Go See The Big Short, Please

Big Red Car here. Another crisp and beautiful day in paradise in the ATX. On Earth as it is in Texas, y’all! Oh, Hell, just move here.

So The Boss went to see The Big Short. He had been husbanding it for some time and last night finally went to see it.

Here is the report.

The Big Short is an excellent exposition of what went wrong in the housing scandal. It is OK to call it the “mousse in the hair investment banker housing financial derivatives scandal,” also.

It is a pretty damn good explanation and is based on Michael Lewis’ book of the same name. Go see it. The book is called: The Big Short, Inside the Doomsday Machine. [<<<<< That’s one of them there hyperlinks which takes y’all to Amazon where you can buy the book for your Kindle or buy it used. Used books have the same words as new books, just cheaper.]

It is a good read and you should probably read the book in conjunction with the movie.

There are several interesting things that you have to take away from the experience.

1. Nobody went to jail for train wrecking the US economy. Trillions of dollars of value were shitcanned. Lots of jobs were lost. Pension funds were decimated. People were devastated. Lots of fraud.

Nobody went to jail. You wonder who runs America? It’s Wall Street and, maybe, it’s the Goldman Sachs guys who run the Treasury.

Paulson, the Sec Treasury and former Goldman Sachs Chairman, was picking the winners and losers, not the President.

2. The products, the financial derivatives, the financial equivalent of C-4 were created by kids with mousse in their hair who were essentially unsupervised. Their companies did not supervise them. The United States Securities and Exchange Commission did not supervise them. The Federal Reserve did not object. Kids.

3. The lack of adult leadership and discipline was widespread, pervasive, and fraudulent. This was not a second dessert; this was eating an entire New York cheese cake and then asking for seconds. Sitting in your bed, unwashed, naked watching reruns. Drinking warm beer and puking. It was disgusting.

4. The rating agencies gave out their blessings with a “pay for play” sanctimoniousness that would embarrass Tijuana whores. They should all go to jail for what they did (the opinion of a 50-year old Impala convertible and not The Boss, who is afraid of getting sued even for a bit of tongue in cheekiness).

5. The movie did not fairly present Alan Greenspan’s warning — the US should not be trading in securities that require more than a single index card to explain or that cannot be understood by a truck driver. [He said something like that but actually did nothing to rein them in.]

Do not take the word of The Big Red Car. Go see it. Go see it with someone who knows something about finance. Do not eat before you go or you will throw up.

We did this to ourselves fueled by one unflattering characteristic of capitalism — GREED.

Nobody went to jail.

If you do not like the movie, send me your ticket stub and I will refund your ticket price. [Twenty dollars shipping and handling, please.] Go see The Big Short.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Be good to yourself in 2016. Cause you deserve it.

  • sigmaalgebra

    Sure the mortgage financing bubble was a disaster. We could have gotten WWIII out of that. And, we did it to ourselves and much of the rest of the world.

    Glad to see the movie. For such a movie, typically I want the DVD. I’ll try to remember getting it when it’s cheap.

    But this story is now over 8 years old, and I did look into it before. Thanks to my little computer and some nice software for it, I can find my information right away.

    Here I will give my views. My motivation? Avoid killing 5+ billion people. My main approach? Argue for just good sense and, in particular, strongly against PC (political correctness).

    In particular, quite good is just one source,

    http://www.pbs.org/wgbh/pages/frontline/oral-history/financial-crisis/richard-kovacevich/

    a PBS Frontline interview with Richard Kovacevich, Chair, Wells Fargo (2001-09).

    The Web site has the full text of the interview, although the last time I was at the site getting all the text was a pain. I suffered the pain — with too much practice, have gotten better at that from grinding and cracking molars, being beaten like a rented mule, having barbed wire enemas, and doing self-inflicted, unanesthetized upper molar, root canal procedures.

