The Big Short

I have just finished reading The Big Short by Michael Lewis.

He tells the story of several people who understood the flaws in the subprime loans and the housing boom, long before the crash came. They tried to sound a warning, but were treated like fools and pariahs by the establishment.

The book demonstrates that almost none of the clever people in the big banks understood the workings of the financial instruments that they were creating and trading. The worst offenders were the rating agencies. They put AAA ratings on bonds without knowing anything about the assets behind them.

The irony is that those who foresaw the disaster were not given any credit or appreciation when they were proved right. Rather they were blamed for exposing the folly of those who should have known better.