The bundling of bad loans didn't crush the economy... It was the synthetic c d o's which could be bought by anybody, Even though she didn't own the bonds
I was working at a webcasting company called TalkPoint Communications and we were the ones who webcast the American Subprime Lenders Association summit, and the Eisman-Miller debate definitely happened--across my desk. There were raised voices, and I had a semi-circle of colleagues standing around me asking why a guy was yelling. BearStearns was also one of our biggest clients, as was AIG and GoldmanSachs. We webcast the end of the world, and I nearly SHIT MYSELF when I saw this scene in The Big Short because I lived it in realtime.
@@JCJW101 There was shouting that drew colleagues to my desk... but honestly I cannot remember if that was also the day BS collapsed. Bear was *also* a client and all of this stuff happened in the back half of '08.
It is interesting to see it come together but having to find the connections is mind breaking stuff and most cases end incomplete because they end up settling before the full extent of the crime can be discovered
Yeah it's almost as dangerous as being a journalist covering the story of a dictator. They will find a way to get you and all you'll be is just an obit in the newspaper for a week or two. There's so many cases of financial investigators being disappeared
Wait till people find out that Banks print money out of thin air to loan for the purchase of your home and then when you default on something they never gave you they get to come in and take the real asset, the home....
When I saw the title, I thought this video was going to be about Phil Falcone... now there's a fascinating Wall Street story no has really told yet... guy was one of the biggest winners on the short housing bet... guy was a legit billionaire, he even owned part of the Minnesota Wild, but 10 years later he was flat broke
To be honest why would someone continue trading that aggressively with a billion dollars? He and his offsprings could live indefinitely from it and have whatever they want to have.......
"A real engineer builds bridges, a financial engineer builds, builds dreams. And when those dreams turn out to be nightmares, other people pay for it." - Andrew Sheng
Financial engineers can also find ways to structure products that bridge people’s time and risk preference to allow more physical bridges to get financed.
@@ManforSomeMarkets Sure... But that is not the point. When they took risks the US gov bailed them out. Millions lost everything and the banks came out just fine. Remember that part?
@@doresearchstopwhining “They” (Lenders, originators, servicers, insurers, GSE’s, the institutions that bought/traded MBS’s and even the borrowers themselves) took risk in housing and mortgages because general housing prices almost never fell between 1975 to 2006. Agency MBS’s were perceived almost as safe as government debt because people tended to pay, they are collateralized by the property and guaranteed by GSE’s (implicitly the government itself). An implicit guarantee that got more extreme when Freddie and Fannie began buying large amounts of Alt-A and non-agency Subprime to maintain their mandate of affordable housing. The US was/is obsessed with home ownership and investors were/are obsessed with higher yielding products. Combining policy and demand gave perverse incentives to each part of the mortgage value chain. Besides Lehman’s death and the fall of BS/WaMu, there were plenty of banks who never returned to their prior glory (DB, Citi, CS). Fannie and Freddie are still in conservatorship today. Maybe more executives should have went to jail for fraudulent lending practices, but it would be disingenuous to say that banks faced no punishment. And as a reminder the government bailout wasn’t just aimed at banks. Two of the Big 3 auto manufacturers went bankrupt at the time and there was a general loss of confidence in just doing business. Even regular repo and money markets froze. The government not intervening would have been more politically insane than the intervention itself. And no, RUclips comments are unfortunately not transferable college credits. But thanks if you do read and consider my comment. I recommend the Brookings write up on the housing market as well as books like “All the Devils are here” for a glimpse of the GFC, because any analysis of it is an autopsy of Rasputin.
I'm a big fan of the Big Short and knowing what went on, but you presented a lot of stuff I didn't know and I appreciate it because it really put some of the stuff that I understood, but didn't see the foundational pieces together.
Please, please read the book. It’s very, very interesting. It goes into the Hubler trade in detail and it’s crazy, it’s the chapter “A Death of Interest”.
Beautiful thing about finance guys is that they call "poisoning the water supply" as offloading which is equivalent to terrorist attack with chemical wepon
Nobody ever talks about the US Congressional Banking committee politicians like Barney Frank who set the whole system up, told the banks the govt would backstop them and convinced them that they would be required to lend to subprime buyers or get shut out of the whole system. Not Michael Lewis, not the players, nobody ever brings this up.
It's not talked about much, because it was a much smaller piece of the puzzle. Blaming Congress is designed to deflect from the greed that largely caused the crisis. I worked for one of the firms at the center of it and we used to half-joke with one of the C-level executives that "I hope you look good in orange". Everybody was making boat loads of money.
@@SecondPlaceInTheGeneticLottery Are you sure it's a small part of the puzzle? It was the Clinton Administration who used the Community and Reinvestment act of the Carter Administration to convince the banks and investment firms to allocate assets into the sub-prime segment. The trade off protrayed in the book (or one of the books I read) stated that Clinton's Admin told the banks that if they wanted to continue their orgy of consolodation, they would have to lend to lower credit segments of the market. Indeed, greed played a large role, but as usual the negative externalities of an idea to promote "fairness" was met with ugly consequences. Perhaps greedy businesses and stupid politicians would be apropos.
They only proved 7 million was fraud money, so thats what they got. For other millions, they did not have proof or time to find it all. Beurocracy got killed by beurocracy....
I knew something was up when, in 1998, my wife and I applied for a mortgage of $159,000 and they said we actually qualified for a mortgage of $250,000. They said "You could completely furnish the house or even buy a bigger house and furnish that one". We said "No Thanks" and walked away with our smaller mortgage, and I told my wife at the time that something bad is going to happen with this whole mortgage thing, but I was an unsophisticated with money at the time and didn't know how to act on my instinct.
It happened all over just like this. The banks were and are as crooked as hell. Everyone wanted to blame the mortgage holders, but the BANKS were just giving money away and fomenting the crisis.
