The Big Short Themes

In The Big Short, former Wall Street trader Michael Lewis profiles several real people who correctly predicted the 2007 global financial collapse and were able to profit from it. All of these people were outsiders to the mainstream financial system in some way. Before the crash, many of the characters struggled to get people to understand and support their ambitions. For example, even as a boy, hedge-fund manager Michael Burry had trouble connecting with other…

A paradox at the heart of The Big Short is the role of overconfidence on Wall Street: while traders have to project confidence in order to make big deals and get people to trust them, Wall Street’s rampant overconfidence is part of what led to the financial collapse. This is to say that there’s a professional incentive for financiers to act like they know everything and they’re always right, but once traders actually believe this…

The years leading up to the Great Recession in the United States were a time of great (and unfounded) optimism in the financial markets. Investors and regulators ignored warning signs of the impending financial crash, believing that the current boom would continue indefinitely. The people whom Michael Lewis (a former Wall Street trader) profiles in The Big Short are outliers: people who saw the warning signs, even when those around them were optimistic. Though they…

The Big Short claims that the financial collapse occurred, in part, because the world of finance got so overcomplicated that not even those who were running it could really understand what was going on. Michael Lewis describes a series of financial innovations, such as credit default swaps, that were—by design—incredibly difficult to understand. Because of this, most traders and their bosses didn’t realize that there was something catastrophically wrong with the subprime mortgage bond market—something…