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Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead
- mrduncan 17y agoI posted this about a month ago, didn't seem to get much interest then unfortunately. In any case, here is a link to the actual thesis: "The Story of the CDO Market Meltdown: An Empirical Analysis." - http://www.hks.harvard.edu/m-rcbg/students/dunlop/2009-CDOmeltdown.pdf http://www.hks.harvard.edu/m-rcbg/students/dunlop/2009-CDOme...
- eavc 17y agoThank you for posting this.
- tortilla 17y agoWeird. Wonder why my submission didn't get caught by the duplicate check? Looks like both have the same URLs.
- mrduncan 17y agoI believe that there is a time limit on the duplicate check, that way items can be re-posted after some time has passed. I'd guess it's probably 30 days. For those wondering, here is the original: http://news.ycombinator.com/item?id=1201079 http://news.ycombinator.com/item?id=1201079
- eavc 17y agoYou were just ahead of your time (but only by a month, that's better than missing by centuries like some people).
- megablast 17y agoThanks, thought it looked familiar. I downloaded the thesis at the time, and forgot to read it.
- eavc 17y agoWhat an inspiration this young woman is!
- chasingsparks 17y agoThis is sure to get down-voted, but the first thing I noticed after reading about her supposed brilliance was -- she's very pretty.
- eavc 17y agoAnd a world-class amateur violinist. And apparently something of an idealist. I hope she continues to do good work with her many gifts. While the cynic can argue she'll get crushed by the system, occasionally good people can get in and make positive change happen.
- pw0ncakes 17y agoShe could kick ass as a quant, but I don't see her moving up the ranks in IBD or M&A. She's (1) very intelligent, which works against you in that sort of conformist environment, (2) a woman, and (3) not from the "right kind of family" (I know nothing about her background, but she actually worked in college). In other words, she's just too good to be an investment banker.
- derrickchen 17y agoJust finished Big Short and it's good - like anything by Michael Lewis. It's the only thing I've read that completely tied together the hedge funds, the investment banks and AIG for me.
- ctkrohn 17y agoIt's not the most complete book on the financial crisis, but it's not trying to be. It is certainly the most entertaining though.
- gizmo 17y ago> Ah, the innocence of youth. Ah, the smug certainty of a Wall Street Reporter. Let's not forget how miserably the WSJ (and all other media) have failed to pick up on the gross fiscal abuse on wall street. Some modesty would be in order here! Besides, the student's suggestions are rather uncontroversial. She merely suggests that "to change wall street you have to change the incentives". How can any sensible person disagree with that? The attitude that... "of course the people at Wall Street are going to screw everybody over for profit; what did you expect?" oozes from those last remarks. Urgh!
- pchristensen 17y agoI don't think that comment is a slam on the idea, just the likelihood of it coming to pass. I expect Wall Street to screw everybody for profit, and I expect most businesses everywhere do it to the best of their ability. Wall Street is just more able. I read that as the author longing for that fresh optimism to think that Wall Street could be changed. I agree that if it ever were to change, it would be because (shareholders, the SEC, Congress) changed the incentives. For instance, bonuses and commissions held in escrow and then normalized based on actual vs advertised performance. Rating agencies may only accept payment from sellers or buyers but not both. Etc.
- gizmo 17y agoYou may be right, it is plausible the author refers to her decision to work on Wall Street to change it from the inside as the product of the innocence of youth. I should have given the author the benefit of the doubt.
- gruseom 17y agoI hardly disagree about the WSJ in general but I read the end of this article differently. The author's final question is a good one: why on earth did she take a job working for the very people whose irresponsibility her research exposed? Her answer, assuming it's sincere and not quoted out of context, is indeed naive: she's doing it to change the culture of Wall Street. Well, I agree with what I imagine the author's implicit points to be: (1) the odds that Wall Street culture will change because she took an analyst job are infinitesimal, it doesn't matter how brilliant and well-intentioned she is; (2) this is the kind of grandiose fantasy you have at that age. Sadly, many young people overestimate how resilient they will be to a culture they abhor, which is how they get sucked in and assimilated. The risks to the beast are negligible compared to the risks to her soul (if this were a movie we'd all be yelling Nooooooooo...) and she's not unusual in underestimating this. On the other hand, it's easy to understand why any "large New York investment bank" would want to hire her: anyone who can figure out what they do that masterfully will be useful in doing more of it.
- fname 17y agoYou can read most of the Prologue to the book, which sort of ties this article together on Amazon -- http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231 http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0...
- va_coder 17y agoI think it's great that she investigated the issue and wrote a well put together article, but the heart of the problem has been known for a while: * No money down loans * No proof of jobs required * Fannie & Freddie bought this junk * Repeal of Glass Steagal All the talk in the world won't change the fact that the solution requires legislators and law enforcers to have a strong backbone and prosecute those who committed fraud.