It get's worse. I was given the name of a reputable banker from Stifel Bank, here in St. Louis..and old money brick and mortar bank. Hell..they have their bank's name on the St. Louis Cardinals' baseball uniform. Anyway, I applied for a loan, and here's the phone conversation. Him..."How much do you want?" Me..."3". Him..."I'll give you 7." Ummm...NOPE. The loan was for $289,500.00. There is no way in hell I could ever have managed a five thousand dollar a month loan. Well..maybe...but I would have been house-poor.
It`s the same now. We can borrow with our current income up to 300 000 pounds. Bought a bouse for 125 000. Deposit 32 500. Nice house somewhere in Wales. Bought based on a single salary so that we can still live like we do now if one of us loses income, separate or whatever. The mortgage guy just kept pushing that 300 000 mark. Big fucking finger.
It sounds like what is happening today. I have friends who have, but they have a lot of student loan debt and consumer debt. The reason they didn't feel like living paycheck to paycheck was because of the low-interest rates. It's happening all over again. A lot of people are one job lose away from their assets being seized.
He said the credit agencies gave high ratings because if not the bank would go to another agency. That's not true. They gave high ratings because they had no obligation to be honest. And they still don't.
@@alibizzle2010well that's a certainly a way of saying you're missing the point. Them firing or going to another bank is literally the same effect...loss of revenue. And my point, which still applies, is that the rating agencies had no obligation to be honest. Officers of a company have a fiduciary responsibility, lawyers have a legal obligation to represent to the best of their abilities, ratings agencies, whose products impact millions, have a responsibility only to businesses in their ecosystem.
@@alibizzle2010 Banks being able to threaten them with replacement is a symptom not a disease. The real issue is they they are under no obligation to actually rate things honestly..
To my understanding this just proves how much we need an edged as an investors because playing the market like everyone else just isn’t good enough. I’ve been quite ensured about investing in this current market and at the same time I feel it’s the best time to get started on the market, what are your thoughts?!
That’s true , I’ve been getting assisted by ‘Margaret Johnson Arndt’ for almost a year now , I started out less than $200k and I’m just $19,000 short of half a million in profits.
I am being advised by Margaret Johnson Arndt, an experienced financial professional. If you're interested, you can easily find more information about her as she has accumulated years of expertise in the financial market.
Hamish, a few things. First: CDOs and Synthetic CDOs were different, it was the former not the latter that were the huge market. Second, Kathy is not Mark's boss, she's essentially his banker, who lent the capital for Mark & Frontpoint's position, with Frontpoint also renting space from and using the trading/banking platform and infrastructure the bigger bank to make their trades.
I lived in NYC back then, working in a completely different field. My neighbor was a banker, great parties, interesting (not always nice...) guests. Weird group dynamics. I usually was one of the only non-bankers. After having witnessed them (middle management) I didn't feel comfy with my investment and sold 90% of my stocks in winter 2006/2007. Best decision ever. Then bought my apartment when the prices were low.
Synthetic CDO’s are exactly what they sound like, selling insurance on a CDO tranche is economically the same as owning the CDO tranche outright….biggest difference is the CDO tranche has finite dollar size, but I can sell ‘infinite’ insurance on it….which is why the synthetic CDO market was 20x larger than the cash CDO market
I feel investors should be focusing on under-the-radar stocks, and considering the current rollercoaster nature of the stock market, Because 35% of my $270k portfolio comprises of plummeting stocks which were once revered and i don't know where to go here out of devastation.
G’day Hamish. Very much enjoyed this video. I’ve watched The Big Short 3 times and had so many holes in my understanding even after the 3rd watch! This video has been excellent for me. Much appreciated.
I worked as a subprime underwriter. We did 100% financing at stupid rates with a 4% fee. So congrats, you own a house you have no business owning and you are instantly underwater, more so if you have to sell. Good times.
Yours is the scariest observation yet. What happens when the trillions of $ injected into the economy during covid dries up? I haven't seen any improvements in productivity to offset these injections, so....Yikes!
in Ireland there were abandoned houses in my village that you couldn't give away for free in 1995. by 2005 the same houses were selling for 200 k. i knew something was wrong as it wasn't as if a gold mine opened in the area. the banks were begging people to borrow.
So the guy who had the $9b loss was shorting the sub-prime assets did everything right. It’s just that he didn’t know that the amount of fraud going on with the sub-prime mortgages being inside the “better quality” bundles basically.
Bill Clinton did, Congress helped. He pushed heavily for the re-legalization of the mortgage-backed securities. Bill ruled the Democrats during the 90's
No, not really. Congress created what might have been a much smaller problem. Wall St. saw a way of making buckets of money through deception and made it a huge problem. Lots of people should have gone to prison for this.
Utter and complete BS. You need to get your facts straight. You are referring to the CRA (Community Reinvestment Act), which was passed in 1997. And indeed, Clinton did leverage banks into writing more CRA loans in the late 90s. But if you are going to blame the crisis on that, you need to show NUMBERS and DEFAULT RATES. In that era (late 90s through the crisis) CRA loans accounted for a whopping 6% of the sub-prime market, which itself was about 30% of the mortgage market overall. So, CRA loans represented about 1.8% of the mortgage market. In addition, CRA loans experienced delinquency rates that were HALF those of the sub-primes as a whole. So, that means about 0.9% of all delinquencies originated from CRA loans. It only takes some very basic research to find out these FACTS. After the crisis, the Federal Reserve even wrote a short paper on this, where they concluded the CRA had no appreciable impact. If the CRA had never existed, the credit bubble and the crash would have been exactly the same. The real question is why to people like you believe such lies. Clearly, the answer is YOU WANT TO. And that reveals a serious underlying bias and lack of objectivity.
