I've mentioned Michael Lewis' best-selling The Big Short a few times recently, mainly because it's one of the most enjoyable business books I've ever read. I thumbed through it again and wanted to share my "takeaways" from the book:
The Ratings Agencies are a Joke – I've never paid much attention to ratings agencies, simply because they weren't part of my world. Having read the book, though, it's astonishing to me that these organizations are still in business, let alone remain as large, publicly-traded corporations. They gave AAA ratings to virtually every financial instrument that the investment banks paid them to "rate." It would be like finding out Underwriters Laboratories have been bribed by shoddy toaster manufacturers whose products were causing house fires all across the nation. Why Moody's, Fitch, and S&P haven't gone the way of Arthur Anderson is beyond me.
The Shorts, As Usual, Are the Good Guys – All the heroes in the book are shorts. They're smart, cynical, and discerning. There's one clever short for every 999 frat-boy, rah-rah bulls.
The Shorts, As Usual, are Shunned by Everyone – In turn, the shorts – as usual – are held in contempt by everyone else. Before they were proved right, they were universally laughed at. The bright young chaps at Cornwall Capital were referred to as "Cornhole Capital" by the investment banks whom they were trying to land as their brokerage.
The Most Interesting Investors are Kooks – Michael Burry and Steven Eisman, who receive most of the attention in the book, are total characters. I find them fascinating. The world seems fixated on Warren Buffett, who yuck-yucks it up in Omaha playing his banjo for BRK investors and has this Sweet Old Uncle schtick going. I'd rather spend 30 minutes with Steven Eisman than an entire day with Warren Buffett, no question about it.
Steven Eisman would be a Sloper – Added to which, if Eisman hung out on blogs, I imagine he'd be here or – more likely – Zero Hedge. The guy is cool.
The Spirit is Willing, the Flesh is Weak – Michael Burry's investors were perfectly fine with him as long as he was cranking out multi-hundred percent returns in the stock market. But when he took on a truly far-sighted, daring bet by putting everything into CDO swaps, they turned on him. They sent him nasty emails; they threatened him; they never stopped making their doubts clear. In the end, his bet more than doubled the size of everyone's portfolio. My impression is that the investors took their gains without so much as a "sorry" for doubting him. I feel bad for the guy, since he was so alone all that time.
Investment Bankers Put Themselves First. Period. – My contempt for the likes of Goldman is well known here, but all the investment bankers in the book are shown to be interested in one thing and one thing only – – getting as much money for themselves as they can. The notion that investment banks put their customers first is a riot.
Rich White Guys Rarely Suffer Consequences – Read about Joe Cassano of AIG (a firmly effectively destroyed) or Howie Hubler of Morgan Stanley (who helped deliver a $9,000,000,000 loss to his employer) and see what the consequences for them were. Since some poor black man who steals $100 gets thrown in prison for years, one would assume these guys would have already been put to death by lethal injection. Nope – – they got paid hundreds of millions and went on their merry way.
Being Right is Overrated – In the end, when the likes of Steven Eisman and Michael Burry were shown to have been right all along, there was no celebration in their honor. Nobody held a ticker-tape parade. Even they, the victors, in spite of now being tremendously rich, felt the victory was somewhat hollow. We might collectively want to keep this in mind, since the victorious conclusion of a multi-year trade thesis might be more of a let-down than any of us imagine.
In spite of the cynical conclusions drawn from this book, I strongly recommend it as a thoroughly enjoyable read.
