I read Michael Lewis's excellent book The Big Short while on holiday. Although not as funny as his most famous work, Liar's Poker, it's a compelling, revealing and at times scary read.For me, Lewis brought much-needed clarity to the reasons behind the cataclysmic - not to mention costly - banking failures of recent years. I would highly recommend the book for anyone who feels they don't completely understand what the financial crisis was/is (which is surely pretty much all of us!).
I finished the book with a number of strong impressions of the convoluted, out-of-control investment banking world that Lewis dissects. The over-riding sense is of the sheer folly - nay gross stupidity - of banks' decision-making and investment choices around sub-prime mortgages and the many exotic financial instruments that were spawned from them.
All this left me more convinced than ever that governments' financial support for businesses like AIG, RBS, Bank of America and so many others was simply wrong. These banks were not victims of circumstance, nor were they brought down by the actions of a few rogue employees. As institutions they made appalling business decisions. They deserved to fail, and the world economy would surely be better off without them.
Lewis is very adept at telling his complex story through a number of fascinating characters. In particular, he focuses on the handful of individuals who were not only smart enough to spot the sub-prime crisis on the horizon but also shrewd enough to bet big on the crisis with their investments (hence the title of the book). What's interesting about these people - the likes of Steve Eisman and Dr Michael Burry - is that they aren't your standard Wall Street/City types at all. They are outsiders, swimming against the tide. They are wired to "think different".
Burry, who stuck to his bearish convictions despite huge pressure from his clients to take more conventional investment positions, has Asperger's Syndrome. Of course when the sub-prime crisis hit, he was proved very much right, and he made fortunes for himself and his doubting clients. What a telling lesson in the value of diversity and different voices within society and within organisations.
If more people had been willing to pay attention to the views of "oddballs" like Burry and Eisman, rather than following the received wisdom emanating from Goldman Sachs, Morgan Stanley, the ratings agencies and indeed governments, perhaps this whole mess could have been avoided.
