May 31, 2010


Inside the Doomsday Machine
by Michael Lewis
266 pages, W. W. Norton & Company

Review by S.F. Winser

Don't go away! I'm about to tell you the premise of this book, but promise me you will not stop reading the review. Promise!

This is a non-fiction work about the most recent sub-prime mortgage decisions that kicked off the Global Financial Crisis.

Are you still here? Good! Because 'The Big Short' is also well-written, fast-paced, understandable and – I never thought I'd say this about a book covering Big Finance – unputdownable. While cooking dinner I cracked it to see what I'd gotten myself into -

I put it back down again at 2 a.m. the following morning, after finally turning the last page. It was interesting, sure, but more than that, Lewis found a way to make this story heart-pounding. He found a few of the smart guys who saw it coming and told the story from their point of view.

The main characters in the book are interesting guys with interesting stories. Lewis makes them very real and compelling. This isn't the story of the crisis, the crisis is explained as backgroud to the trials these smart-guys go through when they realise that by knowing something no-one else seems to know or even wants to admit, they're basically sitting on free money.

Lewis tells the tales of a few investors and analysts – some of them playing the markets with their own money – who looked for things the market had overlooked and found a whole bunch of sub-prime mortgages. Billions of dollars worth. They found mortgages that were almost guaranteed to go bad but that everyone seemed to be mutually pretending were worth money. Most of these smart guys had the same reaction: 'No way. This isn't possible.' There was so much money involved and all of it about to implode.

They had another: We can make money from this. And we can do it cheap. So cheaply that these guys – mostly independently from each other – actually spend huge chunks of the book wondering what they were missing. It seemed to them like half of Wall Street was standing on the corner of the road with piles of money, gas tanks and matches and yelling 'Look how rich we are! In a minute we'll be rich AND warm!'

And the smart guys stand next to another Wall Street banker and say 'Bet you they're about to go broke'. Then – this is the kicker – the other banker looks at the first pyromaniacs. He takes in the money piles, the flaming tapers, the gasoline soaking into the paper money and the crazed grin on the other faces and says. 'Sure! And I'll give you 100:1 odds! No way they're going broke. Look how much money they have right in front of them! They can even afford gas and matches!'

So the smart guys can't believe their luck. They take the bets. And then worry – surely the first guy isn't THAT stupid. Surely the second guy isn't even MORE stupid. We're missing something. We must be. No way did we just make such an easy bet. There's GOT to be more than this going on.

Eventually they realise that, no, actually both these guys are completely dumb. Not evil and conniving: Dumb. And then here's the fear that the guy they took the bets from – who took all their money in bets (Or 'shorts' in finance-y jargon), is so dumb that they probably have their own massive pile of gas-soaked cash, just around the corner, and might not be able to pay out the bet. There's the real risk that in betting that sub-prime was going down, they might end up right, but broke.

There are some great characters here. Guys who turn up to meetings trying desperately to be told HOW they could be wrong – please tell us you aren't that stupid. They fly across the country, read piles of documents and research, research, research trying to find out the piece they missed. When they find out they're right they're actually horrified. Some of them insult CEOs to their faces and turn up to conferences just to make snarky remarks to the speaker. Others get paranoid about the state of the world and nearly turn survivalist by buying farms and setting themselves up for the end of the world. Basically these guys are torn between not tipping the balance early before they can get as many big bets in as possible, trying not to get taken down by the whole collapsing thing themselves and absolute rage that this stuff happened in the first place.

This is often as stressful as reading as a thriller. And sometimes hilarious. There's nothing like a big money guy being told bluntly that he is stupid and about to lose money. There's a great line form one of the antiheroes calling in one of these bets: 'Dude,' he says casually to someone who up until recently had been screwing around on payments and denying that the bubble had finally burst. 'You owe us 1.2 billion dollars.' Cool as a cucumber-flavoured Icy-Pole while asking for an amount of money usually only demanded by Bond villains.

The writing style is great, the story is important and the approach is spot-on. The characters are as well-drawn as any novel. It's almost unbelievably accessible, too (There's one or two small parts where the jargon gets dense, but Lewis does his best to keep it flowing and at one point even includes a friendly footnote that points out that the people INVOLVED didn't even understand all of what was going on or the whole thing wouldn't have happened – don't sweat it if you don't catch it all...) and the book is as much fun as any made-up political thriller. Plus, it's all true. Horribly, regrettably, but entertainingly true.

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