Michael Lewis, “The Big Short” and “Liar’s Poker”

I recently read “The Big Short”.  Yeah, I know the downturn started 5 years ago.  I’ve been busy, what with the muskrats and 3D printers and drum kits and all.

“The Big Short” is well written, exciting, educational, and depressing.  The rich money men (and, I suppose, women) of the world are, for the most part, morons.  They built a system that could explode, and were too stupid to realize that, even after people pointed it out to them.  This includes the regulators. Frightening to realize that our retirement funds are in the hands of these people. But they are the only game in town.  What a mess.

After reading “The Big Short”, I went on a Michael Lewis kick.

What was even more interesting/depressing was re-reading “Liar’s Poker”, a book that was written back in the 1980s.  During the 1980s, Wall Street started investing in home mortgages, the same vehicle that bit us in the ass in 2008.  It turns out that the way that some traders made their money was by identifying government-backed mortgages that were likely to be repaid in the near future, usually because of default.  Since these mortgages were selling for $0.60 on the dollar, but were paid back at $1.00 on the dollar, a smart investor could make 66% on their investment in six months.

The depressing part is that it was exactly this kind of technique which was used to create the Big Short back in 2008.  That is, the concept of identifying which mortgages were risky was well established, decades ago.  It seems that most of those on Wall Street simply forget their own history.

Go read Michael Lewis’ books…