Book Review: The “Big Short”
| May 30th, 2010 | Filed under: Today's Post | By: Guest |
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Special to AllAboutAlpha.com by: Steve Deutsch, AllAboutAlpha.com Editorial Board
At the end of March I reviewed the CFA Institute’s “Insights into the Global Financial Crisis” on these pages. Now, in my continuing search of a good explanation to the Subprime Credit Crisis of 2008-9 and the role of alternative investments in the economic calamity that followed, I just finished Michael Lewis’ bestseller, “The Big Short”. It’s the best explanation I have found so far. It is not a complete explanation, but it’s a very, very good one and it makes for entertaining airplane reading.
According to Lewis, there were some ten to twenty firms that set themselves up to play the “big short” – to short subprime mortgages with as much leverage as possible prior to the bust of the housing bubble. They were convinced that this would be even more lucrative than when hedge fund managers such as David Einhorn of Greenlight Capital shorted financial companies, such as Lehman.
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- CFA Research Foundation takes a first crack at writing the history book of the 2008 financial crisis
The meltdown was multifaceted and complex. But its primary origins can
be summarized as easy money and greed. The role of the federal government is typically downplayed. After all, the government is more likely to investigate and demonize big business than to focus on its own
shortcomings.
The root cause of the crisis was a drive for “affordable housing” as manifested in The Community Reinvestment Act and unprecedented, undisciplined credit availability and money flow. The Clinton and Bush administrations, Congress under both presidents, and the Greenspan Fed deserve much of the blame.