Surveying the Wreckage

What can we learn from the top books on the financial crisis?

By Nicole Gelinas

In January 2007, four small-time fund managers with few Wall Street connections invited themselves to a Las Vegas conference of players in the mortgage-bond business. The interlopers’ mission: to see if they were wrong in betting against subprime mortgage securities. They found a money manager who couldn’t care less if his clients lost everything on mortgage-related collateralized debt obligations (CDOs): he made money on quantity, not quality. They found a Bear Stearns CDO salesman more interested in playing cowboy at a shooting range than in discussing the housing market. They found ratings analysts utterly indifferent to their crucial jobs—assessing the risk of trillions of dollars’ worth of mortgage-related securities. And they learned about some of the average people who had taken out so many mortgages, including a stripper who was juggling five home-equity loans, all dependent on ever-rising home prices.

The four men went home surer than ever that “this is a fictitious Ponzi scheme,” as one of them told journalist Michael Lewis, who recounts the story in his gripping new book The Big Short: Inside the Doomsday Machine. “Convinced that the entire financial system had lost its mind,” they ramped up their bets. One of the men told his mother that America risked “the end of democratic capitalism”; she suggested that he take an antidepressant. But the four were right, of course, and once enough investors agreed with them, the housing and financial bubbles burst and drove the economy into a deep contraction… Read More>>

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