February 5, 2016
The Big Short
The Big Short- A Must See
You probably already know – or at least strongly suspect – that Wall Street is rigged. And not in favor of us.
Let’s start with the movie you must see if you have any money invested in the market (or need a reminder of why you yanked it out in the first place).
The Big Short is based on the New York Times best seller by Michael Lewis. The main characters are played by Christian Bale, Brad Pitt, Ryan Gosling and Steve Carell.
It recounts the story of a handful of Wall Street traders who (ultimately) made a fortune by betting against the mortgages that caused the housing bubble… and subsequent crash and Great Recession.
The movie actually manages to turn what could be a very dry topic into one that is very entertaining. You’ll actually come to understand how the complex mortgage products Wall Street created worked… and why everything crashed and burned.
And you’ll be reminded of our mass delusion of believing the housing market was invulnerable.
But the best reason to see The Big Short is for its vivid depiction of how fraud and deception can sometimes seep into the industry in the name of profits.
In the case of the housing market bubble and collapse, the fraud and deception were committed by everyone from would-be home buyers, to appraisers and lenders, the traders… and even the ratings agencies.
In recent years, NO major market has been immune to being rigged…
That includes currencies, commodities, precious metals, foreign exchange rates, default swaps, stocks – you name it.
A few quick examples:
• Several major banks were fined almost $6 billion for manipulating currency rates. One bank employee actually said, “If you ain’t cheating, you ain’t trying.”
• Banks were fined billions of dollars for rigging a key interest rate (Libor) to their favor
• In November, Barclays agreed to pay a $150 million fine for exploiting the millisecond lag between an investment order being placed and being executed. A trade that moved in your favor would often be rejected.
• On January 14, 2016 Goldman Sachs Agrees to $5 Billion Mortgage Settlement
And this is just a partial list! I have included a list at the end of this article for your review.
Yes, some big fines have been paid – $200+ billion so far just by the largest global banks since 2008, from the obscene profits they made scamming us. One of the big ironies is that a number of these organizations that have been charged and paid fines are some of America’s “most admired companies”. How can that be?
But almost no one goes to jail for it. Just the scene about this in The Big Short makes it worth seeing!
The bottom line is that you have you have to be careful about how you invest. Once your money leaves your account it is exposed to factors outside of your control and the risk that goes along with it. This is yet another reason to have a trusted advisor that follows the fiduciary standard.
As the saying goes, the definition of insanity is continuing to do the same thing, and expecting a different result.
Fines as of October 30, 2015
Company Total settlements Sums paid ($billions)
Bank of America 34 $77.09
JPMorgan Chase 26 $40.12
Citigroup 18 $18.39
Wells Fargo 10 $10.24
BNP Paribas 1 $8.90
UBS 8 $6.54
Deutsche Bank 4 $5.53
Morgan Stanley 7 $4.78
Barclays 7 $4.23
Credit Suisse 4 $3.74
Source: Keffe, Bruyette & Woods
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