The problem is a CDS is an insurance policy regulated not as an insurance policy but as a security. First, you don't need an "insurable interest". You can't buy insurance on someone else's property or life, but you can buy a swap against securities you don't own. This means the swap and related markets can be several times the size of the assets they are securing, which they in fact were. When an asset-tracking investment class becomes several times larger than the asset class it's supposedly tracking, it's tulip time. Second, an insurance policy can't be traded up and down an investment chain; a CDS and related instruments can. Which means your "insurance policy" is worth only as much as the ability to pay of the weakest link in that investment chain, regardless of any repo agreements.
When I heard the existence of synthetic CDOs I had exact reaction as Mark Baum. My jaw just dropped to how someone can be so negligent My question is, does this still happen? Are CDOs, synthetic CDOs etc still in the play? Are we heading into another 2008?
Many products are said using AI while no actual AI is used or even required for the product. It is ridiculous. They just say AI because it sells apparently.
So as planned he took the fall, took a year off, cleared north of 34 million after fines and went back to business as usual after a year off. Sounds like crime pays.
Howie Hubler "is" in The Big Short ... when Mark goes into Kathy's office, to his left coming out of an office a male on a cell phone says "You tell Goldman I'm not transferring funds." ...
There is a problem among financial academics and practicers not understanding inherent risks that aren’t factored into their mathematical models…not knowing what they don’t know and their risk exposure is open tailed…just because it hasn’t happened recently doesn’t mean it’s never going to happen.
I studied Finance and what you talk about has always fascinated me. Pricing and risk management used to be more subjective, but with all the mathematical models we have now, it gives pricing and risk management an air of objectivity. But like you said, this ´objective´ way of looking at things favours certain risks while ignoring others. So in a way it is subjective, but it´s a subjectivity that we like to copy of of each other. This is dangerous because if everyone is wrong in the same way, then when shit hits the fan and the assumptions of the models aren´t holding up, then it goes bad for everyone at the same time, and the impact is magnified. In practice not everyone will use the exact same models, but there is significant overlap. Maybe we should shift to a more bayesian model of risk and pricing where expert opinions are also factored in. This would allow more diversity in pricing and risk assessments.
I've heard that mortgages are a specialized form of contracts. Under Contract Law, I think, contract can be assigned, hence the CDOs. I have the DVD, liked that they kept the information easy to understand and the fact that the folks that were doing the malfeasance were depicted as 'not getting it,' or not carrying. That is what also came across with CBS' 60 Minutes on their several spots on this topic. Mores the 'Yikes!'
Well, none of this could happen without regulators allowing it or even forcing it to happen. Enter Fannie Mae and Government subsidized debt. Where Government forced banks to loan money to black home buyers who could never service their loans and who never had any intention of paying them off. The debt was then packaged and sold off..... and that's the real scandal.
When I saw your vid title I thought it was going to be about Carl Icahn. You should do another vid on Carl Icahn because he ALSO lost $9 BILLION in his "big short" just over the last several years and his case is particularly interesting because he was recently featured in an HBO documentary "Icahn: The Restless Billionaire" where they didn't mention any of this massive loss. He is famous for being an activist shareholder. His Wiki entry described him as "Widely regarded as one of the most successful hedge fund managers of all time and one of the greatest investors on Wall Street".
Mortgage Banks ALWAYS sold off their mortgages, they live off the fees they charged, they were just pushing them onto Fannie May/Freddie Mac, govt backed funds that backed mortgages to assist economic growth in this country (builders build/buyers buy) . The capital banks put up has to be repatriated to their vaults so they have the ability to make further loans (for fees). Banks are required to maintain a specific reserve fund level, so they're able to avoid insolvency in a run on the bank, the bank laws prevent them from operating in too high a risk profile. What is different is the investment banks collateriazing the loans into a 'security', that trades like a bond (fixed income return).
The market's direction can swiftly change, with indexes frequently transitioning from a bear market to a bull market precisely when the news is most negative and investor sentiment reaches its lowest point.
1:31 CDO isn’t clever, it’s illegal to sell insurance on a bond because it increases the risk of default. Credit default swaps were a big part of this.
I think it was a convention for securities. Not specifically sub prime mortgage bonds. Even if that is the group of portfolio managers and such who attended.
How many went to jail for fraud? How was the whole financial institution totally restructured to ensure it never happened again? What new laws were put in place?
Bubbles form on backs of good people where smart people stand holding that bubble. And when it pops, smart rich throws it on the face of good person as it explodes. And that is basically socio-economics.
Another collapse coming? Maybe. But with swell robotics everywhere, Ai jobloss is the only thing I worry about anymore. Anyone else feel the same? Should we cease Ai?
I had never taken an economics course or worked in the financial industry when I was hired to sell mortgages in 2002 --- I knew then it would end badly and I told everyone in my office. IT WAS BEYOND OBVIOUS!! So who do I blame for the problem?? The people that took the mortgages -- NO! The people that sold the mortgages - NO! The sleazy Wall Street assholes that sold insurance on bad debt -- NO!! I blame the US CONGRESS, who were warned by Brooksley Born who was head of the CFTC (Commodities Futures & Trade Commission-- a Bill Clinton Appointee). She told them this would HAPPEN i 1998 and Larry Summers had her over ruled. I blame all of this on Larry Summers -- who is beyond EVIL. This is more bullshit.
I know of a Dutch bank ceo who at the time did not know the difference between the Dutch (European) and American mortgage system. In America the mortgage is on the house and the person can walk away from the property, giving the keys to the bank. In Europe the mortgage is on the persons (man and woman) with the house as collatoral. And any remaining debt after (forced) selling of the house will still be payable to the bank for the rest of your lives.
