Sunday, March 27, 2016

Movie Review: The Big Short

The Big Short, starring Brad Pitt, Steve Carrel, and Christian Bale, is a film about three groups of people who independently foresaw the collapse of the 2008 housing market two or three years before it happened.  They 'shorted' the mortgage bond market or bought "swaps", betting against the market, and made billion dollar fortunes.  The story is supposedly true.

The first group, Steve Carrel's group, is led by Mark Baum who leads some kind of investment group linked with Merrill Lynch.  His group bets their investors' money on the mortgage industry collapsing.  They even go to Florida, one of the first states to show weakness, and interview loan officers, real estate agents, and all real estate parties involved.  Lenders love to prey on immigrants and poor people who just want to "own" a home and don't bother to read the terms of the loan.  They also push through mortgages for people with ultra-low credit scores, anything to get their loan commissions..  All of these risky mortgages are being packaged into supposedly "safe" or "AAA rated" mortgages.  In one scene a landlord gets a mortgage on a beautiful home while using his dog's name.  They also learn that no one is paying their mortgage yet these mortgage bonds are lying about the low risk investment.
The second group is one man, Christian Bale's character, a doctor.  He is a bit of an eccentric financial guy.  He wears no shoes, t-shirts, and jams metal music while working.  However, he is brilliant.  He is one of the few people in America who actually read what is in these so-called mortgage bonds.  Most of the mortgages are five year ARMs or balloon mortgages.  A five-year ARM allows the borrower to pay a smaller mortgage for the first five years and then the mortgage goes way up.  Again, going by the low credit scores and annual income of the borrowers, he predicts that once the five year ARM mortgages expire, homeowners will default on the loans.  He bets all of his and his clients money on the banks failing.  In fact, there is no such bet or counter-fund to do that and he has the banks create a way for him to bet against the mortgage industry.  Again, he finds out the rating system of Standard and Poor and Moody is falsely propping up the industry and delaying his big pay day.  Once the first round of five year ARMs was up, the garbage mortgage backed security bonds were still claiming everything was okay.  Another year went by before everything collapsed.
The third group of investors are two young men who notice that the mortgage industry could not survive.  They enlist Brad Pitt as their money man and bet against the banks.
On a side note, the movie also talks about CDOs which act as a side bet to whether or not mortgage payers would pay their mortgages.  Then there was another way to "invest" by synthetic CDOs which was a side bet to a side bet.  The movie did not go into it, but I wonder if CEOs of these mortgage companies bet against their companies on the mortgages failing....
At the end of the story Mark Baum debates the head of Bear Sterns who seems unconcerned with the garbage bonds that he and his company sold.  We all know what else happened.  Obama bailed out Wall Street and the mortgage industry and once again, the good ol' tax payer bails the greedy corporate world out of their irresponsibility and fraud.  One person out of the thousands involved went to jail.  Millions lost their homes wound up in financial trouble.
My Review: This is one of those movies that everyone should see.  The media did a horrible job explaining and covering the corruption of the mortgage industry.  No one called Obama out for bailing out these crooks with American tax dollars and no one called out Paulsen and Greenspan for promoting the irresponsible banking policies.  SEC and the Attorney General should have sent them all to jail for defrauding their investors.  A bond with a triple A rating is supposed to be safe and they knew damn well that these bonds were garbage.  And what about Standard and Poor?  Moody?  They are supposed to rate these bonds without bias, yet they gave the companies the best rating knowing full well that these bonds were worthless.  Carrell's character, Mark Baum, should run for president.
I loved the documentary, Inside Job, narrated by Matt Damen which had the same theme-Wall Street owns the government and we are all screwed!  Seems like that has become the American way. Leave a comment.  Love to hear from you.


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