The Big Short: Inside the Doomsday Machine – Michael Lewis
The irony of Wall Street, Oliver Stone’s great Oscar-winning move of the eighties, was that while he intended it to be a searing expose of the shallowness of the boats of financiers, for many young men and women just leaving college, it was the ultimate in recruitment advertising for the big banks. Here was a job which in quick time offered great riches, expensive suits, Daryl Hannah as a girlfriend and some wild times with a hooker in a stretch limo. OK, if you suddenly woke up, got morals, manipulated the market and then testified against a surrogate father figure you’d go to prison, but then, get smart, and you could keep the money and maybe even the move-star girlfriend as well. No wonder no one went into the Diplomatic Service.
Michael Lewis was part of this, of course. He wrote Liar’s Poker in 1989 as a result of spending three years at Salomon Brothers, and as he says in the foreword to his new book, The Big Short,
“When I sat down to write my first book, I had no great agenda....” but adds that “I hoped that some bright kid at Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Goldman Sachs , and set out to sea... Somehow that message was mainly lost. Six month’s after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State University 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.”
I read Liar’s Poker when it came out, and have glanced at it occasionally since. It’s very funny. This new book of Lewis’ isn’t, but in terms of narrative, it can’t be beaten. It reads like a thriller, focussing as it does on three small hedge funds and a bond salesman from Deutsch Bank - outsiders mostly, small fry, certainly, who play the role of Cassandras vocally warning against the looming tragedy yet unable to prevent it.
What makes them different from Joe Bloggs is that they put their money and all the money at their disposal in a “short” against the system, which adds up to “The Big Short”. Many made huge fortunes from what occurred, but we are invited to see them as not profiting from it morally. As one of them says,
“There was a void after everything happened,”
It’s a canny choice for Lewis, because as he admits in the introduction, others made bigger killings, (he lists them in chapter 5 - on page 105 of the hardback edition), but then we don’t want to read about those who just profited, we need something more. We need them to be vulnerable – and here we have Michael Burry, a one-eyed doctor with Aspergers (though extraordinarily he only is diagnosed during the course of the narrative) who is superb at picking stocks. Another is Steve Eisman with moderate to severe interpersonal problems (“He’s not tactically rude,’ his wife explains, ‘he’s sincerely rude’.”) who loses his baby son.
Then there is Charlie Ledley and Jamie Mai who are “...a pair of thirty-year-old men with a Schwab account containing $110,000 occupy a shed in the back of a friend’s house.. and dub themselves Cornwall Capital Management.”
There’s a lot of fun describing how Ledley and Mi’s great ambitions bump up against the reality of dealing with the big institutional banks, but of course, we know they are right in their fundamental assumptions about the market. On January 30, 2007, Jamie Mai writes an email to his partners Charlie Ledley and [new partner] Ben Hockett. "If a broad range of CDO spreads starts to widen," he said, "it means that a material global financial clusterfuck is likely occurring." The next day, it starts to happen.
Then there’s the bond trader Greg Lippmann, betting against the whole house of cards. As Lewis puts it,
“The least controversial thing to be said about Greg Lippmann was that he was controversial.... A trader who worked near him for years referred to him as “the asshole known as Greg Lippmann.... “I love Greg,” said one his bosses at Deutsche Bank. “I have nothing bad to say about him except he’s a fucking whack job.”
Lippman made huge money for his bank, and for himself ($47 million in 2007). He sounds awful, and is made to play counterpoint to the intellectuals and depressives also betting against the market, but has some great lines, not least in his “42-page presentation “Shorting Home Equity Mezzanine Tranches” which Lippman summed up in a personal and blunt manner to a Deutsche Bank colleague who had seen the presentation and dubbed him “Chicken Little”.
“Fuck you,” Lippman had said, “I’m short your house.”
His pitch for those wanting to buy what he was selling was “...in a nutshell: home prices didn’t even need to fall. They merely needed to stop rising at the unprecedented rates they had the previous few years for vast numbers of Americans to default on their loans.”
And he’s proved right, of course, and memorably gets to ask those on the other side of the debt, such as Morgan Stanley, to settle part of its debt to him by the end of the day, “Dude, you owe us one point two billion”.
So a lot of money, a lot of laughs generated from the absurdity of what is occurring. There is little anger – you have to turn to John Lanchester’s Whoops!: Why Everyone Owes Everyone and No One Can Pay for that. Instead, there is a sense of lessons not learned, and, for the participants, emptiness, even after they are proved right. For Michael Burry,
"What had happened was that he had been right, the world had been wrong and the world hated him for it," Lewis writes. "And so Michael Burry ended where he began -- alone, comforted by his solitude."
Focussing on these individuals makes this a one-sided tale, but one which tells the bigger story well. As Lewis has said, the result was that that banks were bailed out, and the rest of us paid for it, or as it’s neatly put “banks benefit from socialism while everyone else has to live under capitalism.” The number of books publishing which focus on the financial crisis increases every day, but this is a must-read among them.