    While the whole interview is very much worth reading, especially since we were less than the thickness of a really dry onion skin from WWIII and 5+ billion people killed, literally, no joke, just the single quote below is right on target — not the whole target, and the rest is crucial, but at or close to the center:

    Exactly. And we would just go around the room. And when they came to me, I would say: “This is toxic waste. We’re building a bubble. We’re not going to like the outcome. I’m very concerned.” And some other people would either say nothing or they might say: “We don’t see that concern. These things are performing fine. And we think option ARMs [adjustable rate mortgages] and negative amortization ARMs and low-doc and no-doc mortgages are OK.”

    And there was a difference of opinion.

    But for much of the rest of the target, why? Why? WHY? Why? WHY? GD, WHY?

    It was obvious. We’d seen the 1929 crash, the Great Depression, WWII — and, WTF, WHY?

    I’ll tell you why. This is a no-PC site and time. When avoiding 5+ billion deaths, no place for PC.

    Ever hear of Franklin Raines?

    Well, you can at:

    https://en.wikipedia.org/wiki/Franklin_Raines

    with

    Franklin Delano “Frank” Raines (born January 14, 1949) is an American business executive. He is the former chairman and chief executive officer of the Federal National Mortgage Association, commonly known as Fannie Mae, who served as White House budget director under President Bill Clinton. His role leading Fannie Mae has come under scrutiny.

    Well, it doesn’t look right away like he wants to kill 5+ billion people, but IMHO he came really close.

    WTF, WHY? WTF, WHY? WTF, WHY? WTF, WHY?

    And HOW? How to kill 5+ billion people?

    Sure: PC. Or, rampant, out of control humanism, with decision making via the usual definition of art as the “communication, interpretation of human emotion, experience”, or as in a current Internet ad by Hefty plastic bags, “fuzzy, bunny play time”, instead of realistic, practical and effective, deliberately brain-dead, wishful thinking, irresponsible, dangerous play time on the way to killing 5+ billion people — how’s that for some “human experience”?

    Sure, responsible men are embarrassed and ashamed to be associated with such art due to not wanting to be seen as part of irresponsible, overly emotional, irrational “fuzzy bunny play time”.

    Or, as at

    https://en.wikipedia.org/wiki/John_Bradford

    is John Bradford, and at

    https://en.wiktionary.org/wiki/there_but_for_the_grace_of_God_go_I

    with the famous

    there but for the grace of God go I

    or as put there

    1. A recognition that others’ misfortune could be one’s own, if it weren’t for the blessing of the Divine, or for one’s luck.

    2. Humankind’s fate is in God’s hands.

    3. More generally, our fate is not entirely in our own hands.

    Gee, since we have no control, we should just give up and be irresponsible, right? No thanks.

    So, the PC reaction is, as long as anyone is suffering, we are all at risk of suffering and, thus, should all join hands, sing Kumbayah, and have afternoon sessions of group bonding with fuzzy, bunny play time.

    So, in particular, as at

    https://en.wikipedia.org/wiki/Alexis_de_Tocqueville

    for an insightful French guy Alexis de Tocqueville, 1805 — 1859, visitor to the US and author of Democracy in America with, for a brief summary, exposing the facts and threats of slavery in the US.

    So, at least since de Tocqueville, the US has had, say, a race problem. No joke.

    Whatever think of the Civil War or the movie Gone with the Wind, the US has had a race problem. I grew up in Memphis, from two parents from the north, who wanted nothing to do with the race problem, brought to Memphis due to Dad’s job with the US Navy, and saw that, yup, Memphis had a race problem.

    The US still has a race problem.

    The US has long known it had a race problem.

    Did I mention that the US has had a race problem?

    Let’s be clear here: The US has had a race problem.

    The US still has a race problem.

    We’ve got it now about that race problem. Right?

    During the Presidency of Jimmy Carter, 1977 — 1981, the US had a race problem, and Carter knew it.

    During the Presidency of Bill Clinton, 1993 — 2001, the US had a race problem, and Clinton knew it.

    During the Presidency of Bush 43, 2001 — 2009, the US had a race problem, and Bush knew it.

    And Jimmy, Bill, and George all tried to do something about the race problem.

    Why? A strong enough reason is just the suffering of Blacks and the Bradford

    there but for the grace of God go I

    Am I being clear enough?

