*** 26-Dec-15 World View -- 'The Big Short' - an infuriating movie about the financial crisis
The Big Short
I saw the movie "The Big Short" yesterday (Christmas), and found
myself becoming increasingly upset and infuriated as it went along.
The movie is a description of the financial crisis, based on Michael
Lewis's bestselling book "The Big Short: Inside the Doomsday Machine."
The main characters are money managers Michael Burry (Christian Bale)
and Mark Baum (Steve Carell), who foresaw the crisis and found ways to
make over a billion dollars profit from it. They foresaw that the
housing market and the supporting subprime mortgages were going to
crash, and they found a way, using credit default swaps, to bet that
the housing market would crash, and they won.
Along with them is a supporting cast of stupid, sleazy bankers and
real estate brokers who sold subprime mortgages, created the
fraudulent subprime mortgaged backed synthetic securities, and
defrauded investors.
In many ways the movie is a comedy because the material is presented
in a clever way. For example, the movie might cut to a girl taking a
bubble bath who looks into the camera and describes a type of
investment; or to a chef who chops up three-day-old fish (representing
rancid investments) and throws them into a pot to make fish stew
(representing collateralized debt obligations or CDOs). A lot of the
movie takes place in Las Vegas, so there are a lot of pretty
semi-dressed girls as backdrop. The purpose was to make this
super-dry financial stuff interesting enough to make it interesting to
the audience. Those who see the movie and want to understand the
mathematics behind CDOs and credit default swaps can read my January
2008 article,
"A primer on financial engineering and structured finance".
In the movie, Baum spoke to mortgage consultants who bragged about
selling huge subprime mortgages to people with no jobs, no income, and
absolutely no chance of meeting the mortgage payments. The bank lends
the money for the interest-only mortgage and the banker gets a huge
commission; the mortgage consultant gets a huge commission; the
mortgagor gets to move into his new house, and will stay there until
the interest-only period ends, and then he gets evicted and screwed.
The total immorality of the mortgage consultants and bankers, bragging
how they screwed people, is clear.
Baum visited a stripper who had gotten a mortgage through the
consultants. He had to pay her fee for an hour of her time in order
to interview her. He told her that her mortgage payment would soon
double or triple. After learning that, she was no longer pretty.
Baum went to Florida and found developments with hundreds of houses,
almost all abandoned because the owners had been foreclosed. The few
people left looked like they were staring death in the face.
Baum also visited a money manager who had merged thousands of faulty
subprime mortgages, knowing that they would default, and created the
CDOs and CDOs-squared other fraudulent securities that he sold to
investors as AAA investments.
Baum visited someone at the S&P Rating Service to ask why the
synthetic bonds were still rated AAA, even after large numbers of
subprime mortgages had gone into default. He was told that the banks
had paid them to give them the AAA rating, and that if they refused,
the bank would go to Moody's, a competitor. In other words, the S&P
Rating Service did not actually rate the fraudulent bonds; they simply
gave an AAA rating because they were paid by the bank to do so.
I saw all this stuff going on and I became angrier and angrier. As
long-time readers know, I've been writing about the housing bubble
since 2004, and how it was going to cause a financial crisis. (From
July 2004:
"Real estate is in an overpriced bubble all over the world"
) I've been angry for
years about what was going on, and what this movie did is bring back
all that upset and anger in one huge clump. (Don't worry. I didn't
go ballistic, but fumed in silence.)
And there were so many levels on which this movie infuriated me.
First, this movie was full of crooks, some of whom made thousands and
other who made hundreds of millions -- on the backs of families who
lost their homes and jobs and went bankrupt. But now, in 2015, not
one goddam one of them has even been prosecuted and sent to jail.
The Obama Justice Department has adamantly refused to prosecute
anyone, because they all used a portion of their fraudulently obtained
millions to make large contributions to the Obama campaign or projects
sponsored by Obama. Not one single person has been prosecuted.
They're all in the same jobs, able to find new ways to defraud people
-- as we've seen in the Libor and Forex scandals -- and continue to
pay off the Washington politicians.
Prior to the 2000s, I would never have believed that this massive
level of corruption and criminality was possible in the United States.
Maybe in Russia, maybe in China, but not in the United States. It was
only made possible with the rise of Generation-X in the 2000s.
The second infuriating thing is that so many mainstream economists and
bank managers and politicians claim they never saw the financial
crisis coming. They didn't even know there was a housing bubble until
well after the financial crisis began.
And my question, the one that I've asked myself over and over for
years, is: If none of these people knew that there was a housing
bubble, then how the frigging hell did I know it in 2004? And why,
year after year, did people I tried to explain it to treat me as a
pariah? (Yes, this has gotten very personal for me.)
