‘The Big Short’ redux
January 25, 2016
The end scroll in the movie "The Big Short" issues a warning: "In 2015, several large banks started selling billions in something called a 'bespoke tranche opportunity,' which, according to The Wall Street Journal, is just another name for a CDO."
Bloomberg Business reported: "Like collateralized debt obligations (CDO) or credit-default swaps, a marriage of the two terms (using leverage, of course) is making a comeback — it's just being called something else."
The financial website Think Progress stated: "Goodbye, collateralized debt obligations. Hello, bespoke tranche opportunities. Banks including Goldman Sachs are marketing that newfangled product, and total sales leaped from under $5 billion in 2013 to $20 billion in 2014."
There was no moral to the story of the 2008 Great Recession, only a sad truth: When you put the same people who failed to foresee the mortgage meltdown in charge of reform, you get no reform at all. What you get is lack of accountability and business as usual.
"The Big Short" is a movie worth seeing. It reveals how human foibles within the free market can mangle American capitalism at the expense of pawns across the national spectrum.
The movie sums it up: "When the dust settled from the collapse, $5 trillion in pension money, real estate value, 401(k), savings and bonds had disappeared — 8 million people lost their jobs; 6 million lost their homes. And that was just in the U.S.A."
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Jared, one of the film's characters, explains: "The big banks took the money the American people gave them and used it to lobby the Congress to kill big reform. And then America blamed immigrants and poor people and the teachers."
"The Big Short," taken from the book of the same name by Michael Lewis, describes financial malfeasance on a vast scale perpetrated through greed and stupidity. Such institutional malfeasance is nothing new in the U.S., nor is it unique to finance.
It has played out in disastrous military actions, failed diplomacy, environmental cataclysms, privacy invasions and police brutality. It is the scandal de jour in Flint, Michigan. Most "mistakes" are covered up until an ethical individual blows the whistle — rare individuals like Edward Snowden.
It is telling that the words I wrote in my June 2010 column, when I first read "The Big Short," are germane today: "What brought down the U.S. economy was tranche warfare against the financial world and engineered by the best and brightest financial minds. They invented a confusing lexicon intended to limit competition, befuddle bosses, bewilder regulators and obfuscate customers while leveraging bad debt against unsustainable aspirations for the American Dream.
"Not only were these money changers doing business in the temple, they were the self-proclaimed high priests babbling oracular incoherencies that only other high priests could interpret.
"The lure of untold wealth overcame ethics and conscience due to a deficit of personal and institutional values. After the crash, the U.S. government backed up the rip-off artists, making it clear that free-market risks apply only to those who struggle on the bottom tiers, sparing those who are 'too big to fail.' Taxpayers underwrote the failed executives who were paid outrageous bonuses and still hold handsomely paid jobs."
How can we not condemn as criminals the errant money managers who bought and sold America, costing billions in taxpayer dollars? Anger is a natural reaction. So is mourning. A friend, after seeing "The Big Short," said, "Leaving that movie was like leaving a funeral."
Those billions could have been much better spent on health care, education, alternative energy, environment, mass transit — you name it. The only consolation would be if the economic collapse inspired an infusion of ennobling values into American capitalism. If you believe that, it's time we talk about the Tooth Fairy.
A foreboding sidelight to "The Big Short" came in the final end scroll about Dr. Michael Burry, who was among the first financial wizards to recognize the mortgage meltdown.
"Dr. Burry still does small investing, but in just one commodity: water."
Now there's a commodity I can understand. Talk about liquid assets!
Paul Andersen's column appears Mondays when he's not trying to market a restructured, renamed debt obligation for a subprime mezzanine tranche. Unscrupulous investors can reach him at email@example.com.
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