Big Short: Inside the Doomsday Machine

The Big Short: Inside the Doomsday Machine


The real story of the crash began in bizarre feeder markets where the sun doesn’t shine and the SEC doesn’t dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower–and middle–class Americans who can’t pay their debts. The smart people who understood what was or might be happening were paralyzed by hope and fear; in any case, they weren’t talking. Michael Lewis creates a fresh, character-driven nar…

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Dear Redditors, what are your specific grievances against “Wall Street”? I firmly believe you are misinformed about our faults and address each one here.(r/AskReddit)

While what you say is true, it is incomplete, and lets the banks off the hook for where they truly are at fault, namely in buying repackaged high-risk mortgages as if they were low-risk, but higher return. In the banking world, high return + low risk = too good to be true, but they bought them like mad anyways. Basically, mortgage lenders package a bunch of mortgages into one group, then divide that group up by risk (and therefore varying interest rates paid) and sell the different pieces at different rates to financial institutions, like the bank the OP works for. What was new was taking a group of the highest risk loans from various different loan packages, bundling THEM together into a new derivative group, then ranking THOSE loans as being from low risk to high risk (surely not ALL of them would fail at once, right?), and lower to higher returns, accordingly. But remember, all of these loans STARTED as higher return loans already (they were high risk/high return to start with), so now you had a loan instrument that purported to be LOW risk, but with much higher returns than a normal low risk wedge. This made banks and hedge funds salivate. When these high risk loans didn’t default immediately (most were ARM or balloon payment loans and wouldn’t become dangerous until the first major raise in rates a couple of years down the road), financial institutions like the bank OP works for started buying them up like mad. FREE MONEY! This created a HUGE demand for the loans from the money side, not just the home-buyer side. So mortgage lenders started creating really risky and “creative” loans, and pretty much loaned you money to buy property if you had a pulse just to keep feeding the pipe to the banks and funds. The fault from the banks’ side was that they didn’t have the financial sophistication to realize this was a bubble about to burst. And I use the term “sophistication” loosely. These are people who get multi-million dollar bonuses to be the “best of the best”. Yet even a high-school econ teacher could have pointed the flaws in their reasoning out to them. THIS is where they were driven by greed to make more money, warning signs be damned. If the bank next door is doing it and making money, it must be safe and we need to get some. They are guilty of being lemmings. Greedy lemmings (in the metaphorical sense, I know lemmings don’t really jump off cliffs). Read “The Big Short” by Michael Lewis (also author of “Liar’s Poker”, also about Wall Street). Very enlightening. This greed and, frankly, stupidity, that continues to be rewarded, ignored, denied, and repeated, is what I find most despicable in “Wall Street’s” behavior.

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Michael Lewis

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W. W. Norton & Company

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The Big Short: Inside the Doomsday Machine

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Dear Redditors, what are your specific grievances against “Wall Street”? I firmly believe you are misinformed about our faults and address each one here.

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