Brad Pitt and the Big Short

Fans of Brad Pitt may be interested to know that the Hollywood star is pretty much lined up to take a lead role in the film of The Big Short - the epic new book from Michael Lewis. The author let this slip in discussion at a packed LSE last week as he explored the charaacters of many of the lead figures in a story of epic financial returns from staggering regulatory failure.

The Big Short is one of those books that is hard to put down! Having listened to Michael Lewis in London last week I sat down and read it once more in my kitchen last night - Radio 4 for once turned off for the best part of three hours! It is a gripping story of a small number of diverse traders who simply could not believe that the international financial markets were unable to price correctly the credit default swaps (CDSs) and collaterized debt obligations (CDOs) that swamped the system during the sub prime boom. Those who took the gamble to short the market ended up firmly on the right side of the trades and made out-sized returns as a result.

For Lewis one of the fundamental reasons why the sub prime debacle was allowed to expand for so long was a root failure of the ratings agencies. They simply did not do their jobs properly and continued to slap AAA ratings on sub-prime bonds attracting a giant poll of naive, blind money from across the world economy. It is amazing that the financial markets still pay so much attention to the likes of Moody’s and Standard and Poors when they opt to change the ratings on sovereign debt by a tick or two!

Those involved in the Big Short all realised how tenuous and fragile the US financial system was - they saw it collapsing and it scared them witless. But the odds were simply too attractive to pass up on the chance of making huge money. Most of the traders on the other sides of the deal thought they were the victims of a natural disaster. It was nothing of the sort.

Next up for Lewis appears to be a travel book related to financial disaster tourism - after all, countries in deep financial holes are pretty fine places to find cheap hotel rooms.

Here is a video of Michael Lewis talking about his book

Michael Lewis on financial meltdown (BBC World, March 2010)