BEFORE: I think I covered this topic before - the 2008 financial collapse? This is the same one that was shown in the movie "Too Big to Fail"? It's so hard to keep track, we've had a few different recessions and such - oh, sorry, I'm not supposed to use the "R" word any more, it's fallen out of favor or something.
I went back and read my breakdown of "Too Big to Fail", and nope, I still don't really fully understand economics. It's never going to happen, OK? I don't have the mental capacity for it, I just wait until the friendly news people on MSNBC tell me what happened.
Barack Obama carries over from "Trainwreck: Poop Cruise".
FOLLOW-UP TO: "Too Big to Fail" (Movie #3,914)
THE PLOT: A closer look at what brought about the 2008 financial meltdown.
AFTER: Yes it happened again, my eyes glazed over and my brain stopped working when the causes of the 2008 economic collapse (and the bailout) were explained. But I think this time I know what directly caused it, it's the wor "derivatives". As soon as I hear that, I remember calculus class in high school, where we needed to find derivatives so we could determine the area of the space under a curve, or something. What curve? Where is this curve? And why is it important that we know how much space is under it? Who gives a rat's ass? Really I think I tuned out of math class for a few months because I didn't see any point to it all, but I still got a "B" for showing up. I think if you can understand calculus then you get to come back and replace the math teacher after you finish college, that must be how it works. They just want to pass this crap on to somebody else so they can retire.
It seems like the actions of a couple of Presidents led to the 2008 collapse, but we've decided to lay the blame more or less on George W. Bush, and I'm OK with that. Deregulation of the financial industry, what could POSSIBLY go wrong? And while we're at it, let's fire 5 out of the 7 members of the regulatory commission, that seems like a surefire plan for success, just look at how well that worked out in Iceland. Actually, it didn't work out in Iceland at all, but the Iceland Tourist Board slipped some economists some money to write papers about how super great everything was going in Iceland, and they found a way to control the narrative. This would only be a problem if the U.S. used the Iceland model to justify banking deregulation in America and Presidential oversight that followed the "well, fuck it" model. What really happened in Iceland is that their three banks (not three banking chains, just three banks) borrowed millions of dollars that they proceeded to loan out to people who used it to buy a bunch of things they couldn't afford, like yachts and London penthouses and football teams, and then nobody reminded them they'd have to start making payments on those loans. Wait, what? When the defaults happened, everyone in Iceland woke up one day and realized they had no money.
The economy is a fragile thing perhaps, it's all smoke and mirrors and it only works because we need it to, or maybe because we believe that we need it to. It's kind of like believing in God, you want to think that somebody is in charge of the universe and made everything happen for a reason, but if you press even a devout religious person hard enough, you can get them to admit that, well, maybe nothing's THERE and everything we know about happened randomly. Look, either way you're alive and that's something, you have as many years as you have, and you have what you have in the bank and, well, don't get greedy. But the bankers never got the memo about that last part, they want you to give your money to them and they'll invest it for you and pay you a small dividend or some interest and really, you're helping build companies and your taxes are going to bring people (including you) valuable services someday, so just shut up. It works the way we say it works.
But then what happened was that brokers created this thing called derivatives (Oh, God, it's happening again...) and that allowed other people to invest according to whether they believed certain industries would be successful or not. It's maybe like betting on sports, but you understand that your favorite team can't win every game, so sometimes you bet against them, because then you'll win money if they lose. And then brokers convinced regular people to invest in derivatives, because come on, everybody's doing it, and the economy just keeps going up, so again, WCPGW? Just in housing everybody was talking about the bubble, how the market had been growing faster than usual for the last 15 years, and a bubble is a great metaphor for success because bubbles just last and last, right? JK. Bubbles burst, always always, but nobody knew when the bubble would burst, so as long as it doesn't, you can still invest and make money, just make sure you cash out before it bursts, OK? It's simple, you just... um... well, you sell before that thing happens, that's all.
At the same time, brokers were being financially encouraged to sell derivatives and other investments with higher risk - and the housing market was such that houses were being sold to people who couldn't possibly afford them over time, because all the people with good credit already had houses, I guess. And honestly, we did have a housing shortage for a while, but whatever the opposite of a housing shortage is, that's not a great situation either, because it means that people who can't really afford houses are buying houses because that's the American Dream, and those are what were affectionately called "sub-prime" mortgages. Then the enterprising accounting demons bundled a bunch of those sub-prime mortgages together to create a derivative, and then people could invest in those and essentially bet on whether those mortgages would collectively succeed or fail. If I'm close to reality here, it's only because I've reviewed this so many times. But it's no different from those Iceland banks, people were borrowing money HERE to invest it in a lot of shady things over THERE, and they were betting on failure, or the feeling that failure was about to happen.
