Book Review: "The Big Short" by Michael Lewis

I was recently able to read The Big Short by Michael Lewis. Even though there were quite a few details that went over my head, it's an interesting, compelling story about a few specific people who essentially shorted (in other words, bet against) the entire US financial system and ended up "winning" in the 2008 financial crisis. I knew the basic details of how mortgage-backed securities were packaged and repackaged to get high ratings from well-known agencies, even though the underlying instruments were high-risk mortgages given unscrupulously to poor people who were likely to default; that said, I found incredible just how much fraud was being perpetrated, like laundering credit scores based on essentially nothing, or ripping off low-income people with false or misleading interest rates. Also, many financial models seemed to assume no underlying information and total lack of correlation among various investments, assets, or liabilities, even this was obviously untrue: subprime mortgages bundled into financial instruments were highly correlated by underlying economic indicators, and companies' fortunes could often be predicted much more accurately even with publicly-available information (like with Capital One's fortunes depending on regulatory judgments against it), yet these models often still naïvely and nonsensically assumed Gaussian distributions for such events.

Coupled with that ignorance of information in financial modeling seemed to be an intentional lack of transparency in the market for these complex securities and other financial instruments. Typically, enlarging a risk pool would seem to produce better outcomes throughout the market, but here, the mirror image of that was happening: more and more people were being exposed to risk, and that risk was being multiplied based off of essentially nothing tangible (often simply camouflaged through clever names as comprising diversified assets), yet large Wall Street firms were making money off of that for years before the whole system collapsed. On a related note, some people have claimed that short-sellers are beneficial to the market by signaling that certain trading practices should stop as they are too risky, yet as far as I can tell, this only works in an idealized world where information and people's decisions are transparent to everyone, whereas the whole point is that the short-sellers and those selling risky financial instruments were all trying to one-up each other in a cloud of opacity and obfuscation so that they could make their big money (which is what really happened).

Overall, the book is quite engaging and well-written. As I mentioned earlier, there are a lot of subtleties, nuances, and jargon that went over my head, but the narrative and salient points are clear enough to a layperson; if anything, the technicalities simply add to the authentic feel of what one of those short-sellers must have been thinking during those years leading up to the 2008 financial crisis. It is important to note that the focus of this book is the financial crisis and the years leading up to it, from the perspective of the finance industry/Wall Street; it does not really touch upon the broader economic trends in the US leading up to that point (except for specific trends that tie into the discussions of specific mortgage-backed financial instruments), and it does not discuss the recession per se. With that in mind, I'd recommend this to anyone who is interested in the subject.

Kennedy, Edward Moore (1932-2009)

Folks, Ted Kennedy died last night. He was suffering from brain cancer and had been out of the Senate for a few months.
I really admired him because he was able to back up his natural charisma and his heritage with real legislative accomplishments (which was something his brothers didn't really do, to be followed). He was truly committed to helping the poor through health care reform and bringing them up the economic ladder. He really wanted to help immigrants get decent jobs in this country and work their way towards citizenship. He helped outlaw most forms of discrimination against the disabled and helped them have a better life through more supportive school and work environments (I directly benefit from this). He wanted to make sure racial and ethnic minorities are not targets of discrimination.
However, though I am a liberal, I do not worship JFK like so many other liberals do. I find it somewhat appalling and on the same level as GOP worship of Ronald Reagan. He never really had any notable legislative accomplishments like Ted did. As President, he totally botched the Bay of Pigs invasion and was only saved by the waiting game (or, as the Germans say it, sitzkrieg) that was the Cuban Missile Crisis. Though he tried to contain communism in Latin America through humanitarian means, he started the disaster that was the Vietnam War. His mediation of the conflicts between Britain and Ireland were tainted by his own Irish background. His efforts to rid Iraq of communism brought the Baath Party (and ultimately Saddam Hussein himself) in power through bloody civil wars. He allowed the FBI to wiretap MLKJr because J. Edgar Hoover suspected he was a communist (and Hoover and JFK were close friends, somewhat negatively affecting JFK's progress with civil rights). Furthermore, he essentially wiped out the Seneca nation through relocation due to the building of a dam, making him break a campaign promise.
Please comment if you are a liberal who does not admire JFK (or even comment anyway)!