I recently finished The Big Short by Michael Lewis, a book that I'd suggest that everyone interested in the recent financial request read. The book follows several unique players that noticed that the housing boom was going to collapse and take the market with it. They noticed that the number of sub-prime loans being packaged as highly rated bonds were going to decimate the value of the asset bonds and the "synthetic" bonds that were based upon these mortgage loans.

The book both titillated and disgusted me. The titillation came at the realization of the amount of money that could be earned by short selling rather than long buying. I still find the idea of the short sell distasteful because of the nature of hoping that a company will fail. It seems so nihilistic. 

The disgust came from the mixture of fraud and stupidity that led to the collapse. I knew as early as 2004-2005, while my wife and I looked at moving into a new house, that the market could not bear the radical increases in prices and the nature of ARM loans. It seemed self evident to me that we were in the top 10% of earners in the nation but found even the middle third of houses ridiculously expensive for what you got. We were unable to rationalize spending so much money that it'd impact our savings and ability to vacation. The thought that people that earned a third of what we did buying these houses was frightening as we realized that the mortgage and insurance would have to consume almost all of their monthly earnings.

The most amazing realization was that there was such a thing as "synthetic bonds," a concept that still astounds me. A synthetic bond is essentially a bond based upon assets already in a bond. This kind of double dipping seems like it should be as illegal as it is unwise.

The lack of awareness of the large banks and wall street firms as they traded the bonds that would soon be worthless because they were based on huge loans taken out by people with no capital seemed to hit new levels of incompetence. It seems like the basic calculations were ignored until too late.

Like I said earlier, if you have any interest in the collapse of the financial industry in 2008, pick up this book.