You might remember that back in 2000, something similar happened with internet stocks, investment banks were promoting companies that they said were going to be the next Google or the next Facebook, only that wasn't true, those companies were likely to fail, but the banks got rich either way, and investors lost $5 trillion when those companies were not successful. Same thing happened with the bundled mortgages (collateralized debt obligations, or CDOs), they were crap and the banks knew they were crap, but they paid the rating agencies to give those investments AAA ratings, making them look like they were solid things to buy, so people bought them. So the SAME companies that were telling the public that these investments were top-notch were ALSO buying credit default swaps (CDSs) which were like an insurance policy, to bet against those very same CDOs. They would get rich either way, but at the cost of defrauding the public investors.
Things came to a head in 2007, when the CDO market collapsed (honestly, was it ever even real to begin with?) and the banks were left holding useless CDSs, loans and all that real estate that was bought by the people who couldn't afford houses. Well, damn, that's what a bubble does, after all - maybe a balloon would have been a better metaphor because when a balloon bursts it leaves little scraps of plastic on the floor that are useless and you'll never be able to assemble into a balloon ever again. The U.S. government took over the mortgage companies Fannie Mae and Freddie Mac and then started bailing out the banks, which all got their AAA ratings back very quickly - well, sure, there couldn't possibly be a better time to invest in banks than after they lost everything and the government just gave them a big pile of money. Lehman Brothers and AIG were gone, but Wells Fargo bought that bank and Citibank bought that one, and except for a ton of foreclosures and layoffs, we were back to normal fairly quickly, except that now there were fewer banks, zero accountabilty and still, for some reason, no reverse of that de-regulation, which I guess would be "regulation", the other R word you just can't say.
The only people who came out ahead were the former top executives of the collapsed banks, who all walked away with severance pay because suddenly the bank's board was playing with house money, and so sure, we'll get rid of the guy whose policies helped our bank fail, but we'll also give him $50 million after he cleans out his desk? There was a slight push by the Obama administration to go after this unwarranted severance pay, but by then there were so many former bank executives working for the White House that this idea was a non-starter. Go figure.
I bring all this up now because if you think that this can't happen again, you're living in a fantasy world for sure. One of the factors that led to the 2008 economic collapse was the laying off of most of the regulatory committees, and what do you think Elon Musk just did with his DOGE crap? And then we've had all this crap over tariffs in the last three months, I don't even remember where we landed with that, but that could easily have been the next big thing that would derail the U.S. economy and cause an R-word. Considering how high gasoline and egg prices were two months ago, I just figured we were already on that track, it's kind of a miracle right now that things seem to have settled down, but I just jinxed it, didn't I? The next time that people lose faith in one sector of the economy we're all done for, but no worries, just sell all your stocks and other investments right before that happens, you'll be fine.
Directed by Charles Ferguson
Also starring Bill Ackman, Daniel Alpert, Jonathan Alpert, Sigridur Beneditsdottir, Willem Buiter, John Campbell, Patrick Daniel, Satyajit Das, Kristin Davis, Martin Feldstein, Jerome Fons, Barney Frank (last seen in "Mike Wallace Is Here"), Robert Gnaizda, Michael Greenberger, Eric Halperin, Samuel Hayes, R. Glenn Hubbard, Simon Johnson, Christine Lagarde, Jeffrey Lane, Andrew Lo, Lee Hsien Loong, Andri Magnason, David McCormick, Lawrence McDonald, Harvey Miller, Frederic Mishkin, Charles Morris, Frank Partnoy, Raghuram Rajan, Kenneth Rogoff, Nouriel Roubini, Andrew Sheng, Allan Sloan, George Soros, Eliot Spitzer (last seen in "Get Me Roger Stone"), Dominique Strauss-Kahn, Scott Talbott, Gillian Tett, Paul Volcker, Martin Wolf, Gylfi Zoega,
with narration by Matt Damon (last heard in "IF") and archive footage of Maria Bartiromo (last seen in "Too Big to Fail"), Alan Greenspan (ditto), Ben Bernanke, Joe Biden (last seen in "Mayor Pete"), Lloyd Blankfein, Tom Brokaw (last seen in "Gotti"), George W. Bush (last seen in "Stan Lee"), Bill Clinton (last seen in "Super/Man: The Christopher Reeve Story"), Hillary Clinton (ditto), Ronald Reagan (ditto), Susan Collins, Ann Curry (last seen in "Clive Davis: The Soundtrack of Our Lives"), Rahm Emanuel, Richard Fuld, Timothy Geithner (last seen in "Capitalism: A Love Story"), Phil Gramm (ditto), Charles Keating (ditto), Henry Paulson (ditto), Carl Levin (last seen in 'Steve Jobs: The Man in the Machine"), Richard Portes, Donald Regan, Larry Summers, Henry Waxman, Brian Williams (last seen in "Nyad"),
RATING: 6 out of 10 people who declined interviews
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