Eli Lilly Case Analysis

Explanation and Analysis of The Big Short

I found that The Big Short provided a substantive elucidation on human nature. In 1985, a fresh-out-of-school, wet-behind-the-ears Michael Lewis, the author, landed a job as a stock analyst with Salomon Brothers – at the time, a legendary Wall Street investment bank. He spent the next three-plus years there, blindly walking through his job, being exposed to outrageous acts, and learning Wall Street subculture. After leaving his job before his employer could discover his self-admitted incompetence, he wrote Liar’s Poker in 1989 and The Big Short in 2010. Told through following the investment lives and pivotal career events of a few unique personalities, Lewis frames The Big Short as a story about: (1) the subprime mortgage crisis; (2) the few who deciphered the handwriting on the wall and bet their convictions to come out on top; and (3) Wall Street players’ hubris and the extremes that they went to for a big score. I do three things with this report: (1) explain the process of making a CDO and how it should have worked; (2) expose misdeeds that led to the near collapse of the real estate and financial services industries; and (3) highlight a few characters, featured in the book, and how their insights made fortunes and exposed Wall Street’s unscrupulous acts.

At the center of the housing bubble and ensuing recession, were illegal real estate sales and lending practices, collateralized debt obligations (CDOs), and credit default swaps (CDSs). A confluence of factors created a perfect storm of deceit and crime that brought the financial services industry to its knees and the US economy to the brink of collapse. These factors included: (1) the US Government’s overzealous efforts to revive a cooling US economy by promoting home ownership among borrowers with inferior creditworthiness1; (2) Wall Street’s penchant for earning more money faster and any innovations that led to this end; and (3) racism2....