    Me? Did I mention that in Memphis I saw the race problem? Well, I didn’t like it. And I was pleased as punch to get the hell out of the Deep, Old South ASAP and DID. I didn’t like the race problem. Since I’m a 100% WASP — white, Anglo Saxon, Protestant, a Presbyterian, father with an English name, mother with a German name — I’m not directly in the race problem. Still, I don’t like the race problem.

    Jimmy, Bill, and George didn’t like the race problem. Lots of people don’t like the race problem, and that’s been true back at least to, say, did I mention Alexis de Tocqueville. We’re not talking new or unknown. Instead we’re talking old and obvious.

    And has it hurt? Well, what about the Civil War? How many people died there?

    Yup, the race problem.

    Well, one part of the suffering of the Blacks is that they have a tough time owning a three bedroom, two bath house in a nice neighborhood in the suburbs with good roads, schools, shopping, police, two late model cars, etc. Tough time. Super tough time.

    No doubt Jimmy, Bill, and George all saw this part of the race problem.

    So, since a politician is not in science, engineering, the military at war, medicine, business, or even law where it matters, they are free to dream up ideas from smoking funny stuff and express their ideas from out of their asses — like the American College of Surgeons said about an Obama remark on the cost of a medical procedure, uninformed, misinformed, just plain wrong, dangerous. Also, brain-dead, disgusting, outrageous — little things like those.

    Yes, I’m being PC incorrect and pejorative. I’m not pissed off. I’ve been pissed off. This is way beyond pissed off.

    That humanism that leads us toward a global economic train-wreck, WWIII, and the deaths of 5+ billion people is a grand disservice to humans. Gotta leave fuzzy bunny play time back in the opera house. Else we can return to the opera house to hear what PC really sounds like, at

    with Wagner’s the “Death of Siegfried” from Götterdämmerung, Klaus Tennstedt, London Philharmonic.

    If can’t be convinced any other way to be responsible, then try this part of Wagner’s music.

    So, Jimmy, Bill, and George wanted to push out ass-gas for some ways to solve the race problem.

    So, with the long history of despicable failure from treating symptoms instead of causes, they tried yet again: So,

    Symptom 1

    The poor Blacks have a tough time getting middle class educations, jobs, careers, and incomes.

    Yup.

    So, treat the symptom — arrange so that some Blacks can have those and, thus, alleviate those symptoms.

    Then, hope, against nearly all reason, that treating the symptom instead of the cause will solve the problem.

    Hope? Well “break the cycle of poverty” or some such.

    E.g., have Bill promote Franklin Raines to White House Budget Director and later to head of Fannie Mae.

    Symptom 2

    The poor Blacks have a tough time owning a three bedroom, two bath house in a nice neighborhood in the suburbs with good roads, schools, shopping, police, etc. Tough time. Super tough time.

    Yup.

    So, treat the symptom — arrange so that some Blacks can have those and, thus, alleviate those symptoms.

    How to so arrange? Sure, have Franklin Raines underwrite the paper, including the toilet paper, even the used toilet paper, and, if a borrower doesn’t have any used toilet paper, then supply some.

    Hope? Well “break the cycle of poverty” or some such.

    Ass gas.

    Dangerous ass gas. Wreck the financial system, the economy, around the world, start WWIII, kill 5+ billion people.

    So, soon enough people in mortgage banking saw opportunities to make money out of used toilet paper, a lot of money, really bad, used toilet paper.

    Did I mention ass gas?

    Yup, the US has a race problem.

    But in response, in 2008 the world had a WWIII problem.

    For the complex derivatives, gee, I thought that those were just exploitations of Kakutani’s observation of the Brownian motion solution to the Dirichlet problem and later work, e.g.,

    R. M. Blumenthal, Markov Processes and Potential Theory.

    Joseph L. Doob, Classical Potential Theory and Its Probabilistic Counterpart.

    But, sure, such derivatives are vulnerable to funny stuff.