Sorry, around the 1.30 time, you explanation of CDO's was wrong, you are referring to Credit Default Swaps CDS, which was where the original short against the housing market (Mortgage backed security MBS). The CDO and Synthetic CDO's were the bets against the CDS, which was where the Burry's held. The CDO was the bet against the CDS, the Synthetic CDO is a bet against the original CDO.
I used to work in the investment banking world building compliance system. What I learned about investment banking world made me feel that entire world is completely corrupt and F-ed up beyond hope. Even though the fed gov requires every firm run rebalance and compliance check regularly, most do not and simply assume they will pay fines. Those fines are passed on as management fee to the people buying into the fund. One of the banks that tanked during the crisis was Wachovia and I know for a fact they didn't run compliance regularly. They weren't the only investment bank that didn't follow the rules. If both dem and republican parties didn't screw with the SEC and purposely strip them of funding and power to do their job, it might not have happened. Until voters stop supporting both parties, this kind of crash cycle will continue and that 0.01% will get even richer.
Yes. I agree with you. It's "Bad"!!! It's "Very Bad"!!!!! But, what other "Political Party" is there to support???!!!" There's only "2 Political Parties" in America to support. The "Democrats and the Republicans"!!!!! That's it!!! 😐😐😐😐😐
Wow. Among many more outrageous things about that whole thing, the guy who made 40 million from illegal and irresponsible activity was able to get back in the game after only one year. I was on probation (after 3 1/2 weeks in jail) for over 2 years for a misdemeanor. I would have been so much better off trying to bring down the entire US housing market and economy.
But there is an easier way to lose money. Open an account with Trade Republic. They do the rest: forge stock purchase certificates. They would simply say that your existing bill for more than four days is worth nothing Do not use German products and services. I am very disappointed with the quality and service of German products. I never expected that Germany would be a law-free state. But it is. Perhaps the best way to lose money at all is to simply deal with the Germans.
The explanation on the synthetic CDO bit isn’t quite right I don’t think. They are not insurance on the bonds, they are essentially a bet on the outcome of other people insuring bonds. Like betting with your mate on the outcome of a poker game you aren’t involved in. Hence, synthetic
You sit on a table. And you go all-in. And on the turn you have a 5% to win chance. And on the river you gets your only one card, that could possibly make you win. And you win a big pot. And then you think, that you're the grandmaster of poker. You're name is Michael Burry, if you never couldn't repeat this one trade, this one Big Bet.
It didn't help the government made a law that anyone can get a mortgage, hence no income verification needed. While banks etc took advantage of this, it started with the government passing silly laws.
![KAYTRANADA - Witchy (feat. Childish Gambino) [Official Video]](http://i.ytimg.com/vi/jGK3YVmGZ3Y/mqdefault.jpg)
★ Limited Time Deal on TIKR Terminal ★
▶︎ www.hamishhodder.com/tikr
Use code 'hamish15' at checkout for an additional 15% Off.
The bundling of bad loans didn't crush the economy... It was the synthetic c d o's which could be bought by anybody, Even though she didn't own the bonds
I'm going to try TIKR based on your ad. It explained the advantages very well.
beating sp500 between 91-2005 . sp500 brother ;) explains everything ;P
I was working at a webcasting company called TalkPoint Communications and we were the ones who webcast the American Subprime Lenders Association summit, and the Eisman-Miller debate definitely happened--across my desk. There were raised voices, and I had a semi-circle of colleagues standing around me asking why a guy was yelling.
BearStearns was also one of our biggest clients, as was AIG and GoldmanSachs. We webcast the end of the world, and I nearly SHIT MYSELF when I saw this scene in The Big Short because I lived it in realtime.
Did someone in the audience shout out like in the movie and did Bear Sterns collapse whilst the talk was happening?
@@JCJW101 There was shouting that drew colleagues to my desk... but honestly I cannot remember if that was also the day BS collapsed. Bear was *also* a client and all of this stuff happened in the back half of '08.
So when did you guys realize shit is hitting the fan?
Wow
Do you know if there is a recording of that meeting ?
This actually makes Forensic Accounting sound like a fascinating career.
It is interesting to see it come together but having to find the connections is mind breaking stuff and most cases end incomplete because they end up settling before the full extent of the crime can be discovered
Just learn accounting you will never be poor knowing everything
Forensic accountants get d3ath threats too much. The higher the stakes, the higher the desperation, and the more dirty people are willing to play.
Yeah it's almost as dangerous as being a journalist covering the story of a dictator. They will find a way to get you and all you'll be is just an obit in the newspaper for a week or two. There's so many cases of financial investigators being disappeared
it is! My ex was one and travelled with armed security around the world auditing suppliers. Crazy stories!
NINJA loan
I love the "sub-prime" wording too... a way to call total garbage something "just slightly below perfect".... genius.
Wait till people find out that Banks print money out of thin air to loan for the purchase of your home and then when you default on something they never gave you they get to come in and take the real asset, the home....
Derivatives
They were cynically also called "liars loans" In the finance industry
When I saw the title, I thought this video was going to be about Phil Falcone... now there's a fascinating Wall Street story no has really told yet... guy was one of the biggest winners on the short housing bet... guy was a legit billionaire, he even owned part of the Minnesota Wild, but 10 years later he was flat broke
To be honest why would someone continue trading that aggressively with a billion dollars?
He and his offsprings could live indefinitely from it and have whatever they want to have.......
@@lonelydogclub Because someone like that always wants one more dollar...
"A real engineer builds bridges, a financial engineer builds, builds dreams. And when those dreams turn out to be nightmares, other people pay for it." - Andrew Sheng
Who puts up the toll booths
When construction projects are nightmares the engineer isn't footing the bill either. But nice philosophizing
Financial engineers can also find ways to structure products that bridge people’s time and risk preference to allow more physical bridges to get financed.
@@ManforSomeMarkets Sure... But that is not the point. When they took risks the US gov bailed them out. Millions lost everything and the banks came out just fine. Remember that part?
