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April 22, 2016- by Steven E. Greer
In 2007, I was in Boca Raton, Florida halfheartedly looking at houses, just testing the market. A stereotypical broker lady was driving me around bragging about how she was flipping houses and making huge profits.
I could have purchased a house without any proof of income. It was the honor system, which I thought was odd. It turns out that I was experiencing the sub-prime mortgage scam that led to CDO’s and the demise of the global economy.
When a wealthy surgeon I know asked me whether he should buy more investments being offered by The Carlyle Group, I warned him not to. This was 2007, right before the global financial collapse.
In the film “The Big Short”, there is a scene surreally similar to my experiences. It depicts the team of a hedge fund investigating the stability of the housing market, driving around with a broker who was pointing to houses and bragging about flipping them.
Rarely is the movie version better than the book, but in this case, “The Big Short” achieves that. Based on Michael Lewis’ book, the screenplay by director Adam McKay won the Oscar and the film was nominated for Best Picture. Christian Bale was also nominated for his excellent portrayal of the oddball medical-doctor-turned-contrarian-hedge-fund-investor (just like me).
This movie captures the essence of the biggest financial collapse in the history of the world, which was all caused by crooked dimwitted Wall Street bankers. Most people view Wall Street bankers as smart but unethical. What they do not realize is just how stone-cold-stupid they are. They rise amongst the ranks by sucking up and playing politics. The smartest people leave the sell-side banks for the buy-side.
It was these sheep, following the lead of Goldman Sachs, who loaded up their banks with toxic debt called CDO’s. They had no idea what a CDO was, or what they were made of, but Goldman was doing, so they did too. The bonds were AAA rated by the conflicted ratings agencies, who were paid by the banks, and everyone felt safe in the herd.
The film also accurately portrays the incompetence among the major newspapers, such as the Wall Street Journal. According to the movie, a hedge fund on to the housing bubble scam tried to get the Wall Street Journal to report it, but the journalist did not want to hurt the banks. That is an accurate portrayal because I have been there and done that many times with the Wall Street Journal.
The Big Short is a very enjoyable film with a great cast. Order it up.