If there is anyone out there who still believes banks are the friend of the average citizen they should go and see the movie, “The Big Short”. Not without its humorous moments here and there, it is a damning indictment of the banking industry in the United States and by association the banking industry worldwide.
In a sense the film is a microcosm of all that’s wrong with 21st century humanity. We might think we are advancing in a whole host of healthy ways be it our living standards, technology, industrialisation and so on, but in fact we are devolving back to a modern version of serfdom where the vast majority are serving the interests of an ever smaller minority.
“The Big Short” gives us an insight into the obscene greed, the mindless stupidity and recklessness of the bankers whose sole interest and motivation is profit. Why shouldn’t it be, I hear you ask. Because the sort of profit we are talking about here is not the product of hard work.
It’s a profit that is made at the stroke of a keyboard with no consideration for who pays at the other end even though they know it will be a mortgagee who loses a house, a breadwinner a job, or a family their life savings. The bankers don’t give a rat’s hiss about that.
They gave us the GFC and, as we all know, the US government bailed them out and no one was called to account. The damage they caused reverberated around the world, millions lost their homes, their jobs, while the bankers paid themselves obscene bonuses with the bailout money.
The film gives us some idea of the financial product mix and the incredibly complicated manner in which these packages are put together. Sound mortgage securities on top (AAA rated), risky (A rated) in the middle and junk stock (B rated), underneath, all neatly packaged and rated AAA.
Selling them to unsuspecting investors was the easy part. The stupid part was that no one seemed to realise it would all come unstuck one day. Well, almost no one.
For those who did the math, a mere handful at the beginning, backing those CDSs (Credit Default Swaps) to fail (going short) was the pay cheque. All it took was one nervous financial house to do their sums, realise their exposure and start offloading their near worthless stock.
When the sell-off came, it caused a stampede on Wall Street and the rest is history. Those that went short cleaned up big. The rest went belly up. How this was not considered illegal was a failing of the unregulated, sloppy attitude regulatory authorities paid to what was happening.
It also brought to light how misinformed and delinquent was government oversight, and in particular the failures of the US Federal Reserve. But for us, today, the worst is yet to come. None of the changes introduced into the banking system since the GFC have prevented these corporate terrorists from giving us a repeat performance.
The CDOs (Collateralised Debt Obligations) have been rebranded to fuel another collapse. The MBSs (Mortgage Backed Securities) are being sold to a new generation of investors looking for higher returns.
Borrowers are highly leveraged, US interest rates are rising and there are any number of “experts” predicting when the pressure cooker will blow.
Private debt in Australian is currently at record levels. Another collapse will not see us able to avoid the fallout the way we did last time. Time will tell. I guess it all depends on who you believe and whether or not you think this is your lucky day.
But don’t expect any sympathy from the banks. That’s one product they don’t sell.
As Mark Twain said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
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