@@doresearchstopwhining “They” (Lenders, originators, servicers, insurers, GSE’s, the institutions that bought/traded MBS’s and even the borrowers themselves) took risk in housing and mortgages because general housing prices almost never fell between 1975 to 2006. Agency MBS’s were perceived almost as safe as government debt because people tended to pay, they are collateralized by the property and guaranteed by GSE’s (implicitly the government itself). An implicit guarantee that got more extreme when Freddie and Fannie began buying large amounts of Alt-A and non-agency Subprime to maintain their mandate of affordable housing.
The US was/is obsessed with home ownership and investors were/are obsessed with higher yielding products. Combining policy and demand gave perverse incentives to each part of the mortgage value chain.
Besides Lehman’s death and the fall of BS/WaMu, there were plenty of banks who never returned to their prior glory (DB, Citi, CS). Fannie and Freddie are still in conservatorship today. Maybe more executives should have went to jail for fraudulent lending practices, but it would be disingenuous to say that banks faced no punishment.
And as a reminder the government bailout wasn’t just aimed at banks. Two of the Big 3 auto manufacturers went bankrupt at the time and there was a general loss of confidence in just doing business. Even regular repo and money markets froze. The government not intervening would have been more politically insane than the intervention itself.
And no, RUclips comments are unfortunately not transferable college credits. But thanks if you do read and consider my comment. I recommend the Brookings write up on the housing market as well as books like “All the Devils are here” for a glimpse of the GFC, because any analysis of it is an autopsy of Rasputin.
The Big Short is one of my favorite movies. Your insight and analysis has enhanced my understanding. Thank you! Entertaining and educational.
I'm a big fan of the Big Short and knowing what went on, but you presented a lot of stuff I didn't know and I appreciate it because it really put some of the stuff that I understood, but didn't see the foundational pieces together.
x2
Agree. Good work.
same here
Please, please read the book. It’s very, very interesting. It goes into the Hubler trade in detail and it’s crazy, it’s the chapter “A Death of Interest”.
Beautiful thing about finance guys is that they call "poisoning the water supply" as offloading which is equivalent to terrorist attack with chemical wepon
Nobody ever talks about the US Congressional Banking committee politicians like Barney Frank who set the whole system up, told the banks the govt would backstop them and convinced them that they would be required to lend to subprime buyers or get shut out of the whole system. Not Michael Lewis, not the players, nobody ever brings this up.
Exactly
It's not talked about much, because it was a much smaller piece of the puzzle. Blaming Congress is designed to deflect from the greed that largely caused the crisis. I worked for one of the firms at the center of it and we used to half-joke with one of the C-level executives that "I hope you look good in orange". Everybody was making boat loads of money.
@@SecondPlaceInTheGeneticLottery Are you sure it's a small part of the puzzle? It was the Clinton Administration who used the Community and Reinvestment act of the Carter Administration to convince the banks and investment firms to allocate assets into the sub-prime segment. The trade off protrayed in the book (or one of the books I read) stated that Clinton's Admin told the banks that if they wanted to continue their orgy of consolodation, they would have to lend to lower credit segments of the market. Indeed, greed played a large role, but as usual the negative externalities of an idea to promote "fairness" was met with ugly consequences. Perhaps greedy businesses and stupid politicians would be apropos.
Nor do any taxpayers, asking where their bailout returns are now that the market is doing well...
Congress literally made the system and then told these guys hey we did this go crazy lmao @@SecondPlaceInTheGeneticLottery
Honestly this is the best and clearest summary of the big short, really amazing
OOOHHhhhh. This movie makes SO much more sense now. I never really understand that scene at the end.
They weren't mortgage backed assets. The bonds were the returns on the mortgages backed by an asset. The house!
A perfect case of "You can't make this sh it up."
Byyyeeeeeee Kaaaaathyyyyy
Make $42mil by fraud, get fined $7mil. Sounds about right.
Don’t hate the players, hate the game
@@sirlost94 those players are the ones who rigged the game that way.
They only proved 7 million was fraud money, so thats what they got. For other millions, they did not have proof or time to find it all. Beurocracy got killed by beurocracy....
@@sirlost94we can quite easily do both.
I knew something was up when, in 1998, my wife and I applied for a mortgage of $159,000 and they said we actually qualified for a mortgage of $250,000. They said "You could completely furnish the house or even buy a bigger house and furnish that one". We said "No Thanks" and walked away with our smaller mortgage, and I told my wife at the time that something bad is going to happen with this whole mortgage thing, but I was an unsophisticated with money at the time and didn't know how to act on my instinct.
It happened all over just like this. The banks were and are as crooked as hell. Everyone wanted to blame the mortgage holders, but the BANKS were just giving money away and fomenting the crisis.
It is going to happen again. You should learn from success stories and dig further.
It get's worse. I was given the name of a reputable banker from Stifel Bank, here in St. Louis..and old money brick and mortar bank. Hell..they have their bank's name on the St. Louis Cardinals' baseball uniform. Anyway, I applied for a loan, and here's the phone conversation. Him..."How much do you want?" Me..."3". Him..."I'll give you 7." Ummm...NOPE. The loan was for $289,500.00. There is no way in hell I could ever have managed a five thousand dollar a month loan. Well..maybe...but I would have been house-poor.
Ok boomer
It`s the same now. We can borrow with our current income up to 300 000 pounds.
Bought a bouse for 125 000. Deposit 32 500. Nice house somewhere in Wales.
Bought based on a single salary so that we can still live like we do now if one of us loses income, separate or whatever.
The mortgage guy just kept pushing that 300 000 mark. Big fucking finger.
It sounds like what is happening today. I have friends who have, but they have a lot of student loan debt and consumer debt. The reason they didn't feel like living paycheck to paycheck was because of the low-interest rates. It's happening all over again. A lot of people are one job lose away from their assets being seized.
