Grant decided to investigate these strange Wall Street creations known as CDOs. Or, rather, he had asked his young assistant, Dan Gertner, a chemical engineer with an a MBA, to see if he could understand them. Gertner went off with the documents explaining CDOs to potential investors and sweated and groaned and heaved and suffered. "Then he came back, " says Grant, "And said, "I can't figure this thing out." And I said, "I think we have our story." - page 177
That passage made me feel good. Not about the financial market manipulations which nearly brought down the world economy five or six years ago, about myself. Because I'm a chemical engineer with a JD and I could not follow the logic behind CDOs. I read the business section of the paper, listen to Planet Money, understood enough about the difference between what banks would let me buy and what I could afford when I was house hunting, and I just could not wrap my mind around the financial instruments
Michael Lewis is an accidental insider to the world of finance. He worked for Salomon Brothers in the late 80s, left, wrote Liar's Poker as a cautionary tale to save new college grads from losing their souls to large bonuses, and was shocked to find those kids he wanted to save used his book as a how-to manual. When he escaped (his word), he thought that the investment world would eventually revert to a saner form, but he was wrong.
My college newspaper published this cartoon, lamenting the lack of moral career options for the late-80s math major. A dozen years later, those math majors headed for Wall Street and created financial instruments which claimed to be "diversified" because they included risky investments from several different companies. A subprime mortgage is a bad investment - that's why the borrower is paying a high interest rate. Logically, 100 subprime mortgages should be a very bad investment - but when presented as 100 different investments, it magically becomes a "diversified" and therefore safer. The housing market didn't collapse because individual borrowers were irresponsible per se - it collapsed because the experts figured out how to make money by essentially running an elaborate con game.
Lewis shows us this world through the eyes of a few outsider members - two guys who almost stumble into success, a doctor-turned-trader who's diagnosed with Asperger's Syndrome at the height of his success, and a man hired through nepotism who might have been the rudest man in New York City. They took advantage of the system, but they also saw the warning signs a few months before the rest of the financial world and tried (too late) to warn others. They made millions, and got out as the world collapsed.
One thing nagged at me throughout the book. How much money is "enough?" I like money, but I have a sense of enough, and of the trade offs involved. If I work extra hours, I'll have a few more dollars two weeks later but if I leave early, I can meet a friend for dinner or go to the ballet. It's a matter of finding the right balance. Lewis's traders throw around seven and eight figure bonuses like the money in the change purse I keep in my glove compartment. They can buy condos the way I buy a medium twist cone with chocolate jimmies - it's beyond what I can comprehend. And yet, they want more. People complain about athletes' and movie stars' salaries - but if Jimmie Rollins pops up or if Reese Witherspoon's movie tanks at the box office, no one gets hurt - and Rollins and Witherspoon actually do something. Not necessarily something which will have much effect on the world as a whole, but they're doing something few others have the ability to do. The Wall Street traders profiled in The Big Short make more money than all but the biggest stars, and they came close to destroying our entire financial system in the process. And yet, no one complains about their paydays.