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The Big Short (3 reasons to dislike this movie)


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But you don't understand at all if you think the recently homeless took on the debt. American taxpayers took on the big debt.

The homeless were once again homeless, regardless of any debt that was written down. Do you think they should have been able to keep the homes too ?

Much tighter lending rules that apply to all high ratio mortgages . For regular mortgages, banks can do more or less whatever they want. Explain how it is bad to avoid a collapse of the financial system and loading trillions of doallrs of debt onto taxpayers?

Don't kid yourself...Canadian taxpayers paid as well, while not having access to nearly as much capital. The U.S. was too big to fail, not Canada...hence another "Wall Street" film.

So sorry, I was mistaken in thinking you are a US taxpayer. Because if you are, it did happen to you.

Doesn't seem any different except for low interest rates.

Just curious, I don't give a shit really but why wouldn't you want your country to have a stable housing and banking sector? Is it a Communist incursion to oblige people to qualify for a high ratio mortgage? Our countries have similar rates of home ownership so obviously it does not prevent people from buying houses.

2008 saw 8 million people lose their jobs and 6 million lose their homes, and you are paying for it. It's going to happen again.. Explain the upside of that to me.

It's all about risk taking vs. reward. Lots more people did not lose their jobs or homes, and actually took advantage of the depressed housing market.

We even looked at huge McMansions for sale at drastically reduced prices. If gambling is legal, then some people are going to gamble....so what ?

Edited by bush_cheney2004
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This movie has become a demonstration to me of what happens when people finally see a disaster on the horizon.  The attempts to stave it off were a study in human nature.  Treat the symptoms not the r

That's how it is supposed to be....risk taking for higher returns / gains. They don't make movies about the rise and fall of Canada's capital or equity markets.

Mortgage markets are not free in the US or Canada. In the US you have Fanny/Freddie which backstops the banks and allows them to take on more risk that they would otherwise be willing to take on. You also have consumer protection laws that allow people to walk away from mortgages without paying a financial penalty. This means the consumer has an incentive to take on more risk than they should. Finally, mortgage interest is tax deductible to Americans have an incentive to take on larger mortgages because they are are 'affordable'.

All of these distortions need to be removed before you can appeal to the virtues of the free market.

Edited by TimG
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Mortgage markets are not free in the US or Canada. In the US you have Fanny/Freddie which backstops the banks and allows them to take on more risk that they would otherwise be willing to take on. You also have consumer protection laws that allow people to walk away from mortgages without paying a financial penalty. This means the consumer has an incentive to take on more risk than they should. Finally, mortgage interest is tax deductible to Americans have an incentive to take on larger mortgages because they are are 'affordable'.

Correct, and there are other programs too. As another member opined, government policies are/were designed to encourage home ownership. My first home was purchased with $1.00 down under a VA loan...interest rates were 12%. But that was and is still the "market", free or not. Mortgage backed securities were a logical extension of the existing system and legislated changes.

All of these distortions need to be removed before you can appeal to the virtues of the free market.

Government and interest groups do not want to remove the distortions. Such interventions are used in many other market venues to execute policies and favour desired outcomes (e.g. electric vehicle rebates).

The U.S. also use to permit tax deductions for consumer interest payments....those were the days !

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Mortgage markets are not free in the US or Canada. In the US you have Fanny/Freddie which backstops the banks and allows them to take on more risk that they would otherwise be willing to take on.

Fanny and Freddie were not the reason banks were willing to take on risky mortgages.

Banks were willing to take on these mortgages because they believed they had discovered a way to reap the rewards while passing the risk along to others. They did this by bundling mortages into "Mortgage Backed Securities", and selling them as investments. An MBS would have provided the bearer with a reliable source of interest income from mortgage payments. Initially hedge fund managers and pension funds thought they were great.

Unfortunately, if you have discovered a way to spin straw into gold, you're going to need an awful lot of straw. They just needed mortgages to turn into MBSs. It simply didn't matter to them whether the people they were lending to had any ability to pay them.