    Gee, still we can’t escape the trilogy. The trilogy. You know, the trilogy? It was the core of Wagner’s Der Ring des Nibelungen, Tolkien’s The Lord of the Rings, Lucas’s Star Wars and likely more — transgression, retribution, and redemption. We’ve got plenty of the transgression part and have had lots of retribution from the Civil War through lots of bad stuff to the crash of 2008 to, sorry ’bout that, “fundamentally transform America” — in case you didn’t get the memo or read it carefully, retribution and wipe out the US WASP culture and weaken the US as a world power.

    Warning

    Politicians’ ass gas, PC stuff, old themes from literature, opera, story telling, and movies do not constitute a good, rational foundation and, if used in important public policy, are darned dangerous as in WWIII and killing 5+ billion people.

    We shouldn’t do it. Don’t do it.

    Net, for 2008 we can’t really blame Wall Street. PC? Yes. Right? No. Instead, blame the PC stuff that put Franklin Raines into position to, and encourage him to, and to let him underwrite all the used toilet paper people could find in order to solve the US race problem by, say, trying to “break the cycle of poverty” or whatever. Then blame Jimmy, Bill, and George who saw the problem clearly coming and, because of PC, didn’t do anything about it.

    PC Catechism

    Something of a corollary of

    there but for the grace of God go I

    is that, everyone is equal so that at least on average, every group based on race, sex, national origin, etc. is just the same and should have lives just the same, and if the situation is otherwise then the blame is on all of the rest of us, a case of transgression, guilt, on the way to retribution.

    If you believe that, then tell it to some PBK Jewish kid trying to make it, as a player, not just an owner, in the NBA or NFL or beat the Kenyans in the Boston Marathon. The little Jewish kid can train for all his body can take, and then some barefoot teenager from Kenya, who never deliberately trained for even a second in his life, can run circles around him for the full 26 miles and then do another 26. And that’s barefoot — still better with a good pair of shoes. Equal? Hell no. The Jewish kid will need a motorcycle, at least a bicycle. To shoot over Lebron? He’ll need at least a step ladder. To crash through an NFL defensive line? Right away call the guys in the white suits with an ambulance and carrying a stretcher. And, BTW, can pick up the Jewish kid in the nickel seats.

    Sit down Virgina. You are cute and sweet, and very PC. But, sorry, Virginia, people, in a word, are different. They are just made that way. Don’t blame me. Blame Mother Nature.

    Virgina, Bette Midler and Rosie O’Donnell just will NOT get selected by the Kirov to dance the lead in The Nutcracker, Swan Lake, or Coppelia. Won’t happen!

    Short term, it can be comfortable to believe in PC. A little longer term, it can kill 5+ billion people.

    No one likes to see cute and sweet Virginia cry, and when the pressure of epidemics, war, depression, etc. are off, we go all soft and try to pander to Virginia — fuzzy bunny play time which stands to be deadly which very much is NOT PC.

    Sometimes I suspect that PC was some old Cold War very clever Communist propaganda to let the US media have a way to get headlines by making it easier for people to avoid the obvious while making public policy decisions that are disastrous. Or, the 2008 bubble blowing and its threat were totally obvious to any half awake half wit but was unspeakable due to PC.

  • FFNA

    BRC,

    Nice review. A couple of comments:

    Under number 1, you state: “Paulson, the Sec Treasury and former Goldman Sachs Chairman, was
    picking the winners and losers, not the President.” Don’t think either Paulson or the President
    should be picking winners and losers. That should be the market’s job. But, of course the government won’t let that happen.

    The film goes very lightly on the main cause of the collapse, namely Fed policy and government regulation and legislation. You can hardly blame the notoriously narcissistic Wall Streeters for behaving in a manner encouraged by those public institutions. Bad behavior must have consequences to have an efficient market. No real consequences here for the bad behavior for the big guys, both public and private. You are right, no one went to jail, but many should have. The Republicans got thrown out of office for going along with Democrat policies, but official Washington kept humming along. The banks got bigger and the Fed more powerful. Legislation accelerated and Marxist tactics and policies became normalized.

    Markets cannot work efficiently under the current regime. Price signaling is massively distorted. Controlled interest rates cannot price risk into transactions. The bad actors are winning and the “little guy” pays the tab.

