The Big Short by Michael Lewis is about the lives of a few investors that foresaw the biggest credit bubble Wall Street has ever seen.
Reading the Big Short has taught me a lot about subprime mortgages and credit default swaps. Before I read this book I had no idea what subprime mortgages even were, much less that there was such thing as betting against them. Lewis addresses the fact that most people on Wall Street have no clue what they are actually doing. This is evident with how the market crashed and only a select few actually profited from it. This is of no surprise to me because I have had numerous finance classes and I still feel like I don’t understand much of the financial world. At the beginning of the class there was discussion about how there is a lack of confidence in the financial market because the people trusted to handle our money really have no clue themselves how the system works. Lewis also addresses how subprime mortgages came to be such a failure because of the systems that created the problem. For instance, credit agencies make people’s credit look better than it actually is because they are paid by the companies that request the ratings. I never realized how credit agencies actually worked and this affects the financial world majorly. During this time period lending standards declined and people with poor-credit were being put into homes they couldn’t afford. The exposure of subprime mortgages and credit default swaps led to the crash of 2008-2009. This turned into a global crisis resulting in a number of bank failures. Learning about the subprime lending scheme made me think about when I first bought a house. Lenders are pressured to get people into loans that they don’t qualify for. They also put people in adjustable rate mortgages in which people with not so good credit get a great interest rate to begin with but then go up after a certain period, usually about two years. This caused a lot of foreclosures because...
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