Finance Issues in the Book “The Big Short: Inside the Doomsday Machine” by Michael Lewis Essay

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The fiscal crisis that hit Wall Street had far-reaching impacts globally. This financial crisis has drawn the attention of many scholars, economists, and stockbrokers. Lewis is one of the financial analysts that have tried to scrutinize the 2008 obscure financial crisis in the United States.

In writing his book, Lewis conducted an in-depth analysis of the financial trends in Wall Street. As the title of this book suggests, Lewis reveals how dozens of financial experts and investors created and benefited from loan schemes.

Lewis underpins his arguments with factual accounts of investors that gained and made irreparable losses during the financial crisis. Lewis also mentions how financial experts warned about the impending financial crisis, but investors ignored their advice.

Lewis contends that the 2008 financial crisis had its origins in the 1980s when financial institutions created composite monetary products such as mortgage derivatives.

He asserts that the financial products, which increasingly became complicated, were supported by unsecured mortgages that had flexible interest rates. Companies listed on Wall Street were able to conceal the risks of investing in unsecured mortgages by making them incomprehensible. Monetary institutions also manipulated the rating of bonds to attract more clients.

For example, some companies listed in the Wall Street bribed rating agencies to incompetently rate risky bonds. Lewis notes that most evaluation techniques were entrenched in the rising property prices, which gave a false impression of the future financial situation. For example, many people failed to pay their mortgages and made serious losses because they were misguided by lending institutions.

Therefore, this book has confirmed a popular assertion by Karl Marx that capitalism has its own contradictions that compel investors to take high risks. According to Lewis, an investor who fled the stock bazaar and joined the bond bazaar exemplified a small fuzzy creature reared in an island free of marauders, but unfortunately plunged into a pit crammed with pythons.

Lewis has also attempted to give a good clue of how the Collateralized Debt Obligations and Credit Default Swap were created by some investors. He notes that dominant financial institutions in the US invested heavily in sub-prime mortgage schemes. Sub-prime mortgages were consolidated and dubbed Collateralized Debt Obligations. These mortgages were auctioned in the bond market.

Many unscrupulous property developers hurriedly bought these mortgages without carefully evaluating their capacity to repay them. Some investors gambled against the Collateralized Debt Obligations and made profits; however, some individuals incurred serious losses.

The American Insurance Group was one of the companies that invested in the Credit Default Swap and made huge losses when the stock bazaar collapsed. Although many monetary institutions ignored government regulations, they insisted on being rescued by it when they plunged into crisis.

Lewis has shed light on the monetary calamities of the Wall Street through his nimble narration of the experiences of some investors, who gained or made losses in the stock bazaar. He has discussed how the pursuit for huge profits, idiocies and financial hypocrisy led to the financial crisis.

Although Lewis has revealed the challenges of the Wall Street market, he has not provided a macro perspective of the financial crisis. Based on this book, investors should learn that some individuals create innovative types of investments and make huge profits from them. Consequently, investors should be cautious when investing in the stock market.

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IvyPanda. (2020, March 15). Finance Issues in the Book "The Big Short: Inside the Doomsday Machine" by Michael Lewis. https://ivypanda.com/essays/finance-issues-in-the-book-the-big-short-inside-the-doomsday-machine-by-michael-lewis/

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"Finance Issues in the Book "The Big Short: Inside the Doomsday Machine" by Michael Lewis." IvyPanda, 15 Mar. 2020, ivypanda.com/essays/finance-issues-in-the-book-the-big-short-inside-the-doomsday-machine-by-michael-lewis/.

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IvyPanda. 2020. "Finance Issues in the Book "The Big Short: Inside the Doomsday Machine" by Michael Lewis." March 15, 2020. https://ivypanda.com/essays/finance-issues-in-the-book-the-big-short-inside-the-doomsday-machine-by-michael-lewis/.

1. IvyPanda. "Finance Issues in the Book "The Big Short: Inside the Doomsday Machine" by Michael Lewis." March 15, 2020. https://ivypanda.com/essays/finance-issues-in-the-book-the-big-short-inside-the-doomsday-machine-by-michael-lewis/.


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IvyPanda. "Finance Issues in the Book "The Big Short: Inside the Doomsday Machine" by Michael Lewis." March 15, 2020. https://ivypanda.com/essays/finance-issues-in-the-book-the-big-short-inside-the-doomsday-machine-by-michael-lewis/.

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