Kristi L. Waterworth - Quicklet on Michael Lewis the Big Short: Cliffnotes-like Book Notes

I became a Realtor in 2000, when an opportunity presented itself. I had been a journalist, slaving away at a small and insignificant newspaper in a small and insignificant town when I was offered a position creating marketing materials for a Real Estate company in a not-too-distant city. I had no idea that taking that job would thrust me in the middle of the worst financial crisis my generation would know. From that marketing position, I went to work for a Realtor and was licensed shortly thereafter. The rest, as they say, is history.When I first saw The Big Short appear at the bookstores, I was delighted. Finally, someone could explain what the hell had happened during that crazy time period that began about the time I was licensed and ended when the market exploded in middle America. At the same time, I was secretly a little afraid that there would be a list tucked inside with the names of Realtors who had sold subprime mortgages.Fortunately, my name does not appear in the book in giant bold letters, but it might as well. I was among the many, many salespeople sucked into believing that subprime mortgages had their place among the mortgage instruments. I believed that home prices would never fall in our area, therefore my clients were protected from the initial two year terms. I told them each and every one that wed simply refinance about six months before their rate changed.

Subprimes werent my bread and butter, by any means, but zero-down home loans certainly were. They arent covered in this book because they werent as deadly an instrument on Wall Street, but for the homeowners caught in this debacle, they were every bit as bad. I believed that it made sense at the time for my buyers to leverage as much as possible and hold on to their hard cash. Not many Realtors get to admit publicly how wrong they were during this time period.

At the time, I didnt really understand what was happening; all I knew was that the sky was falling at an accelerated pace. Michael Lewis did the research and has put the whole story together in one place. In The Big Short, he manages to turn credit default swaps, collateralized debt obligations and subprime mortgage bonds into things that will make sense to most people. If theyre anything like me, theyll finish the book weeping.

Michael Lewis studied art history at Princeton before pursuing a Masters program at the London School of Economics. Upon leaving college, he went to work on Wall Street as a stock analyst for Salomon Brothers. What he witnessed in his three years there he would later describe as criminal behavior. These early experiences so shocked and disturbed him as to prompt the writing of his first book, Liars Poker .

Lewis is a journalist born out of the culture of 1980s Wall Street. Because of his experience in the early years of our current financial crisis, hes uniquely situated to tell its story. Since Liars Poker , hes been analyzing American culture as it relates to the overall economy in books whose subject matter ranges from Wall Street to professional sports and even parenthood.

Lewiss accessible language has propelled him to the forefront among financial journalists. He has the ability to take ridiculously complicated financial topics and break them down into easily digestible bits. He tells the story of our financial world not by simply quoting figures and dates, but by engaging with the people who lived through the events he discusses. Through their experiences, we get a greater understanding of the world Lewis is exploring than any numbers could provide.

A talented biographer with a grasp of the bigger picture, Lewiss deeply intimate writing style introduces heroes and villains in a way that creates well-rounded characters. His characters (who are real people) actually feel like real people rather than two-dimensional props used to demonstrate a point. Even the worst of Lewiss villains have some kind of redemptive qualities.

The Big Short isnt simply a follow up to Liars Poker , as some reviewers (and even its author) have claimed, it is the tale of the result of the world that Liars Poker documents. The 1980s were an unrestrained era of greed that continued to build quietly until Wall Street collapsed into a broken heap in the mid 2000s. Michael Lewis was in a unique position to document the fall of the system in The Big Short , being a former inside man now on the outside.

Using the stories of the few traders who came out on top of the mess, Lewis follows the subprime mortgage disaster from its more recent roots straight to its end. Men like Michael Burry, Steve Eisman and Charles Ledley didnt know what they were seeing when they first caught wind of subprime mortgage bonds, but they each had a feeling that something sinister was lurking beneath the exotic products that were being created from these risky investments.

This New York Times Best Seller is worthy of the accolades it has claimed, considering that it manages to be a cautionary tale while clearly explaining financial instruments that werent even as clear to the people who were buying and selling them at their height. Lewiss combination of terror, education and the brief joy of the underdog succeeding in an apocalyptic landscape creates a sort of road map to the destruction of the subprime mortgage markets, as well as the bruising of a substantial chunk of the global financial markets.

Anyone who worked in economic sectors that touched subprime during the crisis years will appreciate how The Big Short answers many of their long-standing questions with concrete examples.

The Big Short is a story. Its the story of a few people who saw a financial tsunami coming and began waving their arms and shouting, looting all the while. The subprime mortgage bond market that had been created during the 1990s got even more complicated with the introduction of the credit default swap and collateralized debt obligation. These instruments were designed to help spread the risk associated with subprime mortgage bonds, but because they were not carefully packaged, assessed, or managed, they ended up bringing the entire system down.

The instruments functioned exactly the way they were supposed to, but the players on Wall Street quickly figured out how to game them. Bonds that should have never been rated as safe investments were suddenly becoming part of the portfolio behind the 401(k)s of average people. These bonds were being sold like they were safe bets when they were, in fact, extremely risky.

Enter the other side of the coin: the shorts. Greg Lippmann, Steve Eisman, Michael Burry and the guys at Cornwall Capital saw these curious things as instruments of destruction. They dug deeply into the bonds that the entire system was built upon and discovered that there were serious differences between the different, supposedly safe, subprime mortgage bonds. They started betting that the safe bonds would go bad, because these men saw there was no other option.

Less than 20 traders would ultimately go short on subprime mortgage bonds even banks that should have known better were long subprime mortgages when the market collapsed. The system had been rigged, it was clear, but even with attempts to keep the values of subprime mortgage bonds artificially high, values collapsed.

Despite troubles with investors who questioned the short positions, the men who saw value in the short side of the subprime mortgage bonds came out on top of the financial chaos. They made huge amounts of money for their investors, all while the markets were tearing themselves apart. They felt horrible that the financial world had to collapse for them to be proven right, but they also acknowledged that the information was there for anyone to see. Steve Eisman made a habit of telling everyone he saw that the subprime mortgage machine was headed off a cliff.