Steven Pearlstein reviews 'The Big Short' by Michael Lewis

The Big Short
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By Steven Pearlstein
Sunday, March 14, 2010


Inside the Doomsday Machine

By Michael Lewis

Norton. 266 pp. $27.95

If you read only one book about the causes of the recent financial crisis, let it be Michael Lewis's, "The Big Short."

That's not because Lewis has put together the most comprehensive or authoritative analysis of all the misdeeds and misjudgments and missed signals that led to the biggest credit bubble the world has known. What makes his account so accessible is that he tells it through the eyes of the managers of three small hedge funds and a Deutsche Bank bond salesman, none of whom you've ever heard of. All, however, were among the first to see the folly and fraud behind the subprime fiasco, and to find ways to bet against it when everyone else thought them crazy.

Nor would anyone -- including Lewis, I'm sure -- claim this is an even-handed history that reflects the differing views of investment bankers, rating-agency analysts and industry analysts, all of whom he holds up to ridicule for their arrogance, their cynicism and their relentless incompetence.

In many ways, this is the same smart-alecky Michael Lewis who brilliantly exposed and skewered the ways of Wall Street 20 years ago in "Liar's Poker," written when he was fresh out of the training program at the once-mighty but now forgotten Salomon Brothers. But as he says in his introduction, those days of $3 million salaries and $250 million trading losses look almost quaint compared with the sums made and lost by the most recent generation of Wall Street fraudsters and buffoons.

What's so delightful about Lewis's writing is how deftly he explains and demystifies how things really work on Wall Street, even while creating a compelling narrative and introducing us to a cast of fascinating, all-too-human characters.

In "The Big Short," which publishes Monday, we meet Steve Eisman, a second-generation Wall Streeter whose foul mouth and total lack of social graces made it easy for others to dismiss his relentless criticisms of the subprime mortgage industry as far back as the 1990s, when he first characterized it as nothing more than a Ponzi scheme.

There's Michael Burry, a physician turned stock picker with an antisocial personality (later diagnosed as Asperger's) who becomes the first money manager to buy a credit default swap on subprime mortgage bonds.

There's Greg Lippmann, a prototypical bonus-grubbing Wall Street bond salesman who early on sees the potential of the subprime swaps market and becomes the leading evangelist for betting on the housing market's collapse.

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