The Big Short Book Summary - The Big Short Book explained in key points

The Big Short summary

Michael Lewis

Inside the Doomsday Machine

Brief summary

The Big Short by Michael Lewis is a captivating nonfiction that explains the 2008 financial crisis through the perspectives of investors who bet against Wall Street and won.

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    The Big Short
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    Subprime mortgages were at the root of the financial crisis.

    After the financial crisis of 2008, you probably started to notice lots of media commentators throwing around the term subprime mortgage bonds.

    At which point you may have asked yourself what, precisely, they were.

    Basically, mortgage bonds are giant packages of mortgage loans where individual mortgages, like the one you have if you own a house, are combined into one big package. Slices of this package – i.e., bonds – are then sold to investors so that, when homeowners make payments on their mortgages, the investors earn interest.

    However, the subprime mortgage bonds we’re talking about comprised risky mortgages: the homeowners in question were poor and had little chance of ever paying back their loans. When they started defaulting in droves, the investors who had bought the bonds lost a lot of money: Morgan Stanley’s trader Howie Huber lost a whopping $9 billion.

    But if these loans were so risky, why were they given out in the first place? And why did investors want to buy bonds in them?

    The popular reasoning at the time was that this mechanism allowed people in even lower income classes to get credit and buy homes. The entity that extended the mortgage to poor people was able to offer them lower interest rates because they knew they could also turn a profit by selling those mortgages onward to investment banks that would then sell them to investors as bonds.

    However, this reasoning was seriously flawed, and it created a ticking time bomb of future risk. In most cases, the seemingly low interest rates were, in fact, only temporary, and were meant to increase significantly after two years. In other words, many people were seduced into taking on a mortgage with low monthly payments in the beginning, only to find that, after two years, their mortgage payments became untenable, and so they defaulted.

    The inherent riskiness of subprime mortgage bonds was unfortunately ignored, and their popularity among investors would eventually imperil the entire financial system.

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    What is The Big Short about?

    These blinks examine the causes of one of the biggest financial crashes in history, and what it uncovers is shocking. What’s more, it delves into how a few individuals spotted the storm on the horizon and actually managed to profit from the crash.

    The Big Short Review

    The Big Short (2010) by Michael Lewis is a must-read for anyone curious about the 2008 financial crisis and how it unfolded. Here's why this book is worth your time:

    • It provides a fascinating inside look into the world of finance, explaining complex concepts in a way that is accessible and easy to understand.
    • The book presents a compelling narrative by following the stories of a handful of individuals who predicted and profited from the collapse of the housing market.
    • With its witty and engaging writing style, The Big Short manages to make a complex and potentially dry topic like finance truly captivating.

    Who should read The Big Short?

    • Anyone who’s interested in the economical, political, social and psychosocial causes of the financial crisis in 2008
    • Anyone who wants to understand the financial markets in general
    • Anyone who’s thinking about investing into mortgage bonds

    About the Author

    Michael Lewis is a former Wall Street trader who worked for the now-defunct investment bank Salomon Brothers in the mid 80s. His previous bestsellers include “Liar’s Poker”, “Moneyball” and “The Blind Side”.

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    The Big Short FAQs 

    What is the main message of The Big Short?

    The main message of The Big Short is that the financial crisis of 2008 was caused by fraud and greed in the housing market.

    How long does it take to read The Big Short?

    The reading time for The Big Short varies depending on the reader's speed. However, the Blinkist summary can be read in just 15 minutes.

    Is The Big Short a good book? Is it worth reading?

    The Big Short is worth reading for its captivating storytelling and eye-opening insights into the 2008 financial crisis.

    Who is the author of The Big Short?

    The author of The Big Short is Michael Lewis.