Subprime Wall Street: Everyone’s a Winner

I just finished the last page of Michael Lewis’s, “The Big Short”. It was a fantastic read. I didn’t find myself confused, bored or impatient to reach the end like I often do when reading economic related books. He is quite a good story teller and it really gives you a clear look and better understanding into exactly what happened in all the subprime mortgage business.

Here are some interesting closing points in the book:

“What are the odds that people will make smart decisions about money if they don’t need to make smart decisions - if they can get rich making dumb decisions?”

Michael makes the point that everyone got rich, thanks to the US government. Well not exactly everyone, just everyone on Wall Street.

“The CEO’s of every major Wall Street firm were also on the wrong end of the gamble. All of them, without exception, either ran their public corporations into bankruptcy or were saved from bankruptcy by the US government. They got rich too.

During the entire book Lewis explains how a few individuals figured out - or - were shown by someone else the huge mistake big Wall Street firms and other banks were making with subprime mortgages.

Banks were lending to people who had no business getting loans. Pools of these subprime loans were bought by these firms and packaged and sold into bonds. The bonds we total crap but nevertheless were being given good ratings by rating agencies. No one but these few individuals seem to realize they were buying crap. So these inividuals figured out how to short the market, which means they made huge bets that these bonds would fail by buying insurance on them. The bonds did fail and they became very rich. Problem was, all the Wall Street guys who bought and sold crap that lost into the trillions also became rich because Uncle Sam saved them for ‘the good of the country.’