Michael Lewis uses his book “The Big Short” to analyze the events that led to the credit bubble in the United States in the late 2000th. He gives the book a subtitle “Inside the Doomsday Machine”. Symbolically, this compares a credit bubble to a doomsday machine. Thus, ”being inside” refers to the process of understanding how the credit bubble happened and who caused it to happen. He uses evidence to describe what actually took place during the event.
When analyzing the evidence involved in the credit bubble and the eventual burst up, Lewis features the lifestyles of some of the biggest fans, analysts and spectators of the bubble. In his analysis, he features the Meredith Whitney, Cornwall Capita and Burry. These people, in one way or another, contributed to the bubble or to the burst up.
They were also affected positively or negatively by crashing of the market which happened because some of them, like Cornwall were, able to make huge gains due to the crashing while others, like Meredith Whitney, were the ones who predicted the collapse of the giant Citigroup.
Lewis also uses financial evidence and summaries of the investors that happened to suffer the highest losses due to the crashing of the market. These investors were Merrill, Howie Hubler and Cassano. The loses suffered were $300, $9 and $99 respectively.
The analysis by Lewis on collaterized debt obligation (CDO) is vital in determination of mortgages and the market finances. Lewis presents various evidences to support his claims. He explains how the Wall Street contributed to the failure of the market through the creation of risky mortgages to earn more profits.
He further explains how the agencies used flawed ratings to market the risky assets, thus leading to an avalanche of CDOs. The saving of the collapsing market by the United States government led to increase in the taxes charged to the citizens thus leading to a very high debt that led to the recession later in 2000s.
Lewis’ explanation and evidence are clearly seen through the failure of the big firms to withstand the crunch. These firms included American International Group Inc. and Royal Bank of Scotland. According to Lewis, none of the participants in the market was capable of seeing such a thing. Although Meredith Whitney was an exception as it was able to foresee a possible collapse of the Citigroup.
The use of the title “The Big Short” is also a means to portray the evidence to the reader. In the real sense, the term which is used is “The Big Shot” meaning being someone with the necessary knowledge in a particular area.
This did not happen during the credit bubble as they fell short of their ability in predicting the possible collapses that might have prevented the failure of the same. Hence, Lewis choses the title “The Big Short” referring to their lack of proper usage of their skills.
The book is relevant to the course because it aids in understanding the basics of reviewing, reading and understanding the author’s message. The analysis of this book “The Big Short”, shows how to relate evidence to conclusion in any research article.
The book is important to the course because it makes sure that enough knowledge is gained in understanding the causes and effects of the credit bubble. Such lessons applied in future will prevent a similar occurrence from taking place.