[Film] The Big Short - a fine telling of the financial crisis story

[Tom Hark Preston Park]

its very different as they start with a depreciating asset and known risk, so priced accordingly. the issue with CDO and swaps was/is not knowing the true risk, or who actually had the risk exposure.

Didn't AIG, ManU sponsors at the time, end up holding much of the parcel when the music stopped?

 

[El Presidente]

its very different as they start with a depreciating asset and known risk, so priced accordingly. the issue with CDO and swaps was/is not knowing the true risk, or who actually had the risk exposure.

Isn't that what the ratings agencies are supposed to review...and on an annual basis the auditors?

 

[beorhthelm]

Didn't AIG, ManU sponsors at the time, end up holding much of the parcel when the music stopped?

i believe so, as many large re-insurers did. or do, music hasnt really stopped, just hidden on balance sheets.

 

[Tom Hark Preston Park]

Isn't that what the ratings agencies are supposed to review...and on an annual basis the auditors?

In the end, from top to bottom, they were/are all just winging it. And all still firmly believe they were blameless. ****s.

 

[Machiavelli]

Having worked with [MENTION=12825]cunning fergus[/MENTION], and knowing what he still does for a living, I'm aware he has a very intimate working knowledge of the regulation of financial markets and firms that operate within it. He lives and breathes it at a level I could not imagine, nor want to deal with.

I'm not sure anyone could really make a case that the UK financial sector was adequately prepared for what unfolded. I understand why you personally would like to see the Labour government as entirely blameless but, respectfully, I think you're wrong.

Did they cause the global financial crash? Of course not.
Was their lack of governance responsible for elements of the impacts of that on the UK? Abso-bloody-lutely.

Irrespective of [MENTION=12825]cunning fergus[/MENTION]' knowledge of such things, New Labour were just continuing a regulatory policy introduced by Thatcher and that Osborne didn't do anything substantial to amend thereafter (and you've been a vocal supporter of Osborne on here), and Hammond is too distracted by other silly stuff to do anything about it, even if he had the inclination to do so. At least McDonnell is finally developing a radical policy framework that will re-direct the economy away from its over-reliance on finance and related services, and developing a comprehensive economic policy framework that looks the most valid so far proposed by a leading UK politician during the twenty-first century. And I say this as someone that's never voted Labour in my life and am not interested in Marxist economic analysis.

 

[El Presidente]

In the end, from top to bottom, they were/are all just winging it. And all still firmly believe they were blameless. ****s.

None are behind bars so must be all blameless surely?

 

[Machiavelli]

Fair enough - but no one was complaining when all that stuff was bringing more and more GDP growth into the economy.

It absolutely got out of hand but it wasn't in anyone's interest to stop it until it was too late. The FCA would've been massively lent on by whoever was in power to not regulate too heavily - not that they had a clue what was going on anyway.....

Hindsight is a very easy thing.

I was complaining at the time. There were plenty of others too.

 

[Lower West Stander]

its very different as they start with a depreciating asset and known risk, so priced accordingly. the issue with CDO and swaps was/is not knowing the true risk, or who actually had the risk exposure.

I agree with this to a point, but the big issue for me is that the bulk of the problems were in the synthetic market where no cash changed hands until the losses were crystallised. I think we knew where exposure was a lot of the time but it didn't need to be reported as a liability. Synthetic CLOs were a disaster waiting to happen because it was an infinite market.

And regulation could have been better on this. Nick Leeson was selling options to meet margin calls in the mid 90s, which is what brought down Barings.

 

[beorhthelm]

Irrespective of [MENTION=12825]cunning fergus[/MENTION]' knowledge of such things, New Labour were just continuing a regulatory policy introduced by Thatcher and that Osborne didn't do anything substantial to amend thereafter (and you've been a vocal supporter of Osborne on here), and Hammond is too distracted by other silly stuff to do anything about it, even if he had the inclination to do so. At least McDonnell is finally developing a radical policy framework that will re-direct the economy away from its over-reliance on finance and related services, and developing a comprehensive economic policy framework that looks the most valid so far proposed by a leading UK politician during the twenty-first century. And I say this as someone that's never voted Labour in my life and am not interested in Marxist economic analysis.

you do understand that his policy is built on the foundation of borrowing lots of money - £500bn - from the same sources?

 

[Lower West Stander]

I was complaining at the time. There were plenty of others too.

Not that many...

I'm genuinely interested to know what you saw at the time which made you think it wasn't right....

 

[Machiavelli]

you do understand that his policy is built on the foundation of borrowing lots of money - £500bn - from the same sources?

