Grab That Cash With Both Hands and Make A Stash
By Brian Prisco | Film | October 21, 2010 |
When the government announced it was going to offer a bailout to the financial corporations, like most Americans, I got pissed off. I had no idea why I was pissed off or what exactly was going on, but all I knew was that someone was getting money, and it sure as shit wasn't me. I didn't fully understand exactly what the implications of this was or why it was happening. All I realized was something was wrong. I, too, got the email explaining how if they had simply taken the $715 billion bailout and divvied it up amongst American taxpayers, we would all pay off all our debts, buy new houses and cars, and stimulate our economy. But instead, imaginary money went to imaginary debt and the haves had more while I still dodged calls from creditors wanting payments for student loans and credit card purchases. Inside Job goes through and meticulously details how things went wrong and where the money went. It would be futile to go through everything that the documentary documents -- complete with a wonderfully damning narration from Matt Damon -- but I want to touch on some particularly hot button points, particularly the securitization food chain.
Say I want to buy a house. I basically go to a lender, usually a bank, who then agrees to give me the money, which I agree to pay back. Through this food chain, the lenders have been selling all of my mortgage debt to third parties, who collect the debt into batches of collateralized debt obligations or CDOs, which represent investments. Since we pay interest on mortgages, they make money over time on their initial investment. Banks and hedge funds started to invest in purchasing as many CDOs as they could. Lenders began tossing out high interest loans to anyone who wanted to buy a home. This is how the housing market collapsed. The interest rates were ridiculous, but people could essentially get a loan for over 90 percent of a property's cost, putting very little of their own actual money into the investment. So people who thought they'd be paying $3200 on a house payment suddenly discovered they were hit with a $6000 house payment, which they struggled to make. And boom, goodbye homes.
Oh, it gets better. All these financial institutions like Bear Stearns and Goldman Sachs were paying crazy bonuses to people who would bring in crazy risky CDOs that they would make money on by passing along to speculators. Remember, investment firms basically convince clients to give them money, a portion of which they take, which they then spend recklessly on high-risk, high-profit investments. So pension funds and city governments were investing their money in these CDOs, which the hedge funds and investment firms were telling them were totally worth it. They even paid off the rating agencies to write reports saying these were top-notch investments. Then they "lobbied" -- you know, spend hundreds of thousands of dollars on what's tantamount to a fucking bribe -- to maintain deregulation so they could invest larger and more recklessly. It wasn't just investment firms but also banks who were making these crazy high risk investments.
What was happening was the lenders presented these CDOs to AIG. AIG was an insurance company who basically acted as a giant fucking bookie. Monthly premiums were paid to AIG in the off-chance that these CDOs would tank. In which case, AIG would pay out the full amount of the CDO to the lender. So let's go back to the house metaphor. The bank owns my house, until I make all my payments. But if I don't make all the payments on my house and I default on my loan, then AIG comes along and pays insurance to the bank in the amount of whatever my debt was worth in the CDO. What was happening though, was AIG was allowing speculators to purchase insurance against other people's CDOs. So they were gambling against AIG that the CDOs would default. Sometimes 50 or 60 different investors would be taking AIG insurance claims out against CDOs they didn't own. So now if I don't make the payments on my house, not only does the bank get all the money back from AIG, but these 50 or 60 different investors also get paid. It's a motherfucking ponzi scheme. And don't forget. It's Goldman Sachs and Bear Stearns that are gambling with the other people's money. So basically they (Morgan Stanley, Goldman Sachs, etc.) take tons and tons of "bets" against CDOs that they know are going to tank. They get payments for the initial investments, and then they turn around and get the money coming back the other way if the CDO fails. This is how their executives could earn $500 million dollar bonuses for fucking up their own companies.
Now where does the rage come in? Suddenly, because so many CDOs were tanking because of risky lending practices, AIG runs out of money to pay. So the government steps in and bails out AIG. And because the former CEOs and executives of these various financial institutions hold government and cabinet positions and act as financial think tank advisors to the President and the Congress, they basically insist that all these junky gambled CDO speculation purchases get paid back in full to the goddamn gambling firms of Goldman Sachs and Bear Stearns. So they still make all of their money back. Meanwhile, there are homeless people who couldn't afford to pay these giant loans back, and the pension funds for most of these small towns are completely defaulted since the money that was initially invested is magically gone.
The documentary does its damnedest to make economics exciting and accessible to all, but the language does get a bit dense. There's so much information, including interviews with just about everyone he can point a camera at, and wonderful usage of the "refused to participate in the film" cards. Again, I'm not even beginning to explain all the shady dealings, including derivatives and the Gramm-Leach-Bliley Act. Ferguson and his meticulous research lays out how this shit got out of control. And how it's been going on since the 1980's. And how we've been through repeated recessions because of it. And how the very men who got us in this position are still the ones working the strings. Yes, this includes President Obama. Our own government aided and abetted in the looting of the middle class and they continue to do so. And it's only going to get worse.
I'm fucking furious after seeing this film. What's nice about this film is it's not something that's going to have to fall along party lines. We're all fucked, except the top 1 percent. Hopefully, Obama realizes that the American people are finally hip to the game and he passes legislation and cleans house to start enacting the reforms we need. Because we're still playing the same goddamn games that got us here in the first place. And if he doesn't do it, maybe the next President who steps in will. Otherwise, we're doomed as a people, and our economic system is going to collapse. And, as Ferguson does an outstanding job of demonstrating, it's not just going to effect the American economy, but it's going to devastate the worldwide economy.
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