He said the credit agencies gave high ratings because if not the bank would go to another agency. That's not true. They gave high ratings because they had no obligation to be honest. And they still don't.
Quiet funny how there are laws for everything. Except for stuff that really matters.
This would make sense if their where mot emails from investment banks threatening to fire a rating agency if they didn't give a CDO a higher rating
@@alibizzle2010well that's a certainly a way of saying you're missing the point. Them firing or going to another bank is literally the same effect...loss of revenue. And my point, which still applies, is that the rating agencies had no obligation to be honest. Officers of a company have a fiduciary responsibility, lawyers have a legal obligation to represent to the best of their abilities, ratings agencies, whose products impact millions, have a responsibility only to businesses in their ecosystem.
@@alibizzle2010
Banks being able to threaten them with replacement is a symptom not a disease. The real issue is they they are under no obligation to actually rate things honestly..
Hey man. Thanks for representing Australia so beautifully. Love the analysis.
Boom!
Great share. I never knew the deets of this subplot
To my understanding this just proves how much we need an edged as an investors because playing the market like everyone else just isn’t good enough. I’ve been quite ensured about investing in this current market and at the same time I feel it’s the best time to get started on the market, what are your thoughts?!
That’s true , I’ve been getting assisted by ‘Margaret Johnson Arndt’ for almost a year now , I started out less than $200k and I’m just $19,000 short of half a million in profits.
I am being advised by Margaret Johnson Arndt, an experienced financial professional. If you're interested, you can easily find more information about her as she has accumulated years of expertise in the financial market.
I just checked her out on google and I have sent her an email. I hope she gets back to me soon.
Subscriber for life right here man you’re great at what you do
Hamish, a few things. First: CDOs and Synthetic CDOs were different, it was the former not the latter that were the huge market. Second, Kathy is not Mark's boss, she's essentially his banker, who lent the capital for Mark & Frontpoint's position, with Frontpoint also renting space from and using the trading/banking platform and infrastructure the bigger bank to make their trades.
Great analysis, especially with the real life references. One of my best movies ever.
Recording your video in Imax? what is that clarity?
I lived in NYC back then, working in a completely different field. My neighbor was a banker, great parties, interesting (not always nice...) guests. Weird group dynamics. I usually was one of the only non-bankers. After having witnessed them (middle management) I didn't feel comfy with my investment and sold 90% of my stocks in winter 2006/2007. Best decision ever. Then bought my apartment when the prices were low.
Synthetic CDO’s are exactly what they sound like, selling insurance on a CDO tranche is economically the same as owning the CDO tranche outright….biggest difference is the CDO tranche has finite dollar size, but I can sell ‘infinite’ insurance on it….which is why the synthetic CDO market was 20x larger than the cash CDO market
He didn’t tell the full story the same guy that lost 9 billion ended up getting all that back plus more.
I was really waiting for the story but he started the ad
I feel investors should be focusing on under-the-radar stocks, and considering the current rollercoaster nature of the stock market, Because 35% of my $270k portfolio comprises of plummeting stocks which were once revered and i don't know where to go here out of devastation.
Hey Hamish, great content. Subscribed
GREAT VIDEO BUDDY! I wouldn't dream in a modern colony as Romania, my home country, that such transcripts would exist.
G’day Hamish. Very much enjoyed this video. I’ve watched The Big Short 3 times and had so many holes in my understanding even after the 3rd watch! This video has been excellent for me. Much appreciated.
Thanks Hamish.
I worked as a subprime underwriter. We did 100% financing at stupid rates with a 4% fee. So congrats, you own a house you have no business owning and you are instantly underwater, more so if you have to sell. Good times.
Nothings changed
Yours is the scariest observation yet. What happens when the trillions of $ injected into the economy during covid dries up? I haven't seen any improvements in productivity to offset these injections, so....Yikes!
Great channel thx you
Awsom video dude keep it up!
To be fair the rating agencies didn’t know how to rate these bonds. They used the banks formula to rate these bonds.
in Ireland there were abandoned houses in my village that you couldn't give away for free in 1995. by 2005 the same houses were selling for 200 k. i knew something was wrong as it wasn't as if a gold mine opened in the area. the banks were begging people to borrow.
Banks were inflating the local housing market?
Why didn't Wing Chau short the housing market himself if he knew it was all a steaming pile of garbage?
That's basically a massive conflict of interest. Imagine managing CDOs and telling investors that they're safe but then betting that they'll fail.
He was an insurance agent, can’t think of anything more useless than an insurance agent.
The "buy back*" mistake seems like a pretty big correction that probably just warrants re-recording that whole section.
So the guy who had the $9b loss was shorting the sub-prime assets did everything right.
It’s just that he didn’t know that the amount of fraud going on with the sub-prime mortgages being inside the “better quality” bundles basically.
I love how no one talks about the fact that congress essentially forced banks to create this problem in the first place.
Bill Clinton did, Congress helped. He pushed heavily for the re-legalization of the mortgage-backed securities. Bill ruled the Democrats during the 90's
No, not really. Congress created what might have been a much smaller problem. Wall St. saw a way of making buckets of money through deception and made it a huge problem. Lots of people should have gone to prison for this.
Utter and complete BS. You need to get your facts straight. You are referring to the CRA (Community Reinvestment Act), which was passed in 1997. And indeed, Clinton did leverage banks into writing more CRA loans in the late 90s. But if you are going to blame the crisis on that, you need to show NUMBERS and DEFAULT RATES. In that era (late 90s through the crisis) CRA loans accounted for a whopping 6% of the sub-prime market, which itself was about 30% of the mortgage market overall. So, CRA loans represented about 1.8% of the mortgage market. In addition, CRA loans experienced delinquency rates that were HALF those of the sub-primes as a whole. So, that means about 0.9% of all delinquencies originated from CRA loans.
