Apr 082010

I’ve been reading Michael Lewis’s book The Big Short, an astounding reportage on the stupidity, malfeasance and amorality of the people who apparently control our government—The Masters of the Universe on Wall Street. It’s important, I think, to not forget why we are very close to having economic collapse. It is clearly due to the unparalleled greed of those too-big-to-fail financial giants: Goldman Sachs, Citibank, B of A, Merrill Lynch, AIG et al. Others like Rolling Stone Matt Taibbi have documented this in very vivid style.
(Tell us what you really think, Matt):
“So it’s time to admit it: We’re fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we’re still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream.”

The Big Short tells the story of subprime mortgages, derivatives and credit default swaps through the eyes of several contrarian investors who worked diligently to try and figure out what was going on with the sub prime market and began to make bets against it. They made fortunes. And at the end of the game, the “smart” guys who derived a scam they really didn’t understand began to bet against themselves to cut their losses. It’s an awful story, well-told by Mr. Lewis.

Investor Rick Ackerman points out that, “…the illusion of prosperity seems likely to persist, especially with the stock market’s relentless rally, now entering its 14th month, to distract and disconnect us from the real economic world.” Most of the country is in a state of denial.

Chris Martenson, author of The Crash Course*, talking about Treasury auctions notes: “… in only two short years, 2009 and 2010, as much new Treasury debt will be auctioned off to the public as was outstanding in 1995.  Since government borrowing never gets paid down, at least in modern history, it means that the last two years have seen as much borrowing as happened over the period in which electricity was strung to every house, the highways were built, and our population tripled.  What can we point to that was created over the last two years to rival those accomplishments?”

What we got was a situation which offers virtually no hope of recovery in the short term and perhaps in the long term. Again, if you haven’t gone through Chris Martenson’s Crash Course*, you ought to spend the time and then try to figure out what it means for you personally. You will then begin to understand why preparation for some kind of change is prudent and necessary.

*See link to The Crash Course at the top of this page.


  4 Responses to “The Big Short”

  1. Lewis nails it. Why aren’t these criminals being frog marched in shackles down Wall Street to a Federal lockup? The astounding, mindnumbing answer is that government has been convinced that it has to continue to pay these masters of corruption to clean up the mess because they are only ones that know how to undo it. Big government in collusion with big banking has ruined the lives of countless millions.

  2. In addition to culpability of big government & big banking, let’s not forget big and small brokerages, ranking agencies like Moody’s and all those hedge funds.

    Today’s new reports that the US Senate investigation of WaMu concluded WaMu was involved in fraudulent loan activities.

    We need to extend legal culpability of foot soldiers who say “I was just following orders” to the guys in charge, and all those who failed to do due diligence – you know, the ones who keep telling us, “Gee, I was in charge {and get huge salaries & bonuses} but didn’t know what was going on.”

  3. You have been sold a bill of goods. The CAUSE of the recession/depression is the decision in 1999 to let/force/require mortgage companies to make home loans with little or nothing down to people who were a risk. That was the cause and most of those loans were not made by banks they were made by Fannie Mae and Freddie Mac. NONE of those loans were made by Wall Street. 100% of those “risky” loans were insured and in theory should have been 100% safe. However there was never enough money in the insurance to cover massive default. The federal government was the backer of last resort of the loans and the insurance. When the big insurance companies began to fail as a result of the mortgage default the government HAD to bail them out. But the problem was too big even for the government billions so all of these mortgages which had been sold and resold to cities, states, other countries, retirement funds, etc. became worthless or almost worthless. Wall street bought and sold and bundled these loans but they did not cause the problem or exacerbate it. Someone had to be blamed and you wouldn’t have expected politicians to blame themselves (Barney Frank, Chris Dodd) or blame their actions (requiring Fannie Mae and Freddie Mac to make the loans) so they dumped on Wall Street and bankers.

  4. […] couple of years ago I blogged about a book called “The Big Short” by Michael Lewis. One of the main characters of the book was a physician turned investor named […]

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