The Big Short is a fantastic book and Adam McKay made a fantastic movie adaptation of it.
The basic premise: a few clever guys figured out that the mortgage securities market was due for a collapse so they bet millions against it and ended up making billions.
The movie does a great job explaining complex topics in a simple, accessible way. "Synthetic CDOs" were particularly well-explained as "betting on people making bets in a blackjack game in a casino."
I read the book this movie was based on and "synthetic CDOs" were the most horrifying, incomprehensible thing in the book. I had to re-read the section on it three times and even then, was like "THIS CAN'T BE RIGHT?!?" But nope- it really happened. They were real. Movie confirms it.
The whole thing is incredibly disturbing. Even more sad when you think about how the financial market has kept on going over the last few years. Nothing's changed. Market players are as crooked and awful as ever.
Why? Because nobody was ever punished.
This movie was compared to Wolf of Wall Street, but the difference is that the sleazebag in that story actually got punished. He did time and he still has fines to pay. (UPDATE: a bank involved in these shenanigans actually was fined a few days ago. It's still nothing compared to the amount they were raking in, plus there have STILL been no individual prosecutions.)
The Big Short is particularly trenchant because its story involves a LOT of good everyday people losing their homes and getting their credit and financial lives ruined not because they were stupid or greedy, but just because they were naive and trusted that banks wouldn't lend them money unless they believed they could pay them back.
But as this movie explains- there was a total disconnect between risk and responsibility there. The lenders had zero incentive to make sure they would be paid back, since they just passed the loans on to other banks before the ink on the mortgage paperwork was dry.
And this is where I break the fourth wall and tell you that I was part of this story.
I got my first home loan thanks to this financial madness. In 2004, my wife and I were making near-minimum wage. I was a movie theater assistant manager making about $6 an hour. She was a retail worker making about $7 an hour. Both of our retail jobs were part-time and we had no additional income sources.
Did we sound like a good bet for a 30-year mortgage?
Countrywide sure thought so!
Countrywide was the worst offender for signing poor people up for ballooning-rate mortgages that could never be paid back. My mortgage was one of millions that was bundled together with other high-risk mortgages and sold as a mortgage bond. (And then possibly converted to a CDO, and then possibly a synthetic CDO on top of that...)
And thanks to these idiotic crooks, we got approved for a home loan that was like five times our yearly income.
Countrywide was one of the first places to implode when the housing market disintegrated. We ended up writing our monthly checks to a half-dozen other banks and mortgage companies amidst this chaos as our mortgage was thrown around like a hot potato.
But here's the thing: despite our limited finances, we never defaulted. We never even missed a payment. Because we were fiscally responsible. We didn't make a lot, but we had no student loans, credit card debt, or car payments. So- not that it mattered to our lenders- we were actually a good risk.
We got our second loan for our second house through Countrywide, too. Again- it was for more than we had any business borrowing. And again- they didn't care. And we could handle it.
But an average person with our economic credentials really really really shouldn't have been borrowing that much. It was surreal.
Now it wasn't all just evil banks being evil. There were people that refinanced their mortgages and took out money against the value of their home. It wouldn't be unfair to call those choices greedy and/or stupid. (I did the opposite- I've refinanced my home three times, but used my savings to PAY DOWN the mortgage balance and get a better rate each time. I've ultimately reduced my monthly payments by $400. I'm the only person I know who has done this. I recommend it.)
Thankfully, I wasn't one of the people who suffered as a result of the events in The Big Short. But I came darned close.
Almost no one who suffered because of the collapse didn't deserve to suffer. And almost all of the people at the top who actually deserved to suffer didn't suffer at all.
If you don't laugh, you'll cry.
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