Monday, March 14, 2011
Book Review: "The Big Short" by Michael Lewis
This is a great story about the collapse of the sub-prime housing market and how clueless the Wall Street mavens were. Michael Lewis, author of The Blind Side, makes the story eerily compelling. Three items stood out to me:
1. How the fund managers were paid well to be ignorant of the true details; they were making lots of money with no thought to the future ramifications of their actions other than their annual bonus.
2. Almost all the people responsible for this terrible catastrophe actually came through the debacle making tons of money, which, for the most part, the taxpayers ended up paying.
3. The problem really was OPM - Other People's Money. Once the brokerage firms went from partnerships to publicly owned companies, the risks they were taking were not with their own money, but the stockholders money. Hence the temptation to gamble with Other People's Money in a way they would not have done with their own. If they bet right, they'd make a ton of money, if they bet wrong, well, they will lose their bonus and the stockholders will lose money.