Watched the financial-thriller-drama movie “The Big Short” the other day. As you might already know, the movie is on the sub-prime crisis of 2007-08 and resulting Great Recession, about four guys who looked around and predicted that the US housing market was a bubble which would crash in the imminent future, taking banks and the American economy down with it. These guys bet against the housing market and were considered insane then, but won when everyone else lost. The movie was quite an insight that hit me like a ton of bricks.
What Caused the 2007/08 Recession? What was the Sub-Prime Crisis?
Deceptive instruments of housing (mortgage)-backed securities engineered from bad loans disbursed to anyone irrespective of creditworthiness on the belief that real-estate will never fail caused the world economy to tank in 2007-08. In short, Greed.
The entire hing started the day banks realized they could bundle and resell mortgages (home loans) as asset (houses)-backed securities “powered” by mortgage repayments by home owners. In simple terms,
- You take a home loan, the bank gives you money for you to purchase the property
- The bank then creates a debt-based security instrument based on your home loan, backed by your house.
- These securities are bought by other banks and investors. Now you are paying the investor your EMIs.
These bonds were rock-solid and huge hits because as long as you were paying your EMIs, they meant a steady source of income for banks and investors, and who defaults on home loans, right? As long as mortgages were high-rated by rating agencies as sure repayments, these instruments brought in huge money, transforming the entire banking system to rebuilt on the base of real estate. But after a time, most of the credible people had bought homes and numbers of new mortgages started to slow. And this was when the entire system started to go to shit.
To keep selling mortgages the banks did away with all those pesky creditworthiness checks and stuff and started giving loans free to everyone, to even jobless people on the street. Whether they could afford homes or repay loans was not even a question, there was no documentation or criterion whatsoever required. Deceptive rating agencies then certified these risky loans (sub-prime) as “high quality” to ensure their market-worthiness. These sub-prime mortgages were then mixed with prime mortgages and sold as debt obligations (CDOs) to investors and in the market. Even the riskiest loans which were sure of no payment coming in were bundled and sold. As the frenzy intensified, bankers started creating and betting on things like “Synthetic CDOs”, which were basically debt obligations for debt obligations. By late 2006, this orgy of greed had reached an intense climax, by which time in all the madness bankers had completely lost track of what they were doing. They did not care, because the money was pouring in, and more importantly, nobody was scared of home owners defaulting because they could simply repossess their houses and re-mortgage them at possibly higher prices, because housing prices in America were the highest ever and of course, real estate rates never go down, right? Right??
Right. By this time, the numbers of credit-unworthy people defaulting on their mortgage payments had reached in the tens of millions. The banks kept repossessing defaulting houses and putting them up for sale for more money, causing the market to be flooded with millions of repossessed houses, all worthless because by this time even strippers owned “five houses and a condo”. There were simply no buyers for all these houses. By September 2007 this had reached critical mass and the housing/real-estate market blew up overnight. Following these massive defaults and assets (houses) turning worthless, values of asset-backed securities went over the cliff and the entire system built on them came crashing down, wiping off trillions of investor money and taking the world economy with it. This video here explains it all much better.
The Anger Against System that Rewards only the One Percent
You know what I felt after watching the movie? Disgust. Pure, unadulterated disgust, the kind you feel toward child rapists and baby-killers. No, not against those who held up against the system to beat it, but against the assholes who caused the crisis, those slimy creatures in their ten-thousand dollar suits and billion-dollar lifestyles, who to satisfy their own greed single-handedly crashed the world economy creating the Great Recession, the worst since World War II and ruined the lives of millions of people across the world. And they were punished for that? Of course not. They only smugly walked away even richer, compensated by the tax payer’s money. They were only and only driven by the sleaze to make more money and were totally oblivious of what the consequences of their actions were (or were they?). Whenever questioned, they would give answers full of arrogance and empty jargon while viewing arguments against their system as questions against the foundation of society, because, freedom of enterprise, (crony) capitalism and they “create thousands of jobs”, the single most biggest whataboutery excuse for thievery these days. And in the end, they again won and carried on with their decidedly arrogant and smug lives, untouched by anyone.
At the end of the movie, the narrator (Ryan Gosling) says that the big banks were split up, lots of bankers went to jail, regulators were overhauled and norms were tightened. And he also says, “just kidding!” and that no one was punished, no one went to jail (except for one unlucky bastard) and the banks went back to selling deceptive instruments of investment. Housing recovered somewhat, but the world economy seemingly never fully recovered to the levels of those pre-2007 glory days. And then we are fed bullshit by the big corporate, big media and big politics buddies (read butt-lickers) of the big banks that were bailed out, lying through their teeth on how the bailout has supposedly saved the world economy and things are so hunky-dory right now, supported by their buddies. Rosy for whom? The suits like Greenspan who got smothered by greenbacks? Those big bloodsuckers (banks) should’ve been shut down or split up, or just allowed to fail, because that is how capitalism works, right? The market punishes wrongdoers and bad decision makers, and hands over their spot to smarter ones, right? Instead, the government covers their losses using public money and the banks are now bigger than ever! Government-given bailouts is Socialism, my dear comrades. Murderers of the world economy thrive on Socialism and call themselves capitalists, my foot!
The Helplessness Against the System that Rewards only the One Percent
What I also felt was anger and a profound sense of helplessness, against the system that rewards only those in the highest echelons of the pyramid, no matter if they got there by loot, murder and crime. Millions lost their homes, many more their jobs and livelihoods across the world, victims of the great crony-capitalist system. And they were made to believe that they were the victims of “market forces” that affect everyone and not of the greatest orchestrated financial fraud in the history of mankind. No law or order dares to touch the richest and mightiest. Not only are they never get punished for their crimes, no matter how big, but even get heavily rewarded while the poor go to jail on the minutest of misdemeanors, because the lives of the small(er) people they ruin do not matter, but just remain a statistic. The great greedy, grainy men (and women) sip their champagne and laugh at and deride the people they have ruined, while mouthing sanctimonious bullshit about why common people should stop victimizing them for being rich.
The entry level for this absolute “do-anything-and-get-away-with-it” power differs from society to society. In India for instance, the entry level seems to be being able to own a German luxury sedan, because traffic rules do not apply for rich assholes driving BMWs, while in the US, the criteria seems to be among the top bosses of a “too big to fail” Wall Street Bank, where you are immune from all laws and even God can’t touch you. You can also have your own hoards of slaves who unlike those in history are only happy to work for you their entire lives, shackled to the yoke of mortgages and other financial obligations but made to believe that they are “free” and are just a turn away from greatness, in the modern, 21st century version of “glittering” slavery. But the peasantry does threaten to step out of the line from time to time, which is when you have to you remind them of their real place by kicking them in the nuts with spiked boots such as the Great Recession. Maybe the concept of Karma came about as a result of this sense of profound helplessness, in a hope that there exists some unknown force out there with the power to punish powerful wrongdoers when the law of common men is helpless to serve justice.