Saturday, December 26, 2015

"The Big Short", or why Wall Street predators should be jailed

The movie, "The Big Short" is a great, entertaining, funny and fun movie about a very serious topic, the collapse of the housing bubble in 2008 resulting in the near total collapse of the world economy.  It is a nice two hour education of the essentials of our Great Recession. It shows the crisis in this country of greed and avarice, and their necessary corollaries - heartless indifference to the consequent suffering of the many millions of middle class and working poor.  

The short summary is that the financial industry made fortunes by selling bad mortages to unqualified people, passed those bad mortgages along into bond funds called Mortgage Backed Securities made up of mostly highly risky mortgages, had them rated as safe AAA bonds, which corrupt bond traders fraudulently sold high risk investments as low risk safe investments to fools.  Fraud.  Greed.  Fortunes.  Multi-generational fortunes for the predators on the top of the greed pyramid. And they thought it was all fair game, to exploit the ignorance and stupidity of unqualified home buyers, and exploit the ignorance and stupidity of bond buyers, and exploit the ignorance and stupidity of giant financial institutions like pension funds.

Wall Street sucked enormous amounts of money out of the middle classes and payed themselves fortunes.  

The movie is about a small handful of men who saw that the the entire housing industry was a bubble built on fraud, and those men made fortunes betting that the bubble would burst, and the values of the mortgage backed securities would collapse along with the values of all the extraordinarily complex and opaque derivatives of those bonds. They foresaw the inevitable catastrophe.

One of the problems with our financial industry is that there is so much money being made by playing zero-sum games that have nothing to do with financing businesses and funding the economy. When the bright minds in banking spend all of their time creating various derivatives of things like mortgages the fundamental reason for banks seems to have gotten lost.  Rather than funding our capitalist system, they became leaches designed to suck capital out of the economy rather than feed it to make it stronger.

Of course, one of the points of the movie is the obvious truth that Wall Street has not reformed, they have only become more consolidated and powerful.  They had done all they could to gut the Dodd-Frank banking reform bill, and continue to pay enormous sums to continue to weaken it whenever they can.  They are coming up with new versions of mortgage backed securities, gulp. They have created flash trading  with super computers that give them insider information that steals more and more money out of the stock market before market moves become public.  They continue to apply their high IQs to the task of transferring money from the middle classes and poor working classes to build their fraudulent fortunes.

But, of course, none of them ever go jail.  They just pay some fines which are no more than the cost of doing business to them.  The greatest crime of all of course is that none of what they do is illegal. Why would it be? they write the laws. They own the politicians.  Who obey them.

Some books that I have read that tell these stories of this predatory greed:
  • "The Big Short" - Michael Lewis
  • "Too Big to Fail - Andrew Sorkin
  • "House of Cards" - William Cohen
  • "All the Devils are Here" - Bethany McLean and Joe Nocera
  • "Liar's Poker" - Michael Lewis
  • "Flash Boys" - Michael Lewis
They all tell the same story - smart guys figure out how to cheat the middle class and steal their savings in order to create their own massive fortunes.

The financial world has been out of balance for a long time.  I think putting some financial titans in jail would be a start to ending this fraudulent mind-set.  When did our brightest Ivy-Leaguers decide that the point of their educations was to become financial predators?

Time for a change.