Tom Otley
The irony of Wall Street, Oliver Stone’s great Oscar-winning move of the eighties, was that while he intended it to be a searing expose of the shallowness of the boats of financiers, for many young men and women just leaving college, it was the ultimate in recruitment advertising for the big banks. Here was a job which in quick time offered great riches, expensive suits, Daryl Hannah as a girlfriend and some wild times with a hooker in a stretch limo. OK, if you suddenly woke up, got morals, manipulated the market and then testified against a surrogate father figure you’d go to prison, but then, get smart, and you could keep the money and maybe even the move-star girlfriend as well. No wonder no one went into the Diplomatic Service.
Michael Lewis was part of this, of course. He wrote Liar’s Poker in 1989 as a result of spending three years at Salomon Brothers, and as he says in the foreword to his new book, The Big Short,
“When I sat down to write my first book, I had no great agenda....” but adds that “I hoped that some bright kid at Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Goldman Sachs , and set out to sea... Somehow that message was mainly lost. Six month’s after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State University 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.”
I read Liar’s Poker when it came out, and have glanced at it occasionally since. It’s very funny. This new book of Lewis’ isn’t, but in terms of narrative, it can’t be beaten. It reads like a thriller, focussing as it does on three small hedge funds and a bond salesman from Deutsch Bank - outsiders mostly, small fry, certainly, who play the role of Cassandras vocally warning against the looming tragedy yet unable to prevent it.
What makes them different from Joe Bloggs is that they put their money and all the money at their disposal in a “short” against the system, which adds up to “The Big Short”. Many made huge fortunes from what occurred, but we are invited to see them as not profiting from it morally. As one of them says,
“There was a void after everything happened,”
It’s a canny choice for Lewis, because as he admits in the introduction, others made bigger killings, (he lists them in chapter 5 - on page 105 of the hardback edition), but then we don’t want to read about those who just profited, we need something more. We need them to be vulnerable – and here we have Michael Burry, a one-eyed doctor with Aspergers (though extraordinarily he only is diagnosed during the course of the narrative) who is superb at picking stocks. Another is Steve Eisman with moderate to severe interpersonal problems (“He’s not tactically rude,’ his wife explains, ‘he’s sincerely rude’.”) who loses his baby son.
Then there is Charlie Ledley and Jamie Mai who are “...a pair of thirty-year-old men with a Schwab account containing $110,000 occupy a shed in the back of a friend’s house.. and dub themselves Cornwall Capital Management.”
There’s a lot of fun describing how Ledley and Mi’s great ambitions bump up against the reality of dealing with the big institutional banks, but of course, we know they are right in their fundamental assumptions about the market. On January 30, 2007, Jamie Mai writes an email to his partners Charlie Ledley and [new partner] Ben Hockett. "If a broad range of CDO spreads starts to widen," he said, "it means that a material global financial clusterfuck is likely occurring." The next day, it starts to happen.
Then there’s the bond trader Greg Lippmann, betting against the whole house of cards. As Lewis puts it,
“The least controversial thing to be said about Greg Lippmann was that he was controversial.... A trader who worked near him for years referred to him as “the asshole known as Greg Lippmann.... “I love Greg,” said one his bosses at Deutsche Bank. “I have nothing bad to say about him except he’s a fucking whack job.”
Lippman made huge money for his bank, and for himself ($47 million in 2007). He sounds awful, and is made to play counterpoint to the intellectuals and depressives also betting against the market, but has some great lines, not least in his “42-page presentation “Shorting Home Equity Mezzanine Tranches” which Lippman summed up in a personal and blunt manner to a Deutsche Bank colleague who had seen the presentation and dubbed him “Chicken Little”.
“Fuck you,” Lippman had said, “I’m short your house.”
His pitch for those wanting to buy what he was selling was “...in a nutshell: home prices didn’t even need to fall. They merely needed to stop rising at the unprecedented rates they had the previous few years for vast numbers of Americans to default on their loans.”
And he’s proved right, of course, and memorably gets to ask those on the other side of the debt, such as Morgan Stanley, to settle part of its debt to him by the end of the day, “Dude, you owe us one point two billion”.
So a lot of money, a lot of laughs generated from the absurdity of what is occurring. There is little anger – you have to turn to John Lanchester’s Whoops!: Why Everyone Owes Everyone and No One Can Pay for that. Instead, there is a sense of lessons not learned, and, for the participants, emptiness, even after they are proved right. For Michael Burry,
"What had happened was that he had been right, the world had been wrong and the world hated him for it," Lewis writes. "And so Michael Burry ended where he began -- alone, comforted by his solitude."
Focussing on these individuals makes this a one-sided tale, but one which tells the bigger story well. As Lewis has said, the result was that that banks were bailed out, and the rest of us paid for it, or as it’s neatly put “banks benefit from socialism while everyone else has to live under capitalism.” The number of books publishing which focus on the financial crisis increases every day, but this is a must-read among them.
Tom Otley 
