Tuesday, January 25, 2011

Book 01 - The Big Short - Michael Lewis

I'm baaaack. I know I'm off to a slow start, but I am committed to doing the challenge again, and seeing as I read more than 20 books in 3 months last year, I hardly think being 3 books behind is that bad.

I don't think I've been paying enough attention to non-fiction, so I think I'm going to start off with a few books of that genre, before I get back into some more literature. So without further ado, lets kick this off.

Book 01 - The Big Short - Michael Lewis

When I reviewed The Ascent of Money last year, I think I mentioned that in a previous life I worked developing software applications to model financial transactions called securitizations. These transactions take loans such as mortgages and turn them into securities, which can be sold to investors. This type of financial instrument initially created unprecedented liquidity in the mortgage market, allowing easier access to mortgage credit and making it possible for many hard-working Americans to realize the dream of home ownership. It was of course ultimately twisted by greed: greed of potential homeowners wanting houses they could not afford; greed of mortgage originators that took no responsibility for the creditworthiness of the people they loaned money to; greed of the investment banks, who packaged loans of decreasing quality, and sold them to investors; greed of the so-called rating agencies, who in a massive conflict of interest were paid by the banks issuing the securities, and therefore granted investment grade status to these securities to keep the gravy train rolling; and the greed of the investors, whose insatiable appetite for these supposedly safe securities and their high yields fed this financial mess. It was this cycle of greed, combined with some other factors that ultimately brought about a financial crisis of such magnitude as to rival The Great Depression, and which left waves of economic turmoil that are still being felt many years later.

Michael Lewis' book, The Big Short is not really about any of these players - at least not directly. Instead, Lewis turns his attention to those who saw the impending crash, and positioned themselves to capitalize on it. These people saw that these instruments were growing so complex that not even the banks and the rating agencies could understand them, much less the investors, and that the Triple-A ratings the agencies were handing out like candy to Trick-or-Treaters were basically meaningless. They saw that the financial engineers who designed these transactions used this complexity to obfuscate the true risks involved in the quality of the underlying loans, and that the continued health of these transactions hung on two suppositions: housing prices will always go up, and defaults will be manageable and localized. What the banks and investors seemingly didn't realize, was that it wasn't necessary for housing prices to go down, or even to completely flatten out. A simple slow down in the rise of prices was enough to bring this money machine to its knees.

Lewis profiles several of these supposed visionaries who saw this impending crisis when the rest of Wall Street did not. He chooses for the most part to romanticize them for their foresight and for the trials they faced by going against the common wisdom, rather than demonize them for being bottom feeders preying off the economic collapse of the United States for their own financial gain. In some ways he may be right to do so. Some of them were indeed trying to shine sunlight on this dark Ponzi scheme, but others were just quietly gaming the system, and all of them walked away rich. They used Credit Default Swaps, "insurance" policies that trade relatively small premiums for large payouts in the event of default, in order to "short" or bet against securities backed by sub-prime mortgages. Many of these contrarian investors also shorted the stocks of banks that were heavily engaged in these transactions, and made money when the bank stocks collapsed as well.

While my background makes this book particularly interesting to me, I think it can be enjoyed by anyone who wishes to better understand one of the principal causes of the current economic crisis. Lewis does an excellent job of explaining these transactions and the underlying motives for engaging in them, and therefore makes an extremely complex subject very accessible to the casual reader. Lewis is also a former Wall Street bond salesman, who chronicled that time of his life in the book Liar's Poker, so he has a personal insight which lends to his telling of the story. FYI - he also wrote The Blind Side, from which one of the story threads was used for the recent Sandra Bullock movie of the same name.

Tuesday, January 11, 2011

2010 Wrap-up and 2011 Look-ahead

I know this is late, but I needed to take a break for a few days.

I did it! 52 books in 52 weeks! Well, 52 books, anyway. I didn't do very well at staying on the one book a week schedule, so coming into October I still had yet to read at least half of the books! I buckled down though, and started reading two and three books a week, and finally finished my last book December 30th.

I performed even worse at staying current with my blog, sometimes waiting a week or more before I wrote up the books I read. For example, I wrote my last three blog entries the morning of the 31st (I posted four that morning, but one of them had already been written and just needed editing). I wrote an entry for every book, though some entries were more substantial than others. I averaged almost 600 words per entry though, so I think that's pretty respectable.

For the most part, the books I read were pretty substantial too. Yes, there were some short books - eleven books I read were less than 200 pages. However, twelve of the books were more than 400 pages, with half of those being more than 500 pages. I did not do any audio books, although I don't have anything against them. I didn't read any e-books either, but that was simply because nobody has bought me a Kindle or an IPad yet (hint, hint).

I read every word of every book. That includes prefaces, epilogues, glossaries, appendices, and informational notes, though I drew the line at indices, reference citations, and acknowledgments. I read from a wide variety of genres: popular fiction, classic literature, science fiction, biography and non-fiction. I did not work from a predetermined list. For the most part, I chose the books, although several of the books I had to read for a literature class I was taking. I also accepted recommendations from friends and/or people following my blog. I got most of the books I read from the public library, although several of the books had been on my shelf prior to the challenge, and I had to buy the ones for my literature class.

Fifteen of the books could arguably be considered classic literature. The exact count depends where you draw the line. Four of those were books I had to read for my American Literature class. They were: Nature and Selected Essays - Ralph Waldo Emerson, Moby Dick - Herman Melville, The Blithedale Romance - Nathaniel Hawthorne, and Walden - Henry David Thoreau.

Four authors had the distinction of appearing twice on the list: John Steinbeck, William Faulkner, Albert Camus, and Carl Hiaasen.

Two authors made the "three-peat," appearing three times on the list: David Sedaris and Stieg Larsson.

Inexplicably, two books featured a character named Zenobia: The Blithesdale Romance and Ethan Frome. I'm guessing the name was a little more common in the 19th century.

I encountered many authors that I had never read before: Albert Camus, William Faulkner, Edith Wharton, Voltaire, Stieg Larsson, David Sedaris, and Bill Bryson, to name but a few. In fact only about a dozen of the books were by authors whose work I had read prior to the challenge.

I liked almost everything I read. The only notable disappointment was Snow Falling on Cedars. I felt it was a bit too much like a Harlequin romance. I also struggled with Emerson's essays, finding him to be overly wordy and preachy, but at the end, I still felt like I got something out of his work, so I can't say I hated it.

So that's it! Or is it? I have accepted the 2011 challenge! I'm planning on doing it again, and keeping the blog going. I'm going to try to do a better job of keeping on track, but it's already the second week of January, and I haven't finished my first book yet, so I guess I need to try harder. I'm also going to try to follow some of the other blogs of people doing the challenge, and see if I can't scare up some more readers for my blog. I know there are a few of you out there, but for the most part I feel like a voice in the wilderness.

I will continue to read from a variety of genres, both fiction and non fiction, and to read from both modern and classic authors. I'll try to get to some of the books that have been languishing on my "to-read" list. One thing I've noticed is that I haven't read a lot of English Literature, so I might try to get to a little more of that this year. Maybe I'll try and fit in some Hardy or some Dickens, or something by one of the Bronte sisters. If you have any classic English Literature titles that you think I would be interested in, please let me know. In fact, feel free to offer any suggestions for future reads, or comment on my entries. You can leave your suggestions or comments here, on Facebook, or even on Twitter. I will be keeping the previous year's blog entries online, so don't be afraid to go back and check out some of my old entries and comment on those as well.

Thanks to everyone who cheered me on!