The Big Short (sent to me by the publisher) is Michael Lewis’s best book, and that’s saying a lot. Moneyball was excellent. The Blind Side was excellent. All three are stories of underdog triumph but The Big Short is about a far more important subject, a far more complicated subject, and has a tremendously dark side. You know the saying: Fool me once, shame on you; fool me twice, shame on me. Well, shame on Wall Street for creating the worst financial disaster ever. But then, as Nassim Taleb puts it, the school-bus driver who crashed a bus full of children were given a new bus. Those who created the disaster were put in charge of fixing it. As Steve Eisman, one of Lewis’s main characters, puts it, “I can understand why Goldman Sachs would want to be included in the conversation about what to do about Wall Street. What I can’t understand is why anyone would listen to them.” (Not just listen. They were allowed to dominate the conversation.) Showing that the foolishness of people at the top in American society has no clear limit.
I could hardly stop reading. Endless fascinating detail. Michael Burry, another main character, discovers he has Asperger’s after his son is turned down by several kindergartens and he tries to understand why. I’ve been talking and reading about data analysis my whole professional life, yet Lewis’s story about how means can be terribly misleading is the best I’ve heard. An average credit score of 600 can be due to two scores of 600 or to scores of 500 and 700, with vastly different consequences. (This escaped the averagers.) Sure, I knew about the conflict of interest of bond rating agencies, such as Moody’s, but Lewis describes it so well I loved reading about it again.
Long ago, I blogged about the importance of insider/outsiders — close enough to understand what’s going on yet far enough away to see the truth. Lewis’s heros, who saw that a tremendous crash was coming, are exactly that. Like Harry Markopolos, they were on the fringes of the financial industry. One of them (Eisman) had a gift for tactlessness, another (Burry) had Asperger’s, and a third group ran their fund from a Berkeley garage. Without them, the people at the top (e.g., the head of Goldman Sachs), who run and crashed our financial system, could plausibly say Nobody could have predicted this. Because of Lewis’s heros, they can’t.