. It goes through a big chunk to develop the characters so interestingly that it could also be called a book on character studies. The subtle similarity and difference paradox with the characters and their lives is what makes the book so funny, smart and suspenseful at the same time. Coming to the important concepts that were used, Lewis take time to explain each and every one of them before he moves onto to extensively using them, which as I see it is a huge plus for anyone with no prior finance experience. While reading through the book, I was clearly mesmerized and not to say a bit petrified as to sheer ignorance of the multiple billion dollars’ worth investment banks and authorities on the matter. Though the layout was open, the plot didn’t seem very predictable until I reached the final few chapters, where by then, the doom was imminent as correctly waited by the characters themselves. The end however, have left me feeling both satisfied and unsettled: satisfies over the victory of the team to be profitable in through their bet but unsettled as still the bond market is obscure and unpredictable. Done by: Cynthia Ali Section: A, Roll: 83 IBA, BBA, DU.

Submitted to: Dr. Shakila Yasmin Associate Professor Course: F101

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But nonetheless, the book makes it clear how complicated and complex the financial instruments themselves are and shows the true complexities of the mortgage-back-securities and the surrounding derivatives. This take home ideas and insights in every page is what as a business student I have found the most lucrative and savvy. On the other hand, the idea of celebrating the success and only showcasing the investors perspective of the story while the lower class American and the whole financial market suffered is something I found oddly sickening. I wasn’t completely convinced even after reading through the book as to why knowing from such a long time, they did nothing to stop the crash in any way; this part of psychology behind the boom and bust made me question their integrity and greediness level. Besides that, one other thing is the fact that, even being a business student, the story technical ideas were a bit difficult for me to chew on. The concepts seemed a bit baffling and the terms, acronyms and lingo a bit overwhelming. Thus I could imagine how it also require several go through’s for non-finance readers to get a grasp.

Book Recommendation Even though I am not a huge fan of books with heavy duty financial talk, I would highly recommend it to anyone you wants to know the reason behind the doomsday in very compelling and elaborate way. The book is one of the few books that is a hands down reference of 2007-08 U.S market crash, and thus is also a very precious member of a diverse library, whether hardcover or pdf version. And how one forget, how tactfully it makes you go through the entire retrospective just to make you more aware of the complicacies of the bond market and gives you tips and hints to be more safe for future? For those purpose alone, I would definitely recommend it to any good book reader.

Done by: Cynthia Ali Section: A, Roll: 83 IBA, BBA, DU.

Submitted to: Dr. Shakila Yasmin Associate Professor Course: F101...