Reading the book, and watching the film. Focusing more on the book, for there the characters are real, not fictionalised.
There’s something about the financial crash that grabs you. Now almost ten years ago, a mortgage securities crisis for heaven’s sake, we think this is someone else’s bed, but we’re all tucked in, and we’re all sucked in. There are big personalities, outsiders, outlaws almost, and big banks, and tanking economies. Michael Lewis makes a brilliant job telling the story, dissecting and explaining. I am now a little wiser, but not out of the wood.
We didn’t know it was happening. Quoting Michael Lewis:
The monster was exploding. Yet on the streets on Manhattan there was no sign that anything important had just happened. The fire that would affect all their lives was hidden from their view. That was the problem with money. What people did with it had consequences, but they were so remote from the original action that the mind never connected the one with the other.
Will Brexit just somehow slide into place, we’ll be a little bit poorer, but hardly notice, or a whole lot poorer, but we won’t notice because there won’t be too many crises on route, it won’t be harum-scarum? ‘(People) were so remote from the original action that the mind never connected the one with the other.’ Or maybe we will notice – maybe the crises will be more immediate, urgent, and hit our pockets in very direct and noticeable and politically-accountable way.
Playing with risk, at other people’s expense. Or in the case of Brexit, at a nation’s expense.
Compare Wall Street:.
Salomon Brothers transferred the ultimate risk from themselves to their shareholders. …from that moment, the Wall Street firm became a black box. The shareholders who financed the risk had no real understanding of what the risk takers where doing and, as the risk taking grew ever more complex, their understanding diminished…. The moment Salomon Brothers demonstrated the potential gains to be had from turning an investment bank into a public corporation and leveraging the balance sheet with exotic risks, the pyschological foundations of Wall Street shifted, from trust to blind faith.
Here, in the UK, we are the shareholders. (Sounds dangerously like Brexit speak!)
Back to the book…
The Big Short book brings you face to face with the detail, and it’s a mighty challenge to follow at times, when CDSs get gathered together into CDOs, and CDOs are packaged together, and sometimes different CDOs are packaged into new CDOs, and the old CDOs show up in the new CDOs as if they were in for the first-time. They were going round in circles, and if anyone cared they didn’t care enough to dig down and find out what was really going on – the money coming in was just too good, on a vast and pretty much unfathomable scale.
(CDO – collateralized debt obligations, CDSs – credit default swaps.)
So much investment bank activity is feeding frenzy. Maybe there’s no longer the same level of skulduggery. But there is the endless and needless creation of new financial products, and new ways to bet, to short, to take options…
Making money out of money, other people’s money, is still the golden road…