The Podcast of the Lotus Eaters PREVIEW: Brokenomics | The Big Short
Oct 14, 2025
Dive into the financial crisis era as Dan delves into the intriguing mechanics behind ‘The Big Short.’ Discover how the 1997 Asian crisis supercharged U.S. housing prices through capital inflows. Explore the impact of low interest rates following the dot-com crash and risky lending practices spurred by lax regulations. Learn how complex financial instruments like mortgage-backed securities and credit default swaps created a facade of safety. Hear about Michael Burry's foresight in shorting the housing market and the challenges he faced with timing.
AI Snips
Chapters
Transcript
Episode notes
Foreign Capital Fueled The Housing Boom
- Massive foreign capital flowed into US markets after the 1997–98 Asian crisis and fueled a housing boom.
- That liquidity found the path of least resistance into mortgages and pushed prices steadily higher.
Cheap Money Amplified Risk
- After the dotcom crash the Fed slashed interest rates to around 1%, creating a cheap-money environment.
- Cheap credit encouraged leverage and amplified the housing bubble.
Policy Changes Weakened Underwriting
- Clinton-era housing policies and pressure on lenders expanded credit to lower-quality borrowers.
- That social-policy drive combined with securitisation weakened underwriting standards across the market.