Study Guide

The Big Short: Inside the Doomsday Machine Hypocrisy

By Michael Lewis


"They should have taken the CEO out and hung him by the f***ing testicles. Instead they sold the company and the CEO made a hundred million dollars." (1.46)

Colorful language aside, this quote gets at the hypocrisy of financial organizations heading up to the 2008 stock market crash. The wages for Wall Street employees have skyrocketed across the board, even when the employees in question are actually losing money for their companies. What the what?

The less transparent the market and the more complicated the securities, the more money the trading desks at big Wall Street firms can make from the argument. (3.43)

In other words, Wall Street makes more money if it can confuse outsiders and prevent them from knowing what's actually going on. And here's the thing: if you give someone an incentive like that, you can bet your bottom dollar that they're going to take advantage of it. That is, unless they've already invested that bottom dollar in mortgage bonds.

Rather than cave to the pressure, Lippmann instead had an idea for making it vanish: kill the new market. (3.54)

Of all the people who short-sell the subprime bond market, Lippmann is the least principled and the most hypocritical. He has zero concern for the actual ethical issues underlining the industry and is only worried about making some sweet cash for himself.

Either piece of news [...] should have disrupted the subprime bond market and caused the price of insuring the bonds to rise. Instead, the price of insuring the bonds fell. (4.36)

If you thought that the banks were hypocritical before, then just wait until you see how they react when subprime mortgages start defaulting. Instead of adjusting the bonds accordingly, they keep the prices artificially inflated, presumably so they can sell off as many bonds of their own as possible. It's a full-on scam at this point.

"What became clear," said Charlie, "was that there was a limited amount of information out there and we had the same information as everyone else." (5.12)

The hypocrisy of the ratings agencies is staggering when it comes to subprime mortgages. If anyone should be closely analyzing the content of these bonds, it should be them, but they're operating off the same threadbare information as everyone else. It's insane.

It was also a stunning opportunity: The market appeared to believe its own lie. (5.53)

At a certain point, Wall Street's hypocrisy becomes so rampant that everyone loses the thread and starts buying their own nonsense. That's when you know things have gotten bad.

Moody's and S&P were piling up these triple-B bonds, assuming they were diversified, and bestowing ratings on them—without ever knowing what was behind the bonds! (5.57)

Once again, the hypocrisy of the ratings agencies is so blatant it makes our heads spin. To put it in metaphorical terms, this would be like if not a single person who voted for the Oscars actually watched the movies in question, but instead relied on a friend's two-sentence Facebook review to make their determination. Oh, brother.

He told Eisman that his main fear was that the U.S. economy would strengthen, and dissuade hedge funds from placing bigger bets against the subprime mortgage market. (6.18)

This is Wing Chau, by the way, and he's the most hypocritical of the bunch. Although he deals in mortgage bonds, he doesn't care one way or another how well they actually do in the market, as he doesn't hold any liability for them himself. How would you feel if your parents' retirement fund ended up investing with someone like that?

One of the Bear Stearns CDO guys [...] said, "Seven years? I don't care about seven years. I just need it to last for another two." (6.27)

This is the ultimate hypocrisy. The individual traders on Wall Street don't care about the long-term success of their clients, because they think they'll be working somewhere else by then, having presumably collected a fat bonus check in the process. Gross.

"We turned off CNBC," said Danny Moses. "It became very frustrating that they weren't in touch with reality anymore. If something negative happened, they'd spin it positive." (7.16)

Even the media is hypocritical when it comes to the bond market. We don't think it's out-and-out corruption or anything, but simply that TV analysts, like bond traders, can't fathom how a market so successful could fall off a cliff so suddenly. Ultimately, this naivety creates a massive blind spot that makes a crisis like this inevitable.