Study Guide

The Big Short: Inside the Doomsday Machine Manipulation

By Michael Lewis

Manipulation

Manipulation is Wall Street's bread and butter, and those dudes were eating well in the early 2000s. Through the creation of the subprime mortgage bond market, these financial big shots create an elaborate system that basically amounts to a gigantic Ponzi scheme. They bamboozle ratings agencies. They trick investors. They straight up lie if they need to. As we learn over the course of The Big Short, if you give someone the incentive to manipulate others, don't be surprised when they take advantage of it. Particularly if moolah is involved.

Questions About Manipulation

  1. Compare and contrast the way that Wall Street manipulated the economy to the way that casinos manipulate gamblers.
  2. How were CDOs so successfully used to confuse government regulators and ratings agencies?
  3. In what way can the concept of "incentives" be related to the financial manipulation depicted in the book?
  4. Will the financial world be able to manipulate the economy as effectively after the crisis? Why or why not?

Chew on This

Wall Street manipulation is a direct result of the elaborate, confusing system the industry has built for itself: it incentivizes manipulation.

Bond traders were able to manipulate ratings agencies and government regulators with CDOs by controlling the flow of information and disorienting them through jargon.