The Big Short: Inside the Doomsday Machine
Read in December 2010
Read in December 2010
"Any business where you can sell a product and make money without having to worry how the product performs is going to attract sleazy people."
"A Home without Equity Is Just a Rental with Debt."*
"If you wanted to predict how people would behave... you only had to look at their incentives."
"The presence of millions of small investors had polioicized the stock market. It had been legislated and regulated to at least seem fair. The bond market, because it consisted mainly of big institutional investors, experienced no similarly populist political pressure. Even as it came to dwarf the stock market, the bond market eluded serious regulation."
"The opacity and complexity of the bond market was, for big Wall Street firms, a huge advantage. The bond market customer lived in perpetual fear of what he didn't know."
"In the bond market it was still possible to make huge sums of money from the fear, and the ignorance, of customers."
"The original home mortgage loans on whose fate both sides were betting played no other role. In a funny way, they existed only so that their fate might be gambled upon."
Definition/jargon: silent seconds - "Second mortgages that left the homeowner with no equity in his home and thus no financial incentive not to hand the keys to the bank and walk away from it."
"All they knew was that Wall Street investment banks apparently employed people to do nothing but game the rating agencies' models."
"Capital One was a rare example of a company that seemed to have found a smart way to lend money to Americans with weak credit scores. Its business was credit cards, not home loans, but it dealt with the same socioeconomic class of people whose home loan borrowing would end in catastrophe just a few years later."
"As a rule, any loan that had been turned into an acronym or abbreviation could more clearly be called a 'subprime loan' but the bond market didn't want to be clear. 'Midprime' was a kind of triumph of language over truth."
"Moody's and S&P were piling up these triple-B bonds, assuming they were diversified, and bestowing ratings on them -- without ever knowing what was behind the bonds!"
"If the market became self-aware, its madness couldn't last long."
"S&P was worried that if they demanded the data from Wall Street, Wall Street would just go to Moody's for their ratings."
"The big Wall Street firms, seemingly so shrewd and self-interested, had somehow become the dumb money."
"That was the problem with money: What people did with it had consequences, but they were so remote from the original action that the mind never connected the one with the other."
*Here Lewis is quoting the title of a report on the sub-prime mortgage market pre-2008 crisis.
