Book Report: The Big Short By Michael Lewis

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Pages: 7

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Karly Atkinson
Deborah Pierson
MGMT 326- Financial Management
November 10, 15

Book Report: “The Big Short” Michael Lewis “The Big Short” by Michael Lewis is an excellent read. It covers an in-depth analysis of the financial stock market meltdown of 2008. Lewis goes into great detail of the factors that directly lead to this meltdown. Among these factors, Chief Executive Officer and Chief Financial Officer salaries, subprime mortgage rates, and credit default swaps. This all leads up to Lewis explaining the overall effects of these on the United States economy, both on wall street and on the level of individual borrowers. Lewis covers the build up, the crash and concludes with the aftermath. Lewis begins by giving his background working on …show more content…
Gene Park the Finance president of AIG at the time wanted to know how many of these subprime loans were in bonds. “Gary Gorton, a Yale professor who had built the model that Cassano used to price the credit default swaps: Gorton guessed that he piles were no more than 10 percent subprime. He asked a risk analyst in London, who guessed 20 percent. "None of them knew it was 95 percent,"”(p.51). AIG was not under strict financial market regulations like the ones we discussed in class, which made them the perfect company to insure these extremely high risk investment. AIG established that they would no longer back these borrowers, but by this time it was too late, they had backed so many credit default swaps that borrowers would eventually default on. Eisman used all of this information to purchase credit default swaps that were most likely to fail, they were not sure why they decided to do this yet. One thing was clear though; Wall Street was overrating their bonds. Subprime lenders were ignoring these signs, or as Lewis speculates just flat out lying about the ratings of these high risk

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