    • JLM

      .
      Agreeing with all that you say but the big story is the wholesale fraud.

      Fraud at the borrower level, the mortgage banker level, the securitization level, the ratings agency level, and the biggest one — going long on floor six and short on floor nine.

      The investment banks were betting — poorly — against their own customers.

      It is incomprehensible how nobody went to jail. Incomprehensible.

      Markets cannot be efficient if one of the inputs is fraud. Markets require market driven, free decision making behavior to be efficient.

      When one part of the market is rigged, it cannot be efficient.

      BRC
      http://www.themusingsofthebigredcar.com

  • JLM

    .

    The story of The Big Short will make you sick. Go see it and understand how venal and fragile the public markets really are. It is an interesting and entertaining movie. Read the book.

    http://themusingsofthebigredcar.com/go-see-the-big-short-please/

    BRC
    http://www.themusingsofthebigredcar.com

    • sigmaalgebra

      > The story of The Big Short will make you sick.

      I can believe that. The whole 2008 thing has made me sick several times already. I did like the Frontline piece I referenced although it didn’t concentrate on just the opportunities to short the used toilet paper just before the crash.

      My guess: Fanny Mae was supporting great, huge bubbles of used toilet paper, and some Wall Street guys found a way to short the whole stinking mess. It took a while, but finally the bubble burst, and the shorts made a bundle. Of course, as the prices fall, the account shows net assets that, then, can be used to do more shorts.

      > Go see it and understand
      how venal and fragile the public markets really are.

      I can believe that. It goes with all I read about 1929 and other movies about Wall Street. And the problem is not just Wall Street — politics, the newsies, and Main Street also get involved.

      I read lots of stuff on the 1929 crash, the Great Depression, and WWII and am fully convinced that the 1929 crash, based on grotesque stupidity, caused the Great Depression and WWII and the deaths of ballpark 50 million people. Fully convinced.

      Basically nearly all the money, heavily from the multiplier effect of fractional reserve banking, in the economy was destroyed; we needed to print more money to replace what was destroyed; when we did it worked great and we got a job for everyone in 90 days; but we refused to print the money until people started shooting at us; and in the meanwhile, 12 years, we created some really severe losses of social capital that are still with us — brain-dead, dangerously dumb, and we could do something that dumb again. My wife’s death was an echo of The Great Depression. My mother’s determined social climbing was another one. A lot of families were made, and remain, desperately anxiety ridden, afraid of “the hostile forces of society”. It was really dumb and a really big loss.

      Bernanke said that he didn’t want to be the head of the Fed that caused the second Great Depression, and he wasn’t, but he could have been. At least the Great Depression from a bubble that burst on Wall Street taught him the main lesson.

      I typed in my long post fully convinced that in 2008 we were less than the thickness of an onion skin from WWIII and 5+ billion deaths. No joke. And I don’t think we are much smarter now.

      > It is an
      interesting and entertaining movie.

      I can believe that.

      However, I did buy the DVD of Moneyball and learned again that no way will a movie tell anything about a story based significantly on applied math. And for the 2008 disaster, part of the problem was some of the derivatives, and, really, there can be a lot of quite deep math behind those, as in the two references I gave. Much of that math, e.g., for a simple case, Black-Scholes, is close to my Ph.D. dissertation math in stochastic optimal control. But I have to guess that no way will the movie go into the math, not even the crazy, crude, awful approximation they had to variance.

      > Read the book.

      Ah, I do look forward to the movie as a first filter. Maybe then the book. But for my bedside reading I already have E. Cartan, Differential Forms Mostly I’m writing, applied math and corresponding software, not reading.

      But for going to see a movie? Haven’t been in years. Are there still movie theaters? One reason for getting a DVD for any movie of any value is that I can watch the thing over and over and commonly do. If the DVD is out, maybe I’ll pay up for it — between a movie ticket and a gallon of popcorn, the DVD price is not so bad!

      Yes, I’m 70 miles north of Wall Street and at one time did very much want to work in applied math there, but I never found the back side, secret door and magic handshake. For now, my interests are quite far from Wall Street. I’m still interested in money but via my own company.