I wasn't aware of that particular figure (which will change over time anyway), but don't have a big problem with government debt, as the government has been in substantial debt for the last 250 years, and it has hardly meant the economy has flatlined over that period (despite this being a widely held view perpetrated by Osborne and other conservatives/neoliberals).

 

[Machiavelli]

Not that many...

I'm genuinely interested to know what you saw at the time which made you think it wasn't right....

I had no particular knowledge of how things would unravel, and what the precise machinations the financial sector were up to. I did read the odd stuff from Nouriel Roubini (sp?) pre-crash but didn't precisely follow the points he was making. I did follow what Vince Cable was saying, and understood that.
But the broader point is that capitalism produces bubbles, and it was blindingly obvious that there had been a HUMUNGOUS one developing in the financial sector over decades.

 

[Machiavelli]

On a related note, the best book I've read that explains the financial sector is Whoops! by John Lanchester. He has an amazing ability to explain complex things, and is currently on big tech -- it's worth tracking down what he's written in the LRB on such matters.

 

[FatSuperman]

As an aside:-

The average earnings of FTSE 100 bosses will, as of today, surpass the annual remuneration of the average UK worker, emphasising extreme pay inequality in modern Britain and throwing a spotlight on how rewards for UK executives are determined.

https://www.independent.co.uk/news/...9-a8709966.html?amp&__twitter_impression=true

Ahh, so today - 4th Jan is the day when the FTSE 100 bosses have earned (in 4 days) what the average worker will earn in a year. Not bad going!

 

[LlcoolJ]

Isn't that what the ratings agencies are supposed to review...and on an annual basis the auditors?

The ratings agencies role in the whole cluster**** is massively underplayed. They gave AAA ratings to billions and billions of £ "worth" of utter junk and that's what allowed the merry go round to continue for so long and become so damaging. Plus it wasn't incompetence, they were complicit.

It still surprises me that anyone listens to them nowadays, about anything.

 

[attila]

'Yes, but it was all legal'.
So was what Archer did, apparently.
I very much hope that a future Labour government will take advice as to whether the utterly contemptible actions of many UK bankers were in fact legal, and if the courts deem they were, pass retrospective legislation to make them as illegal as common sense says they were, then try them and jail them, as happened in Iceland.
Their actions gave the Tories the excuse to launch 'austerity' - their pitiless war on the poor and vulnerable, designated as 'unnecessary and an ideological choice' by a UN poverty report, causing untold misery and division in this country.

 

[Lower West Stander]

The ratings agencies role in the whole cluster**** is massively underplayed. They gave AAA ratings to billions and billions of £ "worth" of utter junk and that's what allowed the merry go round to continue for so long and become so damaging. Plus it wasn't incompetence, they were complicit.

It still surprises me that anyone listens to them nowadays, about anything.

I totally agree with you - and it doesn't help they are so divorced from the markets into which they are rating some of this stuff. AAA ratings on sovereign and corporates are minimal, so how so much structured garbage is still rated there is ridiculous. Some investment mandates give you no choice though.

In practice though, their credibility is much lower than it used to be.

 

[ManOfSussex]

Not that many...

I'm genuinely interested to know what you saw at the time which made you think it wasn't right....

Totally in hindsight, I can remember my moment - the firm I worked for during the crisis, until I got out, was a 3rd party, pricing/valuations financial reporting company. Everything around us was going down the pan, but our record years were '08 & '09. Long days, manic work loads, hard drinking culture - I enjoyed it looking back. Anyway, a few years before a Dublin client of ours approached us asking could we provide pricing/valuations on CDS' and CDO's - There was not one vendor, broker, source that could or would provide us with anything in regards to their request. Eventually that Dublin based bank (which unsurprisingly no longer exists in it's form as then) gave up on asking us. Frankly their back office doing valuations on these things in Dublin had about as much of a scooby as the traders in New York buying and selling them. Total hindsight as I say, but the clues were there years before.

 

[vegster]

...unless you are incapacitated and trying to claim benefits, in which case they will take you out at the knees.

The sad thing is that money paid to those on benefits almost immediately goes back in to the general economy where it can be retrieved by the government in taxes again. Those that qualify for benefits seldom employ tax advisors in order to safeguard their " assets " and put them out of reach when living hand to mouth.

 

[Skuller]

Unless regulators pay as much as the banks for employees that are as smart as the banks' employees and in the same numbers, then they will never be able to regulate. Far better (and what actually happened after 2008) is to make the "clever" banks not dependent on Joe Public's bank account for real money but to build-up their own risk money. The crash was a failure of banks to lend to each other because they didn't really have the money they were promising each other without pillaging current accounts. Instead of clever regulation you need independent banks that can fail without without bringing other banks down, or putting current accounts at risk.