For Long, Healthy Natural Kinky and Curly Hair - Your Dry Hair Days Are Over!
  • About
  • Queens
    • QueenOfKinks
  • Hair Blog
    • Magazine
    • Headbands
    • Scarf
  • TV
  • FreeInfo
  • Courses
    • HotOilTreatments
    • HairButters
    • DIYshampoos
    • DIYconditioners
    • DIYmoisturizers
    • DIYdetanglers
    • Property
  • Contact
    • FAQs
    • Advertise
  • About
  • Queens
    • QueenOfKinks
  • Hair Blog
    • Magazine
    • Headbands
    • Scarf
  • TV
  • FreeInfo
  • Courses
    • HotOilTreatments
    • HairButters
    • DIYshampoos
    • DIYconditioners
    • DIYmoisturizers
    • DIYdetanglers
    • Property
  • Contact
    • FAQs
    • Advertise
Search

The Big Short by Michael Lewis

23/4/2012

0 Comments

 
Picture
THE CLEVER GUYS THAT SAW THE CRISIS COMING

Dr Michael Burry 
Michael Burry, founder of Scion Capital was the first person with a strong enough opinion of how crap subprime mortgage bonds were to buy insurance against them in the form of CDS (credit default swaps). 

I have written a separate blog about Michael Burry.

Greg Lippmann at Deutsche Bank and his quant Eugene Xu
Greg Lippmann ‘bought’ Mike Burry’s view and Michael Lewis likens him to patient zero in an epidemic. He’s the guy responsible for spreading the news that subprime mortgages were going to ‘blow-up’. Their ratings and their pricing didn’t make any sense. They were illogical, based on the wrong assumptions.

Greg Lippmann reinforced the view with numbers run by his quant, Eugene Xu, described in the book as the second smartest guy in China.

I loved Lippmann’s line: “I don’t have any particular allegiance to Deutsche Bank, I just work there.” Classic.

Most investors who heard Lippmann’s spiel weren’t comfortable enough with the idea to short subprime. Lippmann, Xu and a few others have since started their own hedge fund, Libremax Capital, LLC.

Picture
THE CAUSE OF THE FINANCIAL CRISIS

Michael Lewis goes through how the creation of financial instruments composed of money lent to people who could never afford to pay the credit back eventually led to the crisis: subprime mortgage bonds and collateralized mortgage obligations, CMOs.

Mortgages were made irresistible with low ‘teaser’ rates, no need for a down-payment and, as though that wasn’t enough, no requirement for proof of income.

Credit rating agencies on their behalf overrated the securities. They didn’t have access to the underlying mortgage data and were ‘too scared’ that ‘excessive’ demands for more information would lead banks to go to another rating agency taking away their fees. The rating agency models, too, were riddled with nonsensical assumptions. 

Picture
WHO WERE THE BIG SUCKERS THAT WERE BLIND TO THE FOLLY OF SUBPRIME?

Notable characters identified by Michael Lewis as failing to see the extent of the pending crisis in addition to rating agencies are Howard Hubler who lost Morgan Stanley a shed load of money and the CEO of AIG, Joe Cassano who ruled the company like a dictator.

Overall I had two main disagreements with this book:
Lewis tarnished every banker with the same brush. It’s true that desks dealing in subprime took massive risks but they account only for a very small number of people that work in investment banks. You can’t blame every single banker for subprime because bankers that didn’t deal in subprime probably knew as little as a layman about the asset subclass. You can blame the CEOs of these banks because they are meant to maintain oversight. You can also blame the individual traders that made these investment decisions. 

I disagreed with Lewis’s conclusion that allowing investment banks to list publicly led to excessive risk taking and hence their downfall. I think the incentive structure is the ultimate issue. Short-term profits are desired a lot more than long-term gains. Once people are incentivized to account for the long-haul performance of the financial industry should improve.

My recommendation? If you want to understand the 2007-2009 financial crisis: buy!

PictureSteve Eisman
Frontpoint Capital: Steve Eisman, Vincent (Vinny) Daniel and Danny Moses
In many ways these were my favorite characters in the book. They, after much persuading and analysis agreed with Lippmann’s view that subprime asset back securities were overrated and overpriced so they put their money where their mouths were and bet on their demise.

I found Eisman especially amusing because he said the most random things. Whenever he encountered anyone who he thought was stupid he shorted whatever they were invested in. He shorted Wing Chau (who is now suing Michael Lewis for character defamation) and a host of top Wall Street entities: Moody’s, B of A, Citi and Merrills to name a few. His reason for shorting Merrills was that whenever something goes bad Merrill is always there.

Cornwall Capital: Jamie Mai and Charlie Ledley
These guys started a hedge fund, Cornwall Capital, with only USD110,000. They came to the realization of subprime products quite late. However, they did something different: whilst the first movers bet on the very worst BBB subprime mortgages, they bet on the better-rated AA layer because by that point it was clear that even that layer would fail. The bet paid off by tens of millions.

This is a 5* book. 

It’s very difficult to write a non-fiction, financial saga and actually make it interesting and readable but Michael Lewis has managed to do just that in The Big Short.

The book tries to grapple with why the financial crisis of 2007-2009 happened, who saw the crisis coming and what might happen now. 
Picture



Want to Build a 6-Figure Beauty Business from the comfort of your sofa? Then my course is designed for YOU! 



"Beauty" includes a WIDE range of products from the not so obvious non-perishable foods and crafts to the more obvious hair, makeup, fashion, health & fitness.  

Learn more about The Money Spot Program.

0 Comments



Leave a Reply.

    RSS Feed

    By Heather Katsonga-Woodward

    Time allowing, I love to read.  If I read anything interesting, I will blog about it here.

    Categories

    All
    Autobiographical
    Banking
    Behavioural Psychology
    Business
    Children
    Economics
    Fiction
    Life
    Love Story
    Politics
    Recessions
    Sales
    Science
    Thrillers
    Timeless
    Wealth
    Women
    Writing

    Heather's books

    Rich Dad, Poor Dad
    5 of 5 stars true
    Rich Dad, Poor Dad
    by Robert T. Kiyosaki
    Who Moved My Cheese?
    5 of 5 stars true
    Who Moved My Cheese?
    by Spencer Johnson
    Freakonomics: A Rogue Economist Explores the Hidden Side of Everything
    4 of 5 stars true
    Freakonomics: A Rogue Economist Explores the Hidden Side of Everything
    by Steven D. Levitt
    Blink
    4 of 5 stars true
    Blink
    by Malcolm Gladwell
    The Big Short: Inside the Doomsday Machine
    5 of 5 stars true
    The Big Short: Inside the Doomsday Machine
    by Michael Lewis

    goodreads.com

    Archives

    November 2015
    January 2015
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011

Powered by Create your own unique website with customizable templates.
  • About
  • Queens
    • QueenOfKinks
  • Hair Blog
    • Magazine
    • Headbands
    • Scarf
  • TV
  • FreeInfo
  • Courses
    • HotOilTreatments
    • HairButters
    • DIYshampoos
    • DIYconditioners
    • DIYmoisturizers
    • DIYdetanglers
    • Property
  • Contact
    • FAQs
    • Advertise