They wanted to give a mortgage to "anybody who can fog a mirror."

That's the funny part here. August complains about the financial irresponsibility of the fictional stripper who bought 5 houses as being the root cause.

Who lent her that money?

Companies like Countrywide gave her that money. They WANTED her to have a mortgage. They advertised on TV for her to come apply for a mortgage. If you turned on your TV to watch an NFL game 10 years ago, you saw ads showing happy people walking into their new homes. "You CAN afford a home." "It's more affordable than you think!" "Your dreams can come true!"

The movie "Inside Job" had numerous interviews with investigators hired by mortgage originators to review applications. They were flown to hotels, and set them up in the conference room. They brought in box loads of mortgage applications for them to review. They went through stacks of applications. And at the end of the day, their group leader gets a call from his manager who says "I don't understand why you're rejecting so many applications. I want you guys to go back through the ones you've rejected and see if there are any more we can accept." So they go back and review their rejected applications and accept a few more. And they get another phone call that says "guys, you're still rejecting too many applications." So they go back and look through the rejects and accept a few more. And they get another phone call that says "I don't know what I have to do to get through to you people. Stop rejecting applications."

So it turned into a big game. They brought in pizza and beer and approved everything.

"Hey guys! I have one here from a waitress who says she makes $120,000 a year!" "HAHA! Sounds legit to me!" "Approved!"

And once originators like Countrywide had a big pile of mortgages to sell, they would sell them to a securitizer. The securitizer would assemble the mortgages into lots. Each lot would have some legit mortgages in them, but be liberally padded out with risky mortgages. Emails subpoenaed from Morgan Stanley reveal that they gave these lots affectionate codenames like "Nuclear Holocaust", "Subprime Meltdown", "Shitbag", "Mike Tyson's Punch-Out", and "Hitman".

And the securitizer would sell these ticking time-bombs to investors, aided and abetted by ratings agencies like Moodies and S&P who were strong-armed by their most significant customers into giving AAA ratings to securities they knew full well were crap. In the short term, shoddy originators like Countrywide were rewarded for deliberately reckless behavior, as were securitizers like Lehman Brothers.

Of course, Countrywide and Lehman Brothers were ultimately destroyed by their risky strategies, once investors started to wise up and stop buying MBSs. Did you see Dick Fuld telling the Senate committee how bad he felt that Lehman Brothers was destroyed under his watch?

Dick pocketed over $400 million of salary and performance bonuses in the years leading up to Lehman Brothers demise. Think he was really all that heartbroken?

All of these distortions need to be removed before you can appeal to the virtues of the free market.

A market needs regulation. And financial derivatives-- the mechanisms that enabled mortgage originators and securitizers to shift the risk to unwitting suckers-- were and are completely unregulated. Alan Greenspan steadfastly opposed regulation of derivatives, and he believed that "reputational risk" would be all that was required to ensure that financial institutions behaved in the best interest of the system as a whole.

I think it's clear that Greenspan failed to consider that if you can pocket $400 million in a few years by behaving recklessly, you really don't need to concern yourself with your reputation afterwards. The long-term health of the financial system was of no concern when there was so much money to be made in the short term.

There's clearly a need for more regulation, not less. In particular, a system that lets a player take outrageous, foolhardy risks with no consequence to himself is in need of change.

-k

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Dick pocketed over $400 million of salary and performance bonuses in the years leading up to Lehman Brothers demise. Think he was really all that heartbroken?

In almost any other country he'd have been bankrupted afterward. In a lot of them he'd have been put up against a wall and shot. In the US of A he suffered no economic or criminal sanctions whatsoever. In fact, none of the major players have done anything but walk away grinning with bags full of cash, thanks in part to that nice Barrack Obama guy, who received so much money from Wall Street (or chicken feed, as guys like Fuld would call it).

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Doesn't seem any different except for low interest rates.

Your national (and your personal) debt is massively increased as a result. Or did you think Barry has paid down your personal and national debt in recent times?

