Big Short in Late 2008

Big Short

In late 2008 Wall Street suffered an economic catastrophe in which an entire bond market collapsed. This catastrophe had its origins in the sub-prime lending markets but, when those markets went bust, set in motion a series of events that threw the United States into economic recession. Michael Lewis, in his book titled "The Big Short: Inside the Doomsday Machine," spends the first two chapters providing the reader with an inside look at the origins of the financial disaster and how the sub-prime mortgage business gave rise to the creation of bonds which were not worth the paper they were written on, as well as a look at those who profited from what they knew to be an unstable market.

Lewis credits Steve Eisman as the creator of the bond market based on the sub-prime mortgage industry and provides an in depth look at this man's history through out chapter one. Eisman is depicted as the product of a nepotistic system, a manner-less boar, but also a creative financial genius who saw the possibility of creating an entirely new market. While working for Oppenheimer Financial, Eisman recognized the dangers involved in lending to people who couldn't pay the money back but found a way to profit from this. However, his economic view was strictly financial in nature and in no way took into account those affected negatively by his operation. Another of those credited for creating the sub-prime mortgage bond market is Vincent Daniel who was described by Eisman as "dark" and helped him sort through the financial quandary surrounding the sub-prime mortgage market. (Lewis 20) It was these two men who, with their strictly capitalistic view, who, without thought to consequences of their actions, created a means to enrich themselves by knowingly creating a market that could not possibly be maintained.

This system is described in the second chapter which explores another of those involved, Michael Burry. Burry discovered that many lending institutions had lowered their standards in order to maintain a high volume of loans, which they sold to financial institutions who "packaged them into bonds and sold them off." (Lewis 32) These bonds ultimately ended up in ordinary people's retirement accounts which suffered greatly when the bond market ultimately collapsed. Burry was one of the first who suspected that the system of sub-prime mortgage bonds was an unstable one and as early as 2005 began to hedge his investments against the market. By the time the sub-prime mortgage bond market collapsed, Burry had set himself up to make a great deal of money.