The Big Short: Inside the Doomsday Machine by Michael Lewis

The Big Short: Inside the Doomsday Machine by Michael Lewis is a #1 New York Times Bestselling book. In it, Lewis retells the never-been-told-before story of the few “outsiders” who predicted and profited from the 2008 housing crisis, prompting the financial meltdown.

The Big Short: Inside the Doomsday Machine is the story of these people and their prediction, which at the time, was labeled as outrageous and outside the realm of possibility. The people in the story range from one-eyed idiosyncratic investors to a pair of bear loan analysts working at a small firm.

When these so-called “outsiders” began to notice the housing trend, they quickly realized that the Investment Bankers were cancelling their sold short positions. They never were betting against the existence of a housing bubble – instead, they were betting against the government’s ability to prevent it.

The story focuses on two main characters: Charlie Ledley and Jamie Mai. Ledley, a former bond trader, and Mai, a bond analyst, who were convinced that the U.S Housing Market was highly overvalued. Ledley and Mai decided to put their money where their mouth is, and bet against the housing market. Together with a small group of successful investors, they created a prediction model and invested large sums of capital. The outlier in the group was a California resident, Michael Burry.

Burry, a one-eyed eccentric, is the protagonist of the book. He acted way ahead of the smaller outside investors and single-handedly created the credit-default swap market to bet against subprime mortgages. By reading bundled mortgages he found a way to benefit even if the housing market collapsed. With only one eye and no Wall Street experience, Burry predicted the housing crisis before anyone else, and made millions in the process.

In The Big Short: Inside the Doomsday Machine, Lewis delves deeply into the personalities of these financial visionaries, as well as their strategies and tactics. The book also focuses on the players within the trading rooms, structure of the bond contracts, mortgage banks, and even the rating agencies. Lewis describes the impending collapse in such detail that its hard not to find the book both disturbing and educational.

The Big Short: Inside the Doomsday Machine takes us directly into the economic thunderstorm that caused the financial crisis of 2008, and puts us in the room when the bubble burst. For anyone interested in the financial systems, learning about the mortgage backed security industry, and understanding the decisions led to our current economic situation, this is a must-read book.

In conclusion, The Big Short: Inside the Doomsday Machine is an essential read to everyone that wishes to understand the 2008 financial crisis. Readers will find this book incredibly educational, as it goes beyond the basics of our current economic state, to actually explaining the strategic decisions financial players made, and the outcome it had for the U.S economy.