It only takes some very basic research to find out these FACTS. After the crisis, the Federal Reserve even wrote a short paper on this, where they concluded the CRA had no appreciable impact. If the CRA had never existed, the credit bubble and the crash would have been exactly the same.
The real question is why to people like you believe such lies. Clearly, the answer is YOU WANT TO. And that reveals a serious underlying bias and lack of objectivity.
The problem is a CDS is an insurance policy regulated not as an insurance policy but as a security. First, you don't need an "insurable interest". You can't buy insurance on someone else's property or life, but you can buy a swap against securities you don't own. This means the swap and related markets can be several times the size of the assets they are securing, which they in fact were. When an asset-tracking investment class becomes several times larger than the asset class it's supposedly tracking, it's tulip time. Second, an insurance policy can't be traded up and down an investment chain; a CDS and related instruments can. Which means your "insurance policy" is worth only as much as the ability to pay of the weakest link in that investment chain, regardless of any repo agreements.
I stopped trading for a month after losing 3,000 rupees once. = $40
When I heard the existence of synthetic CDOs I had exact reaction as Mark Baum. My jaw just dropped to how someone can be so negligent
My question is, does this still happen? Are CDOs, synthetic CDOs etc still in the play? Are we heading into another 2008?
Great video
This was a great video
Please make a video that tells what would happen when A.I. bubble burst.
Many products are said using AI while no actual AI is used or even required for the product. It is ridiculous. They just say AI because it sells apparently.
@@pcdispatch you are right 👍
Gr8 vid!
So as planned he took the fall, took a year off, cleared north of 34 million after fines and went back to business as usual after a year off. Sounds like crime pays.
The one thing the Big Short misses is the fact the govt pressure on banks to give loans to people who couldn’t afford it.
CDSs weren't invented in 2003 at MS they were created in 1994 at JPM
Howie Hubler "is" in The Big Short ... when Mark goes into Kathy's office, to his left coming out of an office a male on a cell phone says "You tell Goldman I'm not transferring funds." ...
So many conflicts of interests and I'm sure it has not all been fixed.
Even if they fix the problems, they loosen their regulations as time goes on. People forget the lessons of the bad times.
Haha
No because the purpose is utter destruction
@@evegreenificationNever attribute to malice that which is adequately explained by stupidity.
Good informations
There is a problem among financial academics and practicers not understanding inherent risks that aren’t factored into their mathematical models…not knowing what they don’t know and their risk exposure is open tailed…just because it hasn’t happened recently doesn’t mean it’s never going to happen.
I studied Finance and what you talk about has always fascinated me. Pricing and risk management used to be more subjective, but with all the mathematical models we have now, it gives pricing and risk management an air of objectivity. But like you said, this ´objective´ way of looking at things favours certain risks while ignoring others. So in a way it is subjective, but it´s a subjectivity that we like to copy of of each other. This is dangerous because if everyone is wrong in the same way, then when shit hits the fan and the assumptions of the models aren´t holding up, then it goes bad for everyone at the same time, and the impact is magnified. In practice not everyone will use the exact same models, but there is significant overlap. Maybe we should shift to a more bayesian model of risk and pricing where expert opinions are also factored in. This would allow more diversity in pricing and risk assessments.
I've heard that mortgages are a specialized form of contracts. Under Contract Law, I think, contract can be assigned, hence the CDOs. I have the DVD, liked that they kept the information easy to understand and the fact that the folks that were doing the malfeasance were depicted as 'not getting it,' or not carrying. That is what also came across with CBS' 60 Minutes on their several spots on this topic. Mores the 'Yikes!'
Well, none of this could happen without regulators allowing it or even forcing it to happen. Enter Fannie Mae and Government subsidized debt. Where Government forced banks to loan money to black home buyers who could never service their loans and who never had any intention of paying them off. The debt was then packaged and sold off..... and that's the real scandal.
Thank god all of our tax money was used to bail out these criminals. It’s almost like … they knew that would happen.
Fake Thumbnails= death of youtube
I think you are confusing Synthetic CDOs and Credit default swaps (CDS). Your descriptions of Synthetic CDOs is in actuality the definition of a CDS.
Isso ta acontecendo de novo.... Os americanos nao aprendem 🤦♂️
When I saw your vid title I thought it was going to be about Carl Icahn. You should do another vid on Carl Icahn because he ALSO lost $9 BILLION in his "big short" just over the last several years and his case is particularly interesting because he was recently featured in an HBO documentary "Icahn: The Restless Billionaire" where they didn't mention any of this massive loss. He is famous for being an activist shareholder. His Wiki entry described him as "Widely regarded as one of the most successful hedge fund managers of all time and one of the greatest investors on Wall Street".
Mortgage Banks ALWAYS sold off their mortgages, they live off the fees they charged, they were just pushing them onto Fannie May/Freddie Mac, govt backed funds that backed mortgages to assist economic growth in this country (builders build/buyers buy) . The capital banks put up has to be repatriated to their vaults so they have the ability to make further loans (for fees). Banks are required to maintain a specific reserve fund level, so they're able to avoid insolvency in a run on the bank, the bank laws prevent them from operating in too high a risk profile. What is different is the investment banks collateriazing the loans into a 'security', that trades like a bond (fixed income return).
The market's direction can swiftly change, with indexes frequently transitioning from a bear market to a bull market precisely when the news is most negative and investor sentiment reaches its lowest point.
1:31 CDO isn’t clever, it’s illegal to sell insurance on a bond because it increases the risk of default. Credit default swaps were a big part of this.
since when was it made illegal to sell insurance on a bond?
The same thing is happening in india now.
