financial crisis

Our Book Report: “The Big Short”


Back in the Mesozoic Era when we attended elementary school, it was common practice to assign book reports as homework. On the appointed day, students were called to the front of the class to read their report aloud.

This may surprise you, but fourth graders often seized on one small part of the book, a particular event or character. The rest of the story, perhaps even the central theme, might be neglected. We are trying to tell you that this book report is fourth-grade style.

The Michael Lewis epic about the last financial crisis illuminates how nearly the entire financial world can get it wrong, while a tiny group of free thinkers or eclectic contrarians digs into the facts and gets it right. The people who figure the deal out in real time usually get castigated and abused—and rich.

The contrarians are usually as noisy as they can be. But they might as well be speaking Etruscan to the coffee klatch at B’s Diner in beautiful downtown Louisville. It is as if nobody can understand them.

The moral of the story is that being part of a broad consensus may provide a sense of security. We humans are social creatures, and we crave acceptance and a certain level of conformity to group norms. But the crowd might be terribly wrong, to its eventual detriment.

Meredith Whitney, a previously obscure analyst, was the voice in the wilderness on the sub-prime rot in the financial system in 2008. She had been trained by Steve Eisman. These two had a history of looking at reality, and finding the gap between it and the prevailing perception.

Clients, you already know these people are heroes to us. They were selling when the stampede was buying. They did their own thinking. The consensus meant nothing to them. These are the things to which we aspire.

Of course, the renegades turned out to be correct, the conventional wisdom was actually ‘wisdumb,’ and a few people did well while many suffered losses. Again. “The Big Short” by Michael Lewis is a wonderful telling of this tale.

We have written enough already about our differences with the current consensus views. Clients, if you would like to discuss this or anything else on your agenda, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Any named entity, Leibman Financial Services, Inc. and LPL Financial are not affiliated.

Times Have Never Been So Tough!

© Can Stock Photo Inc. / Jetrel

As humans, we’re generally self-centered by nature. We sometimes have an exaggerated sense of our own importance.

That’s not to say that there’s anything wrong with this. We happen to think that enlightened self-interest, with the understanding that the best way to make ourselves better off is through mutually beneficial cooperation, is an excellent principle to live our lives by. But sometimes it pays to keep the bigger picture in mind.

Our experience of the present century is one of turmoil. We’ve seen terrorist attacks of unprecedented scale, the biggest recession in a century, extremist political movements everywhere from the third world to the first world, terrifying epidemics, wars, natural disasters—the list goes on and on. In our egotism, it’s easy to fall into the trap of thinking that we must be living through the greatest crisis in human history.

In fact, we’re so stuck in the here and now of our lives that we’re willing to ignore evidence from our own lived experience—many of us have actually lived through just as many troubles before! The recessions of the 70s saw higher unemployment, lower growth, and vastly more inflation all while the Cold War raged on in the background. We know the 2008 crash was painful, but compared to lines at the gas station and 20% inflation things don’t seem so bad.

And yet, those of us who came of age during those troubled times still have nothing to complain about. Think of how our grumbling about gas prices must have sounded to the generation before us! They lived through the Depression and the rise of fascism, bled on the beaches of Normandy and watched the Iron Curtain descend. They saw a hundred thousand souls go up in nuclear fire and millions more die in the concentration camps.

Those that came before them had it no easier, either. The fact that the Great War’s casualties took place on the battlefield rather than in bombing campaigns and death camps would have been little solace to towns that lost an entire generation of young men, butchered by unprecedented machines of war and chemical weapons so terrible that not even the Nazis would stoop to using them.

Going back further there’s an almost infinite number of crises in human history we can look back to. Everyone thinks they’ve got troubles, and by and large they’re right. But as preoccupied as we are with our own troubles, we should strive to keep them in perspective. As it turns out, we have a once-in-a-generation crisis about once a generation. As a civilization we’ve gone through a lot of generations and a lot of crises and still kept going.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.