It makes me laugh to see you characterize what happened in your country as being the exercise of capitalism. It was anything but that! First the retail, then the merchants bank acted fraudulently, then your govt bailed them out with YOUR money, then they let those most responsible go with massive amounts of money and all has been forgiven just in time for another round of theft. God Bless America.

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Your national (and your personal) debt is massively increased as a result. Or did you think Barry has paid down your personal and national debt in recent times?

It makes me laugh to see you characterize what happened in your country as being the exercise of capitalism. It was anything but that! First the retail, then the merchants bank acted fraudulently, then your govt bailed them out with YOUR money, then they let those most responsible go with massive amounts of money and all has been forgiven just in time for another round of theft. God Bless America.

They are all one and the same....and you worry about it far more than I do...from Canada...where capital is...scarce.

Look at the bright side...we even make movies about it.

Edited by bush_cheney2004
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It's not about more regulation. It's about smart regulation. And it's definitely not about incentivizing lending to people that wouldn't normally qualify because it makes one feel good and just. That only distorts the mortgage market and causes unintended consequences.

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It's not about more regulation. It's about smart regulation.

Good point, Shady.

In fact, in Canada, we have few banking regulations and the regulations that exist are weakly enforced. We have huge spaces in our regulations, open to exploitation, and yet it rarely happens.

The Scandinavian Model: Everyone is the same and everyone tells the State everything.

The American Model: The government should solve this problem.

Why don't such events happen in Canada? Yet, they happened in Iceland, Spain and the US.

=========

IMHO, like an earthquake, the question is not about why the event occurred but rather how people respond.

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Good point, Shady.

In fact, in Canada, we have few banking regulations and the regulations that exist are weakly enforced. We have huge spaces in our regulations, open to exploitation, and yet it rarely happens.

The Scandinavian Model: Everyone is the same and everyone tells the State everything.

The American Model: The government should solve this problem.

Why don't such events happen in Canada? Yet, they happened in Iceland, Spain and the US.

Where was it established that Canada has less banking regulation than other nations? Based on the discussion BC2004 and Overthere have been having, the opposite seems to be true. Thinking back 10 years, one recalls Canadian banks lobbying for less regulation, and for big mergers so that they could be bigger players internationally. One recalls that the Harper government killed 30 and 35 year mortgages following the 2008 bubble.

I don't think there's much to be gained in looking at people in terms of overly broad stereotypes-- "Scandinavians be like this, but Americans be like that"-- and more value in looking at why the basic principles of the free market failed so badly in this instance.

IMHO, like an earthquake, the question is not about why the event occurred but rather how people respond.

But earlier you were complaining that not enough attention was paid to the role of the stripper who bought 5 houses in creating the disaster. Earlier in the thread, assigning blame was an important issue for you. You seem unwilling to consider the point that the financial health of a money lender depends on the prudence of the lender, not on the financial acumen of would-be borrowers.

But if what matters is the response and not the cause, then Iceland has responded by prosecuting financial sector criminals and punishing them with lengthy jail terms, and more importantly, installing significant reforms to their financial sector. Iceland's recovery from that debacle is considered one of the success stories in the aftermath of the global financial meltdown.

-k

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It's not about more regulation. It's about smart regulation. And it's definitely not about incentivizing lending to people that wouldn't normally qualify because it makes one feel good and just. That only distorts the mortgage market and causes unintended consequences.

One can't come up with "smart" regulation until one understands the cause of what happened.

The mortgage bubble had nothing to do with people wanting to feel "good and just", and everything to do with banks issuing vast numbers of mortgages they knew full-well were going to fail. Only a small portion of subprime mortgages were issued with regard to any government mandated requirement; the vast majority of them were issued voluntarily.

The incentive to issue bad mortgages wasn't good feelings and sunny ways. It was greed.

They had created a way for them to profit from issuing a mortgage while leaving others holding the risk associated with the mortgage.

If you can make money by issuing loans, and there are no consequences to you if the borrowers don't pay you back, then you have no incentive to make sure the loans are prudent, and every incentive to issue as many loans as possible. That's the real cause of the subprime bubble.

