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The Great Recession In The Big Short By Michael Lewis

1552 Words7 Pages

In the book The Big Short, Michael Lewis outlines all of the events that led up to The Great Recession in 2008. Lewis makes it clear that the recession could have avoided if those in the banking industry were not so greedy. Lewis expresses, “One trillion dollars in losses had been created by American financiers, out of whole cloth, and embedded in the American financial system”. This quote exemplifies how much of a hit the economy took in the end. Lewis starts off by explain the concept of mortgages, which he states were only invented ten years before Eisman started working in the industry He explains that these mortgage bonds were just “everyone’s mortgages bundled together and then sold later as a package” and the person who owns the …show more content…

They came up with the idea the bond would be divided in to sections called “tranches” and they would then be organized based on their quality. Instead of purchasing one entire bond, the individual “trenches” would be purchased. Even though purchasing individual trenches was considered riskier, the payout in the long run was worth a lot more money, due the fact the risk is higher. After realizing how corrupt things were and how they were “tricking the consumers” Eisman decided to start his own “hedge fund” focusing in on the subprime load market in hopes to make a chunk of change. He gathers Vincent Daniel, Porter Collins, and Danny Moses to help create his new …show more content…

Lewis now starts to discuss the other party that is involved which happens to be the party that owns the bonds, The AIG or American International Group, Inc. Lewis states that, “AIG FP makes a stupid amount of money—roughly $300 million per year by 2001, which is 15 percent of AIG's profits" . He also explains by 2004, AIG FP dropped smaller markets such as student and auto loans, in order to keep up with the subprime loan industry . Going and focusing on where the money is becoming a central idea that ends up leading too many issues which will be later discussed. By the end, Lippman ends up having complete control of the market and anyone who becomes interested in purchasing a credit default swap has to go through first in order to obtain one, which is how he ultimately makes all of his money . However, things do not go as smooth as he had planned. No one buys Lippman’s pitch resulting in his losing money

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