Back in college, I read and enjoyed the crazy stories of bond trading in Liar's Poker by Michael Lewis, so I decided to check out his next book, The Big Short: Inside the Doomsday Machine, which describes the sub-prime mortgage collapse and bank bailouts. This one follows three individuals who bet against the entire sub-prime market in a time when everyone thought they were crazy, and they ended up proving everyone else wrong.
The author did a nice job explaining at a high level all the required technicalities of derivatives like MBSs, CDOs, and CDSs and how really bad incentives all over the industry led to its collapse. I enjoyed hearing about the details of how each of the three traders/investors made their decisions and worked with the banks to put on trades initially that were very unpopular.
Some of my big takeaways:
Below are my full notes on the book.