Michael Lewis, The Big Short: Inside the Doomsday Machine (W. W. Norton & Company, 2010)

As summer begins to wind down, and as we begin to anticipate less of the happy and carefree and more of the autumnal nose-to-the-grindstone vibe, may I suggest a beach read that has enough substance to satisfy even the most focused entrepreneurial reader?

You may know this author from some of his other books, including The Blind Side and Moneyball, also movies. You may know this story from the movie of the same name. If you don’t, skip the movie. The book is far more enlightening and entertaining.

Matthew Lewis is only a few years younger than I am. He was of the perfect age to experience Wall Street investment banking at its “Greed is Good” peak in the 1980s. He also had the good sense to exit with a nice stash of cash while he was still young—a pretty good trick for someone who was an art history major in college (although, to be fair, he did follow up with a master’s in economics before Salomon Brothers snapped him up). He has a flair for telling a good money story. The first sentence of this book immediately captures your attention: “The willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grown-ups remains a mystery to me to this day.”

By the time of the 2007-2008 financial crisis, Lewis was well established as a financial journalist, looking into the financial markets from the outside. What he describes here is the disintegration of a market created from whole cloth and without discernible value: credit default swaps involving securities comprising collateralized debt obligations. Remember the subprime bond market? The book centers on the few contrarians who saw this market for what it was, even as investment bankers continued to double down on making more and more money by “packaging and selling and shuffling around America’s growing debts.” Make no mistake—while it lasted, this was quite lucrative: “a single bond trader might be paid $47 million a year and feel cheated.” 

 We all know how this ended. If there’s one takeaway, perhaps it’s this viewpoint offered by one of the contrarians, someone who came to Wall Street with an English degree from Brown University. “If you want to know what these Wall Street firms are really worth,” she advised, “take a cold, hard look at these crappy assets they’re holding with borrowed money, and imagine what they’d fetch in a fire sale.”