Club members found that this was a great book for generating a lively discussion.
Members were in turn shocked, incredulous and exasperated by the evidence laid bare in the book about the corruption, incompetence, greed, arrogance and stupidity of those Wall Street institutions and regulators behind events which led to the global financial crisis.
The book provides an explanation of how the bonds and securities market created by Wall Street from the housing debt of the very poorest Americans, fuelled by cheap loans, negligent risk assessments and a rising housing market, finally blew up in 2007 after years of unconscionable activity, drastically affecting financial markets worldwide in the years to follow.
A reader without any understanding of the arcane world of hedge funds and finance might feel reluctant to pick up this book. However, while not always an easy read, the author writes clearly and visually so that the layman can grasp what was going on.
The history is also given a human perspective by being told through the words and world views of some rather odd individuals who ultimately prospered from the events. The book reads like a novel and it is easy to forget that the stories, which are engrossing and humorous, are also true.
The individuals were Steve Eisman and his colleagues at a hedge fund called FrontPoint, Michael Burry at Scion Capital, and Charlie Ledley and his friends at Cornwall Capital Management. They were among a very small number of people who rejected the optimism of the investment tide, calling out the lack of value and essential rottenness at the heart of the bond market and investing in millions of dollars worth of cheap securities which bet on the market’s collapse and paid off severalfold when it did.
They realised that subprime mortgage loans being taken out by, for example, a low income earner like a Mexican strawberry-picker with a poor grasp of finance and no English, was highly unlikely to be paid off after the end of the no interest rate period that had hooked them in to sign up. They saw that this precarious loan, along with many thousands like it, was being packaged up as illusory assets in a complex bond product, called the Collateralised Debt Obligation (CDO). These were being negligently rubber stamped with gold ratings by the regulators, and sold on to unsuspecting investors.
Eisman, Burry, Ledley and the others were ultimately proved “right” and were hugely successful financially, but were nevertheless affected in complicated ways by the unfolding economic disaster which ensued.
Book club members felt the book although written in 2010 was well worth reading now and a productive use of time in understanding what went on. They were impressed by the research that the author had done and his skill in writing about complicated matters so well. Some of the scenes described, such as the financier who was proclaiming his faith and confidence in an investment bank at a conference, even as the share price of this institution was crashing through the floor as he spoke, are pure gold.
Members discussed many questions at our meeting such as: Has anything changed? Could it happen again? Was the government right to have bailed out some of the biggest investment banks at huge expense to the taxpayer? Are the after effects still on-going? How was Australia affected? Has regulation helped prevent events like this occurring again? Is the ideal of home ownership a value worth promoting? A great evening's discussion for all!
Who is Michael Lewis?
Michael Lewis is an American non-fiction writer and financial journalist.
Born in 1960 in New Orleans he went to Princeton University where he graduated with a degree in art history. After attending the London School of Economics he began a career on Wall Street as a bond salesman at Salomon Brothers in the 1980s.
This experience prompted him to write his first book, Liar’s Poker (1989). He has since written 17 books and numerous magazine articles and podcasts.
Three of his books, Moneyball: The Art of Winning an Unfair Game (2003), The Blind Side: Evolution of a Game (2006) and The Big Short: Inside the Doomsday Machine (2010) have been made into films.
He is the recipient of two Los Angeles Times Book Prizes.
He has been married three times and has three children. He is a contributing editor for Vanity Fair and lives in Berkeley, California.
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