-k

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Where was it established that Canada has less banking regulation than other nations?

Let me pick one example: https://en.wikipedia.org/wiki/Reserve_requirement#Canada

Here's another: Unlike the US federal SEC, Canada has only provincial regulatory bodies.

Kimmy, English Canadians often want to distinguish themselves from Americans. Well, the history of banking in the two countries is stark. Hamilton is a Broadway hit; such a musical would be impossible in Canada.

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Let me pick one example: https://en.wikipedia.org/wiki/Reserve_requirement#Canada

Here's another: Unlike the US federal SEC, Canada has only provincial regulatory bodies.

As I recall, the Harper government tried very hard to form a central regulatory body but the provinces, led by Quebec, fought frantically to ensure they retained separate control, like the little provincial pubahs, they were. The result is Canada has extremely weak oversight in the custody of provincial bodies who have very little ability to police fraud or understanding of how the system works.

Edited by Argus
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n fact, in Canada, we have few banking regulations and the regulations that exist are weakly enforced.

Wrong on both counts, but nothing new there.

The Bank Act has existed since Confederation, with a few changes along the way. It has enabled and continues to enable a system that is very stable. Bank failures in Canada are infrequent, commonplace in the US. In the 2008 global crisis, Canada (and Australia) economy suffered much less than any others in the G20 and much of that was because of how the banking systems work. Harper haters should stop reading here, I do not want to create any random aneurysms in our membership here.... but Harper and Canada were noted globally for this reality, and asked for and gave advice to our allies and friends...... In fairness, Trudeau or anybody else in the PM chair could have done the same at the time. The stability comes with a price tag, but that is another topic.

The issue at hand is mortgages, specifically residential mortgage regulation. Contrary to what August1891 says, every residential high ratio in Canada must clear the same group of hurdles and tests before they get the money. No exceptions. And that is why bundles of Canadian home mortgages did not default to anywhere near the same degree that they did in the US, and absolutely nothing substantive has changed in that regard in either country. The US is still a very high risk place for mortgage securities, Canada much less so.

Call it a nanny state power move, but by regulating this crucial thing, the existence of the mandatory qualification regulations that August bizarrely denies saves consumers(and taxpayers) from bank greed and their own idiocy.

There are ways to bypass the regs on qualifying, but they are all criminal offences and require the active participation of people like lawyers, appraisers and realtors and usually all three at the same time. The CDN banks don't get involved in committing mortgage fraud much - the high ratio loans are all insured after all, and they know the govt and insurers would withdraw their rights to participate in what is a safe, lucrative market for the bank.

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...Call it a nanny state power move, but by regulating this crucial thing, the existence of the mandatory qualification regulations that August bizarrely denies saves consumers(and taxpayers) from bank greed and their own idiocy.

It also causes less access to capital in Canada, less innovation, less investment, and a monopoly on banking services.

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Yet we consistently have the of the highest standards of living in the world, notably longer lifespans than you, and a lot less people living in their cars. Life is full of tradeoffs innit?.

And I did mention that "The stability comes with a price tag, but that is another topic."

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...And I did mention that "The stability comes with a price tag, but that is another topic."

Banks can and do fail in Canada....as in the 1980's. American and other foreign investment/ownership makes up for the capital shortage...others bet on it like these guys in the movie.

Edited by bush_cheney2004
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Banks can and do fail in Canada....as in the 1980's. American and other foreign investment/ownership makes up for the capital shortage...others bet on it like these guys in the movie.

Only the wee lenders have failed, and the impact is pretty small since the high ratio mortgages- the most vulnerable- are insured and the lender is not touched. The trust companies and other lenders that have gone belly up were more often involved in risky low ratio first mortages, second mortgages or commercial paper.

