February 04, 2016

The Big Short - SEE THIS FILM!

Last weekend I finally had the opportunity to see this ground-breaking movie.  For those who aren't familiar, it's a docu-drama about the financial crash of 2008, and the events leading up to and causing it.  Ideally, every American should see this film and understand all of the elements which caused The Great Recession of 2008.  Realistically, the subject matter is quite complex, the dialogue moves a little fast at times, and not everyone will grasp all of the concepts.

There are still people who believe the housing bubble, crash, and bailout were largely the fault of poor people who took out mortgages they couldn't afford.  There are still people who believe Barney Frank is to blame because of the Economic Revitalization Act of 1994, compelling the banks to lend to poor people who couldn't afford their loans.  None of this is even remotely true.

See this film.  It's not fiction.  It's an incredible account of what actually happened, and what actually happened is that the banksters caused this meltdown through the intersection of greed, and deregulation, which opened the door to let them gamble with the people's money.  [SPOILER ALERT - don't read any further if you haven't seen the film and don't want to know the details yet.] But maybe you've seen it and want a refresher.  Anyway, here's my summary...
  • Mortgage bankers/brokers were enticing and luring people (many unworthy of loans), into Adjustable Rate Mortgages (ARMs), which had initially low payments.  But, interest rates skyrocketed shortly down the road.  It was predatory lending at it's worst.  One banker joked about "NINJa" loans (No Income No Job) to people who were obviously not qualified.  But they didn't care because they got their commissions either way.
  • Not only did they get their commissions by selling mortgages to people who were unqualified and obviously couldn't afford them (a.k.a. "Sub-prime"), they bundled many of those types of loans together into packages, and re-sold them in a secondary market.  Those packages were called "CDO's" (Collateralized Debt Obligations), and that secondary market was called the "Derivatives Market".  So, that originating bank collected their fees twice, and assumed none of the risk.  Cha-ching!
  • Those CDO's, which were full of garbage, were bought up by investment firms and pension fund managers because Standard and Poors gave the funds high ratings.  
  • Standard and Poors gave them high ratings because the banks holding the funds threatened to use Moody's instead.
  • The Securities and Exchange Commission (SEC), who was supposed to be policing this stuff, was underfunded and overwhelmed.  They were also in bed with the banks (you know, the ones with all the money), working towards their next job in the banking/investment sector.
  • As investment brokers/bankers started realizing that the CDO funds were full of trash, they started "shorting" on those funds (hence "The Big Short").  What does "shorting" mean?  It basically means they gambled on these funds defaulting.  They paid tens of millions of dollars in premiums on the gamble that the funds would default.  Upon defaulting, they would receive hundreds of millions of dollars because the odds were so high.  Why were the odds so high?  Because Standard and Poors kept rating the funds AA and AAA under pressure from the banks.  And how often do mutual funds of real estate portfolios default?  Never.... until 2008 when the shit hit the fan.
  • When the shit did hit the fan, several of the big investment firms went out of business, and the banks which were left standing got bailed out by the American taxpayers via George W. Bush. But Bush didn't believe in regulations, so the tax-payer money was basically just given to the banks without very many strings.  The banksters took care of their shareholders and gave themselves bonuses.
  • Meanwhile, many investment portfolios (i.e. the pensions of millions of Americans) were decimated.  Imagine working hard your whole life and saving up a nest egg, only to discover that your retirement savings are gone because a bunch of banksters got greedy.  Sorry, you can't retire... keep working!  Imagine losing your job as the world economy recoils, it's impossible to find a new job because there are so few jobs, and you're too old to be considered for most jobs.  And then Republicans cut Unemployment benefits, because of course, those living off "The System" are lazy freeloaders.  Pull yourself up by your bootstraps!


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