Way OT: Frontline Documentary on Financial Crisis

Speaking of Frontline documentaries on man-made disasters, their 2-part treatment on the first 4 years or so of the war in Iraq was still the best and most even-handed explanation of what happened as anything I've seen.  Their Madoff Ponzi scheme episode is up there as well.   The other financial shenangian documentary I love is "The Smartest Guys in the Room."  When I saw the 30-for-30 doc "Pony Exce$$" last year, it really reminded me in many ways of the Enron story for sheer brazeness. 

As far as the financial crisis, ProPublica put a radio broadcast on Magnetar's dealing that is still my "favorite" story about the financial crisis; it's straight out of "The Producers" in the sense that these guys figured out they could get rich by deliberately selling junk and betting against their own product on a truly grand scale.  It's amazing.  And it was perfectly legal.  Quite a story.  I did a quick search for the broadcast and didn't see the link, but here's the written story: http://www.propublica.org/article/the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble-going

Cash in your savings and invest in mortgage backed securities

I am no finance expert, but I am amazed that with all of the liquid capital influxed into the system that there hasn't been much inflation. That was a BIG fear at one point and it hasn't really come on yet.

Gut-wrenchingly frustrating. 

I blame calculus and its greedy spawn derivative. 

How different is this from inside the meltdown? Or is it basically the same thing?

I love Frontline.  With the dumbing down and biased viewpoints of American journalism it is very refreshing.  I think this subject was especially appealing. 

Why is it I always miss the awesome faux arguments we have here at MGoBlog regarding points?  I mean, I'm old MGoPoints, seeing as how my grandfather founded Unverified Voracity and my father was an original Blockham.  So all of you nouveau MGoPointers are simply the scum of the MGoEarth to me and my kind.

I have frontline to automatically record on my dvr so I'm going to watch it soon

Check out Too Big to Fail. Also shows how everyone shares the blame. Couldn't put the book down.

Now that I'm a productive and self-supporting member of society (or will be, once I pay off my student loans...), this subject has become 100x more fascinating to me. Thanks for the link.

It's highly disconcerting that the only constant theme throughout the videos is that no one really had any idea what was going on. Scares the crap out of me.

on my dogs.  I highly recommend it!

FACT: December 2007, Rich Rodriguez hired by Michigan.

FACT: Summer 2008, economy breaks down.

Coincidence? I THINK NOT!

thanks for posting, I'm not in school or interviewing in the financial sector but like high quality stuff like this on current events.

I'm an engineer and  admittedly don't know much about finance or Wall Street, but I would like to learn a lot more as I manage my savings.  A lot of times I get lost in some of the vocabulary associated with information like this documentary, but the more I read and learn from shows like this, the faster I can make sense of new information.

 I watched the 1st hour of the special and have some general questions for people that are in the field.  My main question is this:  it sounded like this all started from one entity selling their risk to another entity.  What I don't understand is why the second entity (in this case, as the documentary described, the banks in Europe) would buy the risk.  It seems like they would have to be getting less benefit than the seller (otherwise the seller wouldn't sell) and obviously a higher probability of loss.  

One guy said in the documentary that "risk will flow to the dumbest person".  Is that really what this was all about?  