The fact is that I've concluded long ago that they weren't caught by
surprise at all. The Gen-Xers who created the fraudulent synthetic
securities had by and large graduated with Masters degrees in
Financial Engineering in the 1990s. Many Gen-Xers (including Obama
himself) were children of divorce and hated their fathers and their
fathers' generation. There's huge amounts of stuff on the internet
about this. So when the Nasdaq crash occurred in 2000, they blamed it
on their fathers' generation, and purposely sold them fraudulent
securities to get even with them.
What about the bank CEO and other top-level bank managers. Did they
know that they were defrauding the public?
Yes of course they did, and I'll explain why. In April 2010, Congress
interviewed numerous financial executives, including former Citigroup
CEO Charles Prince and former Citigroup Chairman Robert Rubin, who was
also the Treasury secretary in the Clinton administration. (See my
April 2010 article:
"Financial Crisis Inquiry hearings provide 'smoking gun' evidence of widespread criminal fraud")
Based on the testimony, the Committee concluded that these banks had
made investment claims that were mathematically impossible. In brief,
they had taken B and C rated securities, sliced and diced them into
CDOs, and came up with AAA rated securities with the same nominal
value, which is mathematically impossible. Commission member Byron
Georgiou said:
<QUOTE>"Yesterday I likened it to the medieval alchemy, and
today, as I study it more, I'm beginning to believe that maybe it
was hallucinatory."<END QUOTE>
Georgiou went on to summarize the "smoking gun" figures that proved
that fraud was committed, and that Charles Prince and Robert Rubin
must have known this. Prince and Rubin could not have understood the
mathematics behind the creation of the synthetic securities created by
Masters of Financial Engineering, but they certainly must have known
that when B-rated securities are turning into AAA-rated securities of
the same nominal value, then something illegal must be going on. In
other words, the Committee proved that Charles Prince and Robert Rubin
had committed criminal fraud, and that they should be prosecuted and,
if convicted, sent to jail.
After I wrote the 2010 article on the Commission hearings, I waited
for the investigations and prosecutions to begin. And of course they
never did. It was too lucrative for the Obama administration, who
needed those campaign contributions for the 2012 reelection campaign.
So all the criminals are still walking the streets or, more likely, at
their jobs criminally defrauding more people.
Going back to "The Big Short" movie now, the movie does not attempt to
sugar coat what happened. Although the movie does not name names of
bankster criminals, Baum and the others repeatedly make it clear that
these bankers and politicians know they're committing fraud, and
they're going to do nothing about it. In fact, probably the most
depressing moment for Baum in the movie is when he realizes that the
Justice Department is not only not going to prosecute these criminal
bankers, but is going to go further and bail them out with taxpayer
money, rewarding these crooks for their criminality.
S&P 500 Price/Earnings ratio at 22.95 on December 24, indicating a huge stock market bubble (WSJ)
The end of the movie also makes clear what I've been saying for years:
That crisis is far from over, and there's going to be a new round of
job loss, homelessness, and financial ruin for millions of people.
As I've repeated many times, Generational Dynamics predicts that we're
headed for a global financial panic and crisis. According to Friday's
Wall Street Journal, the S&P 500 Price/Earnings index (stock
valuations index) on Friday morning (December 24) was at an
astronomically high 22.95. This is far above the historical average
of 14, indicating that the stock market is in a huge bubble that could
burst at any time. Generational Dynamics predicts that the P/E ratio
will fall to the 5-6 range or lower, which is where it was as recently
as 1982, resulting in a Dow Jones Industrial Average of 3000 or lower.
This brings me to the final reason why this movie so infuriated and
upset me, and this is extremely personal. As I said, I knew in 2004
that there was a housing bubble, and I wrote about it many times.
Other people (such as Baum in the movie) figured it out and were able
to make millions of dollars, but all I get for getting it right is to
be treated as a pariah. My web site, using generational analysis, has
for years correctly predicted what would happen in the Mideast, in
Afghanistan, in Russia, in China, and so forth. There is no web site
or analyst or journalist in the world with anything like the
predictive and analytical success of my web site. But not only is
this apparently not of value to anyone, but it's brought me nothing
but misery, as I'm hated and shunned by many people, in some cases
even people I've known for years.
My story is the story of the mythical Cassandra. After her
predictions all came true and Troy was massacred, Cassandra was raped
and assaulted. My only hope is that when everything that Generational
Dynamics predicts comes true, my demise will be a lot quicker and a
lot less painful. For me, that's the lesson of "The Big Short."
Variety and
USA Today
KEYS: Generational Dynamics, The Big Short, Charles Prince, Robert Rubin,
Byron Georgiou, Cassandra
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3-Jan-16 World View - Mideast sectarian tensions surge as Iranians burn Saudi embassy
Originally Posted by Cynic Hero '86
