Tuesday, January 05, 2016

The Making of the Big Short (the Movie That Is.)

Michael Lewis' book, The Big Short: Inside the Doomsday Machine is one of the best on the financial crisis.  No one writes about finance like Lewis, the journalist who started as a bond trader with Salomon Brothers.   His book chronicles the outsiders who bet against the housing bubble. It short be read with Gillian Tett's book, Fools Gold, which follows the tribe of geeks who invented the credit default swaps in the first place. My favorite moment in the book is when Paulson's analysts are at a Deutsche Bank conference.  They are baffled at why the bankers are so ready to sell them credit default swaps after he had been pulling teeth to buy them months earlier. 

Adam McKay directed the movie based on the book.  Here is a Wall Street Journal Cafe interview with him: 

Oddly enough, John Paulson, who made the biggest killing–the biggest short–is not in the movie.  Richard Thaler is.  He is the Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business.  He presented a paper at the 1985 FMA meetings in New York which presented evidence against the efficient market hypothesis.  That was my first professional finance meeting and I had the pleasure of discussing the paper.  I sympathized with his difficulty at the time publishing such heresy.  Times change.  Now you can see he is at the pinnacle of the profession. Thomas Kuhn taught us that a scientific orthodoxy is finally finished only when the last member of that school dies.    

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