Summary Of Big Short By Michael Lewis

Over the last few decades, finance has turned away from its traditional role as long-term investment fiduciary lenders to self-centered institutions caused by the lack of ethical frameworks. This is the case in the Big Short by Michael Lewis, a perspective about the economy meltdown fueled by a vicious cycle between wealth and power in the private and public financial levels.

The actions of government and the response of the public sector played a major role by incentivizing the assumption of home appreciation and the increase of leverage. The lack of utilitarian fiscal action on the part of politicians and the central bank broken efforts to regulate financial activities ignited the boom and bust of the housing market. In the 60’s congress

Home loan underwriting standards relaxed considerably as demand for debt spurred by financial institutions. Investors greed for higher returns and desire to own assets led to a destructive competition in the private and public sector. The growth of the subprime mortgage market resulted from the increase of investment banks’ appetite for market share and the combination of cheap credit and easy debt leading to over-investment in real estate assets. The mortgage underwriter’s goal is to determine whether a borrower will be able to make payment based on the terms of the promissory note. Subprime lending permitted deficient credit quality, high LTV ratios and in some cases, no income verification. Moreover, credit rating firms responsible for assessing financial products failed to their standards, favoring private stakeholders; the way organizations behave in relationship with their many stakeholders is a good indicator of their underlying ethical character. Other agencies such as, The Security Exchange Commission (SEC) responsible for maintaining fair, orderly and efficient market, facilitate capital formation and primary protect investors, failed to oversight the excessive exposure to risky positions in the securities market driven by their Machiavellianism vantage

The assumption of home appreciation has been a major incentive for low-income households to participate in the mortgage market. Amoral mortgage bankers and immoral real estate brokers promoted by their individual view, benefited from the high demand of home financing by providing easy entry to the real estate market. Households were locked in risky subprime debt with complicated financing structures. Financial instruments such as adjustable rate mortgages, teaser loans and ninja loans were some of the products offered as solutions to low creditworthiness home buyers. These predatory loans proved to be offered based on self-interest, loans were likely to default