Canadians may not be aware that all the CDN banks were involved and are still involved in doing what The Big Short refers to in the book and movie. That is bundling residential mortgages up, and selling those bonds around the world. But the difference between the two is very significant . The US bundles were full of shitty deals and the US banks lied about what they were selling , globally. In many cases the institutional buyers didn't care, they rebundled those bad deals into different mulit billion dollar packages and sold them on to others. The term 'subprime' is weasel talk for very high risk. The CDN mortgage bundles differed in that they had and have far fewer bad risks inside. Why? Because of the regulation in Canada around qualifying for a high ratio mortgage. Nothing has changed in either country as a result of the devastating events in 2008 . It is going to happen again, no question.

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...Canadians may not be aware that all the CDN banks were involved and are still involved in doing what The Big Short refers to in the book and movie.

Canadian banks were also bailed out by the Bank of Canada and the U.S. Federal Reserve during the "financial crisis", it's just that PM Harper & Canadians don't like to admit it. It was a Big Secret....

http://www.huffingtonpost.ca/2012/04/30/canada-bank-bailout_n_1466219.html

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Canadian banks were also bailed out by the Bank of Canada and the U.S. Federal Reserve during the "financial crisis", it's just that PM Harper & Canadians don't like to admit it. It was a Big Secret....

http://www.huffingtonpost.ca/2012/04/30/canada-bank-bailout_n_1466219.html

That is a pretty dumb article! Did you read it ? The author is all in a huff because ....well who knows why he has a bone on for Canada?

What he comes up with is this: because global credit dried up, and CDN banks were still alive, kicking and doing business, a CDN govt agency(CMHC, the insurer I was talking about) bought the same mortgage packages I mentioned: not subprime shit like the US banks peddled, but performing assets that made money for CDN taxpayers through interest paid and insurer premiums paid. Note that CMHC buys laons every day, it is their only business. It is not threir normal practice to buy them from banks, but these are all performing loans.

But a Crown corporation bought $69 billion worth of mortgages that banks didn’t want on their books. Does that sound like a good bargain for taxpayers?[/size]

Yes, they bought the mortgage securities because if the banks kept them, they would bump up against liquidity ratios(another CDN Bank Act safeguard). By adding these to the CMHC portfoilo of performing loans, it enabled CDN banks to free up capital to lend CDN businesses, capital that the US screwup had choked off at the usual international sources. CMHS had about $700 million of exactly the same product on their books, other insurers doing the same thing also have big bucks tied up in CDN mortgages.

The answer to your question is yes, that was an excellent deal for Canadian taxpayers! They made money, the banks freed up credit to end to CDN business, it was a win -win and thanks for asking.

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.....The answer to your question is yes, that was an excellent deal for Canadian taxpayers! They made money, the banks freed up credit to end to CDN business, it was a win -win and thanks for asking.

No problem....the U.S. Fed was happy to bail out lots of other foreign banks as well. You're welcome !

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It wasn't ignored by the media, because I remember it being discussed here on the forum when it happened.

If I recall correctly, the key difference between what happened in the US and what happened in Canada is that in the US the TARP program was (as the name implies) intended to {R}elieve banks of {T}roubled {A}ssets, ie mortgages that weren't worth the paper they were printed on. Whereas in Canada the primary reason for buying mortgages from the banks was to increase banks liquidity to stimulate lending.

When I applied for my mortgage, I had to go through a due diligence process that was certainly more rigorous than the comedy routine described by the investigators interviewed for "Inside Job". As well, my mortgage had to be structured in a way as to be eligible for CHMC insurance. I think, contrary to what August claims, these requirements alone show the Canadian system to be more rigorously regulated than its US counterpart.

-k

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The Bank Act has existed since Confederation, with a few changes along the way. It has enabled and continues to enable a system that is very stable. Bank failures in Canada are infrequent, commonplace in the US.

Very, very true. As I say, the history of money in the two countries is stark. Before 1935, who printed the money that ordinary Canadians used in their daily transactions?

BTW: The US Federal Reserve was created around 1910. The Bank of Canada was created in 1935.

====

For better or worse, IME, ordinary Americans would never accept the concentration of power that Canadians (whether French/English) consider normal. Goldman Sachs? Koch Bros? MSNBC? Welcome to Canada.

Edited by August1991
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