Michael Lewis is one of the most accomplished and readable business writers out there. His books on American football and baseball - The Blind Side and Moneyball - are so fascinating, engaging and accessible that I had every confidence that he was the writer finally to help me understand exactly how and why the financial crisis of 2008 happened.
And while I still do not fully understand the complex mess of credit default swaps and collateralized debt obligations built on the insanity of the US sub-prime mortgage industry, I do have a far better sense of the greed, arrogance, idiocy and subterfuge that helped to produce them. And they rather than the financial instruments are the core of Lewis' utterly compelling story.
At the heart of the human story are two people at opposite ends of the US economic spectrum. The first - mentioned in the book, but not by name - is a Mexican fruit picker in California earning $14,000 who is given a $750,000 mortgage. The second is a faceless Wall Street bond trader - one of many - who is able to repackage the Mexican's mortage and hundreds of thousands like them into financial instruments so complex almost nobody understands them; and so toxic that if they were mushrooms you'd be poisoned just catching sight of them.
The fruit picker's mortgage became known ultimately as "sub-prime", essentially a moniker attached to lending that any rational individual would have recognised as being inherently risky and deeply flawed. The very phrase "sub-prime" captures some of the dishonesty of the lending industry handing over the cash and the gambling industry in Wall Street taking bets on it. "Sub-prime" suggests a sort of "not-quite-optimal" loan rather than a ridiculous one.
Lewis' great achievement in The Big Short, aside from making the whole mess vaguely comprehensible to non-financial minds, is to expose relentlessly the lies and hypocrisy at the epicentre of the industry.
From the delusional lenders giving unrealistic sums to people who never have a prayer of being able to pay them back, on the unrealistic assumption that property prices would simply continue rising. To the bond traders packaging the loans into just another instrument they can make a quick buck out of. To the ratings agencies - Moody's and S&P - that gave these bonds triple A ratings, the same as US Treasury notes! And finally to the big chiefs of the Wall Street banks who had absolutely no idea what their people were doing with their solvency.
Lewis finds a handful of people, mostly indpendent hedge fund managers and investors who spot the scam early on, and tells the story through their eyes as they build positions that will make them rich when the system collapses as house prices start to fall and the system hurtles towards the collapse of Lehman Brothers and the global bail-outs. But as they build their positions they also try to warn the Wall Street banks of the error of their ways. Nobody is listening. And why would they? They're all making money.
There is no happy ending here. The collapse of the sub-prime industry resulted in hundreds of thousands losing their homes. And as the global banking system teetered on the very brink, it triggered financial meltdown that is being felt now and has made life incredibly difficult for hundreds of millions of people.
The perpetrators, by and large, wondered off into the sunset with their bonuses and their assets. The Wall Street banks took a it for a couple of years but appear to be back to their main business of printing money. For some reason people still listen to and trust the ratings agencies.
And you cannot read this book without thinking: these people should be in jail. Thousands of these people should be in jail. They are lying, thieving cheats.
So, no happy ending, but the book is some compensation. It is superbly written, often very funny and full of characters so extreme you would not accept them in a fictional environment. If you only read one book on the financial crisis, make it The Big Short. (For a taster, check out this excerpt at Vanity Fair).