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 grew up and learned more about how serious the situation was, I wanted to know the details of how Wall Street could allow something like this to happen. This book gave me clarity on how the situation unfolded and taught me more about what it's like to trade on Wall Street, the attitudes of people on Wall Street, and how much people are willing to give up ethical decisions to get maximum profit for themselves. , particularly regarding the mortgage lending situation within the book. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Before reading this book, I was familiar with some stereotypes of Wall Street brokers, such as their arrogance and loud, ruthless personalities. One of the characters who fit this personality was Steven Eisman, who was originally a corporate lawyer before going to Wall Street as an analyst. Lewis stated that "the only way to get paid as an analyst is to be right and make enough noise so that people notice" and further described the chaos that would occur 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, more aggressive groups got the attention and agreements they wanted because they acted quickly and confidently. Trading is very fast-paced, so you have to be strong to attract attention and secure the trade you want. With this background knowledge, it was interesting to learn more about Michael Burry because he didn't fit the mold of the typical Wall Street investor. I was intrigued by how he remained confident in his breakthrough in the real estate market, even as he faced doubts from big companies. Michael Burry was a smart guy who started out as a regular stock market investor before deciding to dive into the bond market. However, before he even began exploring the stock market, he was a doctor. He was awkward in social interactions and lacked social skills, but he had an incredible sense of concentration, deep learning, and thorough information processing. He attributed his lack of social skills to the false eye he used after losing one to cancer during his childhood, but later discovered he had Asperger's syndrome. This diagnosis explained his embarrassment and his fixed concentration on certain concepts or ideas. He used this to his advantage as he learned 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 the multinationals on Wall Street even realized the situation. After deciding to pursue his interest in the bond market, he created the hedge fund Scion Capital and achieved great financial success for his investors in the early 2000s. He started focusing on the subprime mortgage market around 2005 and realized that if he could bet against the housing market at that point, when people were taking out fixed-rate loans that would inflate exponentially in two years, he would see the happened around 2007,when he would have assumed that the real estate market would collapse. Initially, I thought the housing crisis was something that happened suddenly with no clear explanation. As I read further, I learned that the subprime mortgage crisis that hit the United States in 2008 had been building for many years starting in the 1980s and 1990s. The book explained the situation in complicated financial terms, but this helped me learn more about the correct terminology for investments that I hadn't even realized existed. As the author stated, “the bond investor's greatest fear mortgages of the 1980s was that it would be repaid too quickly, not that it would fail to be repaid at all. The pool of loans underlying the mortgage obligation met standards for size and borrower credit quality established by one of several government agencies. If homeowners defaulted, the government paid off their debts” (Lewis). Subsequently, the mortgage bond was “put to a new use: granting loans that did not qualify for state guarantees. This would extend credit to increasingly less creditworthy homeowners, not so they can buy a home but so they can cash in on whatever equity they have in the home they already owned” (Lewis). This new change was one of the reasons why the real estate market collapsed. Greedy Wall Street investors wanted to help their organizations' profits, so they encouraged people to take out loans to pay for homes that they both knew individuals couldn't afford. These loans were attractive because Wall Street brokers presented them with a “teaser” rate. This strategy involved 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 accepted the low fixed payment and were deceived into believing that it would remain low for the entire term of the loan. Of course, the real crisis erupted when they started not making payments. Another piece of the puzzle was the risks of mortgage bonds arising from their structure. As the book explains, “mortgages created from subprime real estate loans extended the logic invented to address the problem of early repayment to address the problem of non-repayment: the investor in the first tranche (first floor) would be exposed to risks actual losses, not prepayments. He suffered the first losses until his investment was completely wiped out, after which the losses hit the boy on the second floor, and so on” (Lewis). The author went into more depth explaining how higher rated mortgage bonds were on the higher tranches, while 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 package low-rated bonds with high-rated bonds to raise the average in the pool and then sell it as something with a higher rating than it actually was. Michael Burry noticed that the overall pool of mortgages issued, packaged, and sold was deteriorating in quality "because for the same FICO scores or the same average loan-to-value, you were getting a higher percentage of interest-only mortgages" (Lewis) .It was worrying to know 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 firm: to pay as little as possible for commodities (real estate mortgages) andcharge as much as possible for their final product (mortgage bonds)” (Lewis ). The key element 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 at these rating companies were easily exploited. The author confirms that “Wall Street traders knew that these appraisers were not looking at each individual home loan, but rather were evaluating the general characteristics of loan pools” (Lewis). Furthermore, 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 did not ask for a list of all borrowers' FICO scores, but rather the average FICO score for the pool. This was dangerous because the agencies allowed the granting of loans as long as the borrower could be found with a high FICO score capable of compensating for the delay with a rating of 550 (according to Lewis, this score meant that default was virtually certain) . If that wasn't enough, the agencies found another loophole. Thin file FICO scores were high for immigrants because they had little/no credit history and had never borrowed money. According to Lewis, the more serious the errors of the rating agencies, the greater the opportunities for Wall Street trading desks. After reading all this, I couldn't believe that the capitalist structure upon which the United States rests was so easily corrupted. These loopholes leave room for huge errors, which is exactly what happened in this situation 10 years ago. I assume that most Americans want to trust the financial institutions that hold our nation's wealth, but it is extremely troubling that the very agencies responsible for assessing the value or risk of certain bonds do not evaluate them correctly and are easily manipulated to benefit large Wall Street corporations and harm the rest of the American population. I had no idea that the cause of the market crash was caused by something that sounds so corrupt and immoral. Beyond that, I was shocked at how Wall Street was able to get away with this technique of misleading people about their loans and selling off highly rated bonds that didn't really deserve their rating for years before it started to crash and burn. I always thought that companies would be more ethical in how they treated their customers when there was real money (and a lot of money) at stake. This book showed how companies' main goals were their own benefit and not the bigger picture 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 already had financial debt, which is a truly sad reality captured in this novel. Taking advantage of these people, the market crashed and also affected many other hard-working Americans, many of whom were not even involved in buying or selling subprime mortgage bonds. It's a dark reality of finance that I wasn't prepared to read about, but found interest in learning more about. Another lesson I learned about finance from reading this book was the importance of transparency between companies and the public. One character, Vincent Daniel aka “Vinny,” was detail-oriented and wanted to know the merit behind the bond ratings and numbers that Moody's and S&P were presenting to the public. Companies have also chosen to disclose their growing earnings, but not much else regarding their operations or investments. Vinny”.