The Big Short: by Michael Lewis

If Michael Lewis didn't exist, you'd have to invent him.

His role as Wall Street's representative on Earth, letting us mere mortals know what the masters of the universe are (or have been) doing, is essential. In fact, his role goes wider than that: as you learn in the book, most Wall Street bosses didn't know what had been going on in their own banks, and nor did US Govt regulators. This book gave them their first opportunity to find out properly.

I hadn't got round to reading 'The Big Short' until now, as I'd seen the film and figured that was enough. Big mistake. The film - to be fair to it - does a decent job of putting the book on screen. But - strange to relate for a movie adaptation - it actually dials down a lot of the drama. I found this book spellbinding, mesmerising, and very, very informative.

'The Big Short' tells the story of what you might call the opening phase of the credit crunch: the meltdown of the US sub-prime mortgage market through the course of 2006-2007. Lewis uses the story of three separate, and largely unconnected, funds as his lens onto this world. What these funds had in common was that their managers saw through the froth and speculation in the market, realised the whole show was going to blow up, and thus 'shorted' the market - financial jargon that means they all made a killing when the market did eventually blow up and all the sub-prime mortgage bonds proved worthless.

The interleaving of the fund managers' personal stories with the detail of what was happening in the marketplace is frictionless and faultless. It's better than that: it's pure genius. By the end of it, the reader's been given a passable grasp on what actually caused the greatest financial crash since 1929 - which is no mean feat, as some of the detail is fiendish.

I have a couple of quibbles. Lewis' first attempt to explain synthetic CDOs (Collateralised Debt Obligations) in Chapter 3 is poor. Unnecessarily opaque. Synthetic CDOs are a big part of the story and probably represent the height of Goldman Sachs' folly / hubris during the whole saga, so it's important to get an understanding. But Lewis muffs it; it's almost as if he doesn't want to compromise his perfect writing style to do anything so banal as give a clear explanation. Like a fashion model who doesn't want to do the washing up, in case they break a nail. The result is that he has to come back in Chapter 5 to have another go; and then again in Chapter 6. Eventually the washing up gets done, and you're given a tolerably clear sense of what a synthetic CDO is.

A second quibble: the author starts and ends the book with some regrettably smug remarks about the success his first book enjoyed. It doesn't leave a good taste.

But I'm going to set these quibbles aside. There's no way this book is anywhere below the very top end of a 5 star ranking. I'd love to know what Lewis is working on now. As I write this review, we're back in uncharted financial waters. Trillions of dollars worldwide are being printed - materialised out of nothing - to stabilise economies through the pandemic. While economies are being kept alive (just), a new and infinitely larger bubble is being created as debt and money supply expand at an unprecedented rate. The only comfort I take is that, if this bubble blows, at least we'll have Michael Lewis around to explain it to us afterwards.