In short order, the Salomon Brothers trading floor gave birth to small markets in bonds funded by all sorts of strange stuff: credit card receivables, aircraft leases, auto loans, health club dues. To invent a new market was only a matter of finding a new asset to hock. The most obvious untapped asset in America was still the home. People with first mortgages have vast amounts of equity locked up in their houses; why shouldn’t this untapped equity, too, be securitized?
Michael Lewis, The Big Short
The Big Short, the movie, is about to hit. With big name actors (Brad Pitt; Christian Bale; Ryan Gosling; Marisa Tomei; Melissa Leo; Steve Carell; and more). And the movie is adapted from the book by Michael Lewis.
Recently, the justice department basically admitted that fines are not enough. It is time to add criminal prosecutions to the mix, aimed at the people at the top when such abuse goes on. And we’ve just had a survey reveal that people don’t trust our corporations very much. (It was taken before the latest Volkswagen story broke). Read this article: Americans think corporations are getting it wrong.
Here’s how I summarized the “story” in the book, The Big Short, in a presentation for a client (in bullet points):
- bad loans
- unqualified borrowers
- imaginary investments
- “insurance” without reserves
- stupidity – incompetence (morons)
- fraud (crooks)
- teaser rates
- and – public companies on Wall Street!
- failure to plan for worst-case scenario
People, companies, (and yes, government agencies) can all get it wrong – terribly wrong. And so we have to be on the lookout. I think that may be one of the big messages from The Big Short.
I can’t wait to see the movie.
(I have presented synopses more books written by Michael Lewis than I have from any other author – I think. The list, off the top of my head: The New, New Thing; Moneyball; Boomerang; The Big Short; Flash Boys. I think he could write a book on how to develop a taste for asparagus, and I would read it. And I don’t like asparagus!).