2. The Big Short.
The financial crisis of 2008 has been the defining financial event of the century so far. Fierce and wide-ranging, it destroyed savings, businesses and jobs and left the U.S. economy reeling. Much of the rest of the world, too.
While history will in due course put its own interpretation on this crisis (no doubt heavily influenced by whatever turns out to happen next), The Big Short seems destined to become the definitive contemporary account. Lewis is one of the foremost financial writers of our time; it helps that he’s a bond guy. Among his other work, Liars Poker and Moneyball are both among the best books out there (although it was hard to justify placing them on a list of books directly applicable to institutional investors.)
For most of us, the outline of this story is already familiar. But Lewis provides details, putting names and personalities to each key development; whether the nature of the CDO market; or the increasing complexity of the instruments created at each new turn; or the effect of the ownership structure of Wall Street’s biggest players – no longer partnerships but public corporations, with different incentives and different time horizons now in play for the business leaders.
Lewis will be getting no invitations to friendly lunches at S&P or Moody’s any time soon. Among the listing of their shortcomings he quotes the brutal assessment of one analyst: “when you walk into a post office you realize there is such a difference between a government employee and other people. The ratings agency people were all like government employees.” Maybe he’d best avoid post offices for a while, too.
The crisis will have a permanent effect on everyone who lived through it: the lessons of our own experience are burned into our beings. For those who come into the market later, it will be even more of a must-read. Or maybe simply a must-watch – Brad Pitt owns the movie rights and there’s talk of a 2014 release…
Michael Lewis (2010). The Big Short: Inside the Doomsday Machine. W.W. Norton.