The book I chose to read for my report was The Big Short: Inside the Doomsday Machine by Michael Lewis. I was nine years old when the market crashed in 2008 and I wasn't fully aware of the impact it had on the United States and the rest of the world. As I got older and learned more about the severity of the situation, I wanted to know the details of how Wall Street could allow something like this to happen. This book clarified how the situation unfolded and taught me more about what Wall Street trading is, people's attitudes on Wall Street, and the extent to which people are willing to back down from decisions ethical in order to obtain the most profit for themselves. , especially regarding the mortgage bond situation in the book. Say no to plagiarism. Get a custom essay on “Why Violent Video Games Should Not Be Banned”?Get the original essay Before reading this book, I knew some stereotypes about Wall Street brokers, such as their arrogance and loud, cantankerous personality . One of the characters who fit this personality was Steven Eisman, who was originally a corporate lawyer before joining Wall Street as an analyst. He was quoted by Lewis as saying that "the only way to get paid as an analyst is to be right and make enough noise for people to notice" and further described the chaos that ensued. took place every day on Wall Street during trading periods. This behavior reminds me of the game in class where we experienced a trading simulation. My group was quieter and less sure of our decisions, but the louder and more aggressive groups got the attention and agreements they wanted because they acted quickly and confidently. Trading is very hectic, so you need to be loud to attract attention and close the trade you want. With this background knowledge, it was interesting to learn more about Michael Burry because he did not fit the mold of the typical Wall Street investor. I was intrigued by how he remained confident about his breakthrough in the real estate market, even as he faced doubts from big business. Michael Burry was a smart guy who started out as a regular stock market investor before deciding to delve into the bond market. However, before he even started exploring the stock market, he was a doctor. He was awkward in social interactions and lacked social skills, but he possessed an incredible sense of focus, deep learning, and careful processing of information. He blamed his lack of social skills on the fake eye he used after losing one to cancer as a child, but later learned he had Asperger's syndrome. This diagnosis explained his clumsiness and his obsessive focus on certain concepts or ideas. He used this to his advantage while learning about finance and investing in the bond market. Burry was one of the first to discover the subprime mortgage crisis that was about to hit the United States before Wall Street firms even realized the situation. Once he decided to pursue his interest in the bond market, he created the hedge fund Scion Capital and achieved great financial success with its investors in the early 2000s. He began focusing on the subprime mortgage market around 2005 and realized that if he could bet against the real estate market at that point, thenthat people accepted fixed rate loans that would grow exponentially in two years, he would find success around 2007 when he thought the real estate market was going to collapse. Initially, I thought the housing crisis was something that happened suddenly, with no clear explanation. As I continued reading, I learned that the subprime mortgage crisis that hit the United States in 2008 had been growing for many years, since the 1980s and 1990s. The book explained the situation in financial terms complex, but it helped me learn about the correct terminology for investments I didn't even know existed. As the author explains, "the mortgage bond investor's greatest fear of years 1980 was about being reimbursed too quickly, not about not being reimbursed at all. The pool of loans underlying the mortgage bond conformed to standards, in terms of size and borrower credit quality, set by one of several government agencies. If the owners defaulted, the government paid off their debts” (Lewis). Later, mortgage bonds were “put to a new use: granting loans that were not eligible for state guarantees. It would extend credit to increasingly less creditworthy homeowners, not so they could buy a house, but so they could cash out the equity they already had in the house they already owned” (Lewis ). This new change was one of the reasons why the real estate market collapsed. Greedy Wall Street investors wanted to improve the bottom line of their own organizations, so they encouraged people to take out loans to pay for homes that they both knew individuals could not afford. These loans were attractive because Wall Street brokers offered them a “teaser” rate. This strategy offered a low fixed rate for the first two years of the loan, which would then become a much higher variable rate for the remainder of the loan term. People bought into the low fixed payment and believed it would stay low for the life of the loan. Of course, the real crisis hit when they started defaulting on their payments. Another piece of the puzzle was the risks associated with the structure of mortgage bonds. As the book explains, "Mortgage bonds created from subprime mortgages extended the logic invented to solve the problem of prepayment to deal with the problem of no repayment at all: the investor of the first section (first floor) would be exposed to real risks.” losses, no early repayments. He suffered the first losses until his investment was completely wiped out, after which the losses hit the guy on the second floor, and so on” (Lewis). The author went further to explain how the highest rated mortgage bonds were on the higher tranches, while the lower rated bonds were on the lower tranches. Of course, most people wanted the least risky bonds, so Wall Street came up with another strategy. They would group low-rated bonds with high-rated bonds to increase the pool average, then sell them as something with a higher rating than it actually was. Michael Burry noticed that the quality of overall mortgages originated, packaged and sold was deteriorating "because for the same FICO scores or the same average loan ratio, you were getting a higher percentage of interest-only mortgages" ( Lewis).- It was worrying to learn how the rating agencies Moody's and S&P were managed. From the novel, it was clear that "Wall Street firms had the same goal as any business: to pay as little as possible for raw materials (home loans) and charge as much as possible for their final product ( mortgage bonds)” (Lewis). The key point here is that the price of the final product was determined by the ratings assigned to it by the models used by Moody's and S&P's. Unfortunately, the people working at these rating companies were easily exploited. The author confirms that "Wall Street traders knew that these rating specialists were not reviewing each individual home loan, but rather evaluating the general characteristics of loan pools" (Lewis). Additionally, FICO scores were simplistic because they did not take into account the borrower's income and were misused by rating agencies. I learned that Moody's and S&P do not ask for a list of all borrowers' FICO scores, but rather the average FICO score of the pool. This was dangerous because the agencies allowed loans to be made on the condition that the borrower with a high FICO score could compensate the bad payer with a score of 550 (according to Lewis, this score meant that he was virtually certain to default ). As if that wasn't enough, the agencies found another loophole. Thin-file FICO scores were high for immigrants because they had little or no credit history and had never borrowed money. According to Lewis, the more egregious the rating agency errors, the greater the opportunities for Wall Street trading desks. After reading all of this, I couldn't believe that the capitalist structure that the United States runs on could be so easily corrupted. These gaps leave room for huge mistakes, which is exactly what happened in this situation 10 years ago. I suspect that most Americans would like to trust the financial institutions that hold our country's wealth, but it is extremely concerning that the very agencies responsible for assessing the value or risk of certain bonds do not even evaluate them properly and are easily manipulated to benefit major Wall Street corporations and harm the rest of the American population. I had no idea that the cause of the stock market crash was caused by something that seems so corrupt and unethical. Beyond that, I was shocked at how Wall Street managed to mislead people about their loans and sell highly rated bonds that didn't really deserve their rating for years before starting to sell. collapse and burn. I always assumed that businesses would be more ethical in how they treated their customers when it came to real (and largely) money at stake. This book exposes how businesses focus primarily on their own profit and not on a broader view of how this behavior would harm each individual customer and, ultimately, the entire market. Brokers were willing to take advantage of low-income Americans who were already in debt, which is a really sad reality that this novel captured. By taking advantage of these people, the market crashed and also affected many other American workers, many of whom were not even involved in buying or selling subprime mortgage bonds. This is a dark reality of finance that I wasn't ready to read about, but found interesting to learn more about. Another lesson I learned about finance from reading this book was the importance of »..