THE BIG SHORT by Michael Lewis

Leave it to Michael Lewis to explain the sub-prime mortgage meltdown in terms that we laymen can understand.  More importantly, he chronicles the steps that three financial entities took to gamble that a debacle was coming and therefore profit from it.  These guys all recognized that the so-called financial experts weren't.  The real culprits, though, seem to have been the ratings agencies, Moody and Standard & Poor, who were feeding the frenzy with ridiculous AAA ratings on financial products made up of mortgages obtained by consumers who couldn't possibly afford them.  As always, Michael Lewis has examples that will blow your mind.  So how did anyone profit from the collapse of the bond market?  They bought insurance against it, in the form of a product called a credit default swap.  And, you ask, who would sell insurance on risky mortgages?  AIG, of course!  The three profiteers are a 3-man group called Cornwall Capital whose only investors were themselves, plus 2 hedge funds.  There's actually one more guy, Greg Lippmann, a trader at Deutsche Bank, who also foresaw what was about to go down, and bought some credit default swaps also.  He persevered in wooing one of the hedge funds, whose principals kept asking, "How are you going to f--- me?"  In short, the credit default swap buyers were very nervous that this opportunity couldn't possibly be real but invested millions anyway.  They reaped many more millions in returns.