The Big Short – A Well Acted But Sometimes Boring and Incomplete Documentary

The Big Short got a split vote in our home. Tony loved it – Marty was generally bored and having been in the business during that time I felt the screen play overly narrowed the focus of the root causes (plural) of the Great Recession of 2008 – putting the blame or credit if you will at the feet of too few players in the Financial Sector.

If I were just writing about the Big Short as a piece of entertainment I would say it was well written, directed and acted. As my friend Curt Fonger said “Larry – this should be required viewing for all young adults.” I agree but if you aren’t really interested in Economics or the significant decline in the Real Estate market and resultant loss of jobs, etc. this movie may not interest you. I would not describe the Big Short as a “general interest” movie and can recommend it only to people with some interest in the topic.

I agree with the premise of the film that unscrupulous Commercial Bankers, Investment Bankers and Mortgage Brokers committed fraud, deceit on the investing public, colluded and were for the most part well rewarded for their bad deeds. Other than Bear Stearns and a few Mortgage Brokers the doers of these evil deeds escaped virtually unscathed and you and I – the little people – the outsiders – otherwise known as the tax payers picked up the bill. As far as The Big Short went I agreed with the events as they were described.

What did they miss! In my view:
1.”Mark to Market Accounting” FAS 115 (1993) and FAS 124 (1995)
2. An overreaching yet protective NYC Fed – Timothy Geither, President
3. The US Treasury Department headed by ex Goldman Chairman and CEO Hank Paulson and
4. General IGNORANCE of what was going on in the Mortgage Backed Securities (MBS) Market and it’s Derivatives by the ratings agencies (Moody’s and Standard & Poors) – The SEC, President Bush and both Houses of Congress.

At the risk of putting you sound to sleep – the base of the mountain of the collapse – in my opinion – began when Congress rolled over and acquiesced to the position put forth by the SEC that every item on a Commercial Bank’s Balance sheet – be it a 30 day UST Bill or a 30 Year MBS had to be “marked to market.” In other works if the value of a Bank’s long term asset declined the Bank had to recognize that loss on it’s balance sheet in the current month – even though it had no intention of selling it in the current month or maybe never.

Additionally, and more to the point in the MBS Derivatives Market, sometimes there was no established market value for such products as High RISK MBS, High Risk Collateralized Mortgage Obligation (CMOs), Collateralized Debt Obligation (CDOs) and especially Credit Default Swaps (CDS).

Why does this matter? The President of the NYC Fed and the US Treasury Secretary knew full well that the largest Commercial Banks and Investment Banks held large positions in these products. If what could not be valued in a panic situation became valued at 10 cents on the dollar it’s Catie bar the door for America’s leading Financial Institutions.

This wasn’t about saving the homeowners and Mom’s and Pops of America – it was all about feathering the nest from which our Government leaders came – saving the Big Financial Institutions and sticking Mom and Pop tax payers with the bill.

What else could have been done say the talking heads? We had to bail out the big banks and allow them to continue to pay big salaries and fat bonuses.

Here’s what else could have been done. If unbiased – non-affiliated – not in the pocket Government leaders would have said “Stop – Calm Down – Take a Breath – Chill.” Let’s suspend this “mark to market business for a reasonable period of time – figure out what mortgages are really worth – assess both their present and potential future value and then in a calmer manner see what the Commercial and Investment Banks assets and their short and long term value really are.

For example: look at the real estate listings for homes in your neighborhood! The prices of homes in almost all real estate markets are back to or above where they were in 2008. The sky did not fall!

Correction – the sky did fall on the Mom’s and Pops tax payers who paid the bill for the TARP and the Big Bank Bailout.

Mercifully I will bring this to a close. Government did what Government always does. It protects the special interest and sticks it to the tax payer. And that my friends The Big Short got right.

Uncle Larry

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