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Amazon link: The Big Short: Inside the Doomsday Machine
Author: Michael Lewis; website
Thumbnail sketch: As informative as it is infuriating. Follows the few folks who recognized the coming disaster of the Housing Bubble popping. Highly readable; doesn’t get bogged down in technical details of finance. 4 Stars
My take on THE BIG SHORT
A lot of folks have already reviewed The Big Short, and generally I don’t do big write-ups on traditionally published works. Mr. Lewis is a wonderful writer, making a subject that could be deathly dull very readable. Even though we know what’s going to happen, he’s crafted a gripping narrative that doesn’t get bogged down in technical details. I still can’t explain exactly how a derivative works — I know they were invented by already-rich folks looking to make more money — but that isn’t important to the story.
In early 1999, as my wife and I prepared to close on the house we live in still, a mortgage agent told us we were stupid for insisting on a 30-year, fixed-rate mortgage. Of course, he didn’t say it that way — “You’re stupid for not taking a low payment variable-rate loan” — but the implication was as clear as it could be. At that time, no one intended on living in the same house for that long. With loan rates trending ever downward, it only made sense to take a cheap, back-loaded loan and then move up to a more expensive house in a few years when the rates were even lower.
But we loved this house and, truthfully, we tend to stick with what works for us. I can remember when AT&T was deregulated and suddenly there were dozens of phone providers vying for our business; people jumped from one carrier to the next every few months as soon as they could, saving a few dollars. The same thing happened a few years later when cell phones became commonplace.
Although devastating to many who could ill afford it, the housing bubble wasn’t all bad. We never thought we’d be able to own a house again after my VA eligibility became locked up in our first house. Our credit rating was good but we didn’t have much for a down payment. The rules changed as the bubble expanded and when we decided to retire in our current location we found getting a loan to be so much easier than the first time thanks to that bubble. I’m sure there are others who could say the same.
We’re still living in this house, and had enough equity to stay above water, while that mortgage agent probably lost his job when the mortgage company went belly up after the bubble finally burst. I’m not sure if you’d call that karma, but it is a small comfort to know playing it safe worked out for once.