The Big Short

11 Jul

The “Great Recession” of A.D. 2008 was triggered by the systemic failure of Collateralized Debt Obligations (CDOs).  These CDOs failed because they were supposed to composed of AAA-rated mortgages, but were, in fact, full of “sub-prime” adjustable-rate mortgages.  Many of these sub-prime, adjustable-rate mortgage were virtually guaranteed to default when their “adjustable rates” were adjusted upward in A.D. 2007.

And that’s just what happened.  The adjustable mortgage rates rose in A.D. 2007.  Sub-prime mortgagors began to default on their mortgages and the CDOs began to collapse.  Result?  The U.S. and global economies nearly collapsed into an depression.

As many of you may know, The Big Short is a motion-picture that describes the causes and chaos that engulfed Wall Street when the CDO’s failed.  I don’t think the movie is for everyone, but it should be.  It provides a very realistic insight into how big-time, wheeler-dealer business (especially on Wall Street) is actually conducted.

Even though most people won’t watch the whole movie, the film strikes me as brilliant.

I could draw a number of lessons from the film, but one that crosses my mind is something about the dangers of salesmen.  Salesmen know how to sell.  That knowledge of how to sell is often unsullied by any need to understand the nature of whatever product is being sold or the ethical consequences to others if the sale is completed.  From the salesman’s perspective, the objective is make the sale by any means necessary.  There’s no question of ethics or morality.  Make the sale, get the money and head for a topless bar.

I don’t suggest that every salesman is unethical.  I do suggest that most “big-time” salesmen of the sort your find on Wall Street and in Congress are immoral.

As I view it, The Big Short shows what happens when major banks, corporations and governmental institutions are ultimately run by salesmen rather than by managers (who actually have some understanding of their products and perhaps even the moral consequences of selling those products).  The amoral salesmen pushing the CDOs in the early 2000s were getting fabulously rich but had no clue to the contents of the CDOs they were selling.  In the end, the sale of CDOs was much like the Dutch “Tulip Mania” of A.D. 1637 when investors went wild buying nothing more than some lousy flowers.  Even though the CDOs were intrinsically worthless, virtually no one knew or bothered to inspect them.

The Big Short a great film.  It’s an A.D. 2015 release, so might be quickly pulled off the internet for copyright violations.  If you want to see it, you should watch it as soon as possible.

video      02:44:00

1 Comment

Posted by on July 11, 2016 in Banking, Bonds, Video



One response to “The Big Short

  1. Peg-Powers

    July 11, 2016 at 9:41 PM

    I think this movie depicts a type of devilish warfare against the American middle class society.

    Someone important once said: “nothing happens in America unless it’s already approved politically”. So when are we going to wake up? This movie is a view into the dripping frothy mouth of evil fraud upon innocent uneducated people who never do read or understand the fine print of a bank mortgage nor understand interest rates nor the ultimate destruction waiting in the shadows.

    I know—–My niece and her husband experienced all the ugly fruits of this evil upon our “middle class”. They lost their new home in Nevada. He got drunk and ended up in a prison for five years just because he possessed a gun. And she became a welfare cracker waiting in an Obumercare line for a hip replacement. And that’s the picture of a mission accomplished for someone. Do you wonder who is at war with the kind, generous, innocent families of this nation?

    Also, there are movie scenes and lines which are absolutely a joke (propaganda), and quite deceptive, but I will laugh it away.


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