- mattobrien 17y agoFannie and Freddie actually lost market share as the bubble really got going. They were prohibited from getting into most subprime, and tried to get around their regulations. Wall Street was the driver in buying up these shitty mortgages to put into MBS/CDOs -- and quite a few big banks bought mortage originators so they could get bigger margin on these deals. Unfortunately for them Wall Street couldn't find buyers for all of this toxic crap and/or were too dumb to realize how bad some of this stuff was (ie Citigroup). That's why you had a bank run on Bear Stearns, once people realized the collateral they were using in the repo market was effectively worthless.
- va_coder 17y agoFannie and Freddie bought a lot of subprime. I had friends that worked there and told me so and I've read about it. Over the long term Fannie made a lot of people rich. Read Beating the Street by Peter Lynch. He made a fortune off Fannie. Taxpayers will pay, unfortunately. http://www.washingtonpost.com/wp-dyn/content/article/2008/08/18/AR2008081802111.html http://www.washingtonpost.com/wp-dyn/content/article/2008/08... Without Fannie and Freddie and the backing by the US taxpayer Wall Street would not have taken as much risk.
- eavc 17y agoMaybe, but the underlying problems were the bad ratings assignments, shady conflicts of interest, and companies figuring out they could drive demand while betting against that demand.
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- aresant 17y agoI got about 10 pages into the paper and then that there's a good reason that I didn't get into Harvard. Anybody up for compiling a summary?
- eavc 17y agoGo listen to the "This American Life" pieces about Magnetar and about the financial collapse. They are enjoyable and make good snapshots to get some of the same information/ideas. http://www.thisamericanlife.org/radio-archives/episode/355/The-Giant-Pool-of-Money http://www.thisamericanlife.org/radio-archives/episode/355/T... http://www.thisamericanlife.org/radio-archives/episode/405/inside-job/ http://www.thisamericanlife.org/radio-archives/episode/405/i...
- jacobolus 17y agoThe interesting part is the data itself. There’s really no shortcut to just marveling the tables directly.
- pw0ncakes 17y agoIt's really sad that someone as talented as she is ended up at an investment bank. If she's an analyst, instead of a direct promote to associate at the very least, I think I'm going to barf blood.
- zackattack 17y agoit's a standard, socially acceptable, not-very-risky-if-you-come-from-the-right-pedigree path to wealth/power.
- LiveTheDream 17y agoFrom Michael Blum's letter to Bernanke: "CDOs are like love. When they're good, they're great, but when they're bad, watch out." The linked paper itself is quite easy to read, though at 115 pages I didn't make it through the whole thing and resorted to skipping around. I'd love to see the tables of results put in perspective with a better visualization.
- wmf 17y agoWere there any good CDOs? An interesting aspect (in retrospect) of The Big Short is that some people spent huge effort determining which ones were worth shorting and other people seemed to make just as much money indiscriminately shorting all of them.
- LiveTheDream 17y agoFrom the thesis: J.P. Morgan’s CDOs consistently underperformed, while those from Goldman Sachs were among the top performers Also: CDOs rated by Fitch generally had less defaults than those without a Fitch rating. However, this result is not conclusive, as a number of other factors could be responsible for the lower level of defaults in Fitch-rated CDOs.
- T_S_ 17y agoHere's how to turn the Big Short into a bunch of little shorts and save us all a lot of trouble in the future: Require the banks to report each and every line item that they are long and short. A line item is simply there aggregate position in any security, loan or derivative. The banks already have this information, obviously. All they need to do is publish it--daily. In the past this would have been "infeasible". Now it would cost them little to release it electronically and it would be feasible for a small shop to analyze the risk for an entire bank. If available, the information would lead to an industry of small analyst/investors buying and selling bank stocks, eventually providing better information about the bank's risk than the banks themselves. Under this regime, the regulators can go back to sleep or continue surfing the web. Until now many would claim this information is the banks' by right and not ours. Is it? You and I effectively disclose this information for our houses and loans. It is deemed necessary for credit markets to function. We have no inherent right to keep it a secret. Banks are just bigger versions of us with thousands of assets and liabilities, playing with taxpayers' money it turns out. Their rights are determined by us and not nature.
- megablast 17y agoThere are a couple of companies that already do this for the banks. They get all the information on longs and short trades throughout the day, from all the big investment firms, and produce a market snaphshot. One of these companies is called Dataexplorers. You can pay money to get this data now. I am not sure how this would stop anything?
- bd_at_rivenhill 17y agoDataexplorers appears to be focused on the securities lending business, which is a tiny segment of the market compared to what the parent is proposing. Also, I see nowhere on the site where they claim to "get all the information on longs and short trades throughout the day, from all the big investment firms, and produce a market snapshot", can you please provide a reference to the place where this claim, or a similar one, is made? Most likely they are simply analyzing all long and short trades in the market on a given day to provide information about expected lending fees, which is a far cry from being able to assemble an accurate picture of the securities held by various financial institutions for their own accounts.