I think it was a convention for securities. Not specifically sub prime mortgage bonds. Even if that is the group of portfolio managers and such who attended.
How many went to jail for fraud? How was the whole financial institution totally restructured to ensure it never happened again? What new laws were put in place?
Nobody! And nothing!
Bubbles form on backs of good people where smart people stand holding that bubble. And when it pops, smart rich throws it on the face of good person as it explodes.
And that is basically socio-economics.
Another collapse coming? Maybe. But with swell robotics everywhere, Ai jobloss is the only thing I worry about anymore. Anyone else feel the same? Should we cease Ai?
I had never taken an economics course or worked in the financial industry when I was hired to sell mortgages in 2002 --- I knew then it would end badly and I told everyone in my office. IT WAS BEYOND OBVIOUS!! So who do I blame for the problem?? The people that took the mortgages -- NO! The people that sold the mortgages - NO! The sleazy Wall Street assholes that sold insurance on bad debt -- NO!! I blame the US CONGRESS, who were warned by Brooksley Born who was head of the CFTC (Commodities Futures & Trade Commission-- a Bill Clinton Appointee). She told them this would HAPPEN i 1998 and Larry Summers had her over ruled. I blame all of this on Larry Summers -- who is beyond EVIL. This is more bullshit.
I know of a Dutch bank ceo who at the time did not know the difference between the Dutch (European) and American mortgage system. In America the mortgage is on the house and the person can walk away from the property, giving the keys to the bank. In Europe the mortgage is on the persons (man and woman) with the house as collatoral. And any remaining debt after (forced) selling of the house will still be payable to the bank for the rest of your lives.
It works like that here too, the only way to get rid of a mortgage for good is to file bankruptcy.
Europeans seem to be more mature than Americans in every aspect of governance
Lol you mean that continent that couldn’t create a constitution after hundreds of years of government?
Sorry, around the 1.30 time, you explanation of CDO's was wrong, you are referring to Credit Default Swaps CDS, which was where the original short against the housing market (Mortgage backed security MBS). The CDO and Synthetic CDO's were the bets against the CDS, which was where the Burry's held. The CDO was the bet against the CDS, the Synthetic CDO is a bet against the original CDO.
Looks the same as in 2023. Just hasn't crashed quite yet as of late October.
Hamish, appreciate the content and effort as always 👏
I used to work in the investment banking world building compliance system. What I learned about investment banking world made me feel that entire world is completely corrupt and F-ed up beyond hope. Even though the fed gov requires every firm run rebalance and compliance check regularly, most do not and simply assume they will pay fines. Those fines are passed on as management fee to the people buying into the fund. One of the banks that tanked during the crisis was Wachovia and I know for a fact they didn't run compliance regularly. They weren't the only investment bank that didn't follow the rules.
If both dem and republican parties didn't screw with the SEC and purposely strip them of funding and power to do their job, it might not have happened. Until voters stop supporting both parties, this kind of crash cycle will continue and that 0.01% will get even richer.
Yes. I agree with you. It's "Bad"!!! It's "Very Bad"!!!!! But, what other "Political Party" is there to support???!!!" There's only "2 Political Parties" in America to support. The "Democrats and the Republicans"!!!!! That's it!!! 😐😐😐😐😐
1:55 i believe the word you’re looking for is “dogshit”
thanks. you're the only one who made me understand the big short and the financial crash of 2008. 😊
Wow. Among many more outrageous things about that whole thing, the guy who made 40 million from illegal and irresponsible activity was able to get back in the game after only one year. I was on probation (after 3 1/2 weeks in jail) for over 2 years for a misdemeanor. I would have been so much better off trying to bring down the entire US housing market and economy.
2:05 NINJA?! Why am i not surprised... also YOU HAVE A FIRM???
Problem wasn't in wall street.
Problem is washington DC. Capitol hill corruption
Both are extremely problematic
But there is an easier way to lose money. Open an account with Trade Republic. They do the rest: forge stock purchase certificates. They would simply say that your existing bill for more than four days is worth nothing Do not use German products and services. I am very disappointed with the quality and service of German products. I never expected that Germany would be a law-free state. But it is. Perhaps the best way to lose money at all is to simply deal with the Germans.
Love the better call Saul reference
The explanation on the synthetic CDO bit isn’t quite right I don’t think. They are not insurance on the bonds, they are essentially a bet on the outcome of other people insuring bonds. Like betting with your mate on the outcome of a poker game you aren’t involved in. Hence, synthetic
“hey there’s bubble” who doesnt know
You sit on a table. And you go all-in. And on the turn you have a 5% to win chance. And on the river you gets your only one card, that could possibly make you win. And you win a big pot. And then you think, that you're the grandmaster of poker.
You're name is Michael Burry, if you never couldn't repeat this one trade, this one Big Bet.
And yet, they never learn and history keeps repeating itself....
So isn't a "bad loan" because someone ISN'T paying it off? Isn't a good loan someone who always makes the payments?
Our national debt is FOUR times what it was in 2008. The next crash will crush our entire economy.
Any idea whats going to happen this time around with the housing markets?
Well I hope all shorties lose bigly, cause I'm against Biden's hyperinflation collapsing stocks and indexes.
It didn't help the government made a law that anyone can get a mortgage, hence no income verification needed. While banks etc took advantage of this, it started with the government passing silly laws.
I love this documentals, don't ask for any drama to any mexican soup opera
The people who lost money were the ones who were forced to sell assets at the bottom...if you were able to weather the storm..you did fine in the end
All people involved should have been arrested for this! Millions lost everything cause of this and many their lives!
"That is fucking crazy."
"It's not. It's awesome."
I love this movie so much.
Dude, remove that disgusting worm growing on your eye lid.
Looks matter.
what an explanation, man, of the complex subjects. commendable
ROFL @ a defamation lawsuit for a fictional character in a movie...