One of the books I received this Christmas was Michael Lewis' book The Big Short. I actually think this is one of the most important books of the last decade, and it was made into a movie. Which, for a book about esoteric financial transactions, is pretty amazing.
The book does a great job describing what the hell happened in the 2008 financial crisis, better than anything else I have read or seen. I'd really recommend seeing the movie or reading the book, but if you want my interpretation (which is like asking a child to describe the Mona Lisa), it's this:
We encouraged a bunch of people to buy houses they couldn't afford with financial gimmicks (subprime mortgages). Then the banks repackages these as bonds, used tricks to make the bonds seem a lot more secure on paper than they actually were, and ended up being so leveraged that when the housing market collapsed, it took down a large number of banks.
I'm still not sure what amount of this was criminal and what percentage was just blind stupidity. I think it's mainly stupidity; the banks told themselves that the housing market never fell that badly, so they basically bet everything that it never would.
I'm a capitalist by nature, and still reading about this both shocks and angers me. Shocks me in that these banks could be so blind that they didn't realize what they were doing; angers me in that I'm still not sure they learned their lesson.
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