The Big Short: The Financial Collapse as Traumedy [1]

big_short3.jpg

By Bill Barclay

The behavior of our money people is still treated as a subject for specialists. This is a huge cultural mistake. High finance touches – ruins – the lives of ordinary people in a way that, say, baseball does not, unless you are a Cubs fan. And yet, ordinary people, even those who have been most violated, are never left with a clear sense of how they’ve been touched or by whom. Wall Street, like a clever pervert, is often suspected but seldom understood and never convicted. It is my hope that Adam McKay’s The Big Short might actually help change this situation.

Michael Lewis, Vanity Fair, 12/31/2015

 And he may just be right.

Michael Lewis is at again. Lewis, who spent a few years at (the now defunct) Salomon Brothers in the late 1980s, and resigned to write Liars’ Poker about the financial excess of that decade, has never lost either his fascination or his disgust with finance and Wall Street. In 2010 he wrote The Big Short: Inside the Doomsday Machine, a book that described how the financial sector created, and in turn was almost destroyed by, the U.S. housing market bubble and collapse.

The book tried – and actually did a pretty good job – to explain such esoterica as securitization, collateralized debt obligations, synthetic CDOs, etc. But it didn’t seem like a good candidate for a movie. Any cinematic possibility seemed even less likely as time passed and the clarity of our actual experience faded in our collective memory. Blurring and fading our memories, was, of course, aided and abetted by financial elites and right-wing think tanks that have worked diligently to recast our memory of the 2007-08 financial crisis into one of a spendthrift public sector and misguided governmental policies designed to help low-income families buy houses by compelling mortgage lenders to make loans that would never be repaid.

The Big Short, the movie version, brings everything back into focus and strips away the lies and the obfuscation. In this film, one of the two best that I’ve seen about the events that threatened the world financial system (the other being Inside Job), we meet again the actors and actions of the institutions at the core of the U.S. financial sector. And we see clearly the perversity of the IGB/YBG[2] culture that ruled the lending, the packaging, the rating and the selling of that most boring of bank lending products, the home mortgage.

But, unlike other accounts, we see this mostly from the perspective of a few people who decided that the whole structure was rotten and who figured out a way to take a short position, betting the whole mortgage market would collapse. The film actually uses a tower of building blocks to represent the securitized mortgages, with the foundation being the ones rated BB or worse, propping up the AA and AAA portions (“tranches” in finance speak). The film may overplay a bit the scene where the smart guys meet with an employee of S&P, an agency that insures against risk, whose opaque glasses protect her eyes against light. But you do get the point. Most of the people we meet are not particularly nice, partly because of their cynicism but also for a larger reason: if they’re right, a very large number of people are going to be hurt. Their success is predicated on the destruction of the dreams of millions of families.

Mortgage lending was boring. It was the epitome of the old 3-6-3 description of banking: borrow at 3%, lend at 6%, on the golf course at 3:00. In the new world depicted brilliantly in the film, mortgage lending is all about short-term profit making, lending to anybody who walked in the door (we meet a stripper who “owns” 5 houses) and selling to your and my pension fund the resulting packages of loans, suitably blessed by the holy water of a AAA rating by S&P, Moody’s or Fitch. And to a surprising number of bank traders who should have known better.

The film takes us into the “sand states” (Florida, California, Arizona and Nevada) that were at the heart of the housing price bubble as one of the protagonists discovers empty housing developments as well as the suites of firms such as Morgan Stanley and the Las Vegas convention of mortgage brokers. In the latter locale one of our unlikely heroes tries to tell an unreceptive audience that doom is nigh.

But he was too early. Part of the drama of the film is that those taking on a short position were early in the game. And, as one established fund manager says in anger, “Being early and being wrong are the same thing.” The short positions seem stuck, mortgage defaults are escalating and foreclosures are rising but the shorts are still losing money.

How is that possible? 

In an opaque market where prices are set by a small number of very large entities, those setting the prices were also those holding long positions. In Lewis’ account, the short positions began to gain in value only after firms such as Goldman Sachs and Morgan Stanley were able to unload more of the toxic junk and acquire their own short positions.

And then Bear Stearns collapses and the money starts flowing into the short accounts.

See the film. You’ll come away with a renewed commitment to reducing the power and role of finance in the U.S. political economy. Perhaps by your choice of who to vote for president??

Bill Barclay  co-chairs Chicago DSA and serves as DSA National Member Organizer.

Individually signed posts do not necessarily reflect the views of DSA as an organization or its leadership. Democratic Left blog post submission guidelines can be found here.


[1] Traumedy – a mixture of tragedy and comedy.

[2] “I’ll be gone, you’ll be gone” the expression used by people in the financial sector to dismiss the possibility that they would be around to face the consequences of their lending practices.

Data Security for DSA Members

June 27, 2017

Ack! I googled myself and didn't like what I found!

WHAT: A DSA Webinar about "Doxing"
WHEN: 9PM EST, 6PM PST

We're proud of our organizing, and chapter work is transparent for both political and practical reasons. However, there are basic precautions you can take in this time of rapid DSA growth to protect your privacy.

Key Wiki is a website that meticulously documents DSA activity and posts it for the world to see. If you're an active DSA member, likely your name is on their website. This is an example of "doxing".

As DSA becomes larger, more visible, and more powerful, we might expect that more websites like this will pop up, and more of our members' information might be posted publicly on the web.

Join a live webinar on Tuesday, June 27 with data security expert Alison Macrina, to learn:

  1. what is doxing? with examples and ways to prevent it
  2. how to keep your passwords strong and your data secure
  3. where to find your personal info on the internet and how to get it removed
  4. social media best practices for DSA organizers
  5. what to do if you've already been doxed

Zoom Link: https://zoom.us/j/9173276528

Call-in Info: +1 408 638 0968
Meeting ID: 917 327 6528

Introduction to Socialist Feminism Call

June 27, 2017
· 77 rsvps

Join DSA activist Judith Gardiner to explore “socialist feminism.” How does it differ from other forms of feminism? How and when did it develop? What does it mean for our activism? 9 pm ET, 8 pm CT, 7 pm MT, 6 pm PT.

Introduction to Democratic Socialism

July 06, 2017
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Join Rahel Biru, NYC DSA co-chair, and Joseph Schwartz, DSA Vice-Chair, on this webinar for an overview of what we in Democratic Socialists of America mean when we talk about "socialism," "capitalism" and the goals of the socialist movement.  8 PM ET; 7 PM CT; 6 PM MT; 5 PM PT.

  1. This webinar is free for any DSA member in good standing.
  2. You need a computer with good internet access.
  3. Your computer must have headphones (preferred) or speakers; you can speak thru a mic or use chat to "speak".
  4. If you have questions, contact Joseph Schwartz, schwartzjoem@gmail.com.
  5. If you have technical questions, contact Tony Schmitt, schmittaj@gmail.com, 608-355-6568.

DSA New Member Orientation Call

July 09, 2017
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You've joined DSA - Great. Now register for this New Member Orientation call and find out more about our politics and our vision.  And, most importantly, how you can become involved.  9 PM ET; 8 PM CT; 7 PM MT; 6 PM PT.

Running for the National Political Committee

July 11, 2017
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Join this call to hear a presentation and ask questions about the role, duties and time commitment of a member of DSA's National Political Committee. In the meantime, check out the information already on our website about the NPC.

Film Discussion: Pride

September 10, 2017
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Join DSA members Eric Brasure and Brendan Hamill to discuss the British film Pride (2014). It’s 1984, British coal miners are on strike, and a group of gays and lesbians in London bring the queer community together to support the miners in their fight. Based on the true story of Lesbians and Gays Support the Miners. The film is available for rent on YouTube, Amazon, and iTunes. 8 ET/7 CT/6 MT/5 PT.

Film Discussion: Union Maids

September 24, 2017
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Join DSA member and labor historian Susan Hirsch in discussing Union Maids (1976). Nominated for an Academy Award, this documentary follows three Chicago labor organizers (Kate Hyndman, Stella Nowicki, and Sylvia Woods) active beginning in the 1930s. The filmmakers were members of the New American Movement (a precursor of DSA), and the late Vicki Starr (aka Stella Nowicki) was a longtime member of Chicago DSA and the Chicago Women's Liberation Union. It’s available free on YouTube, though sound quality is poor. 8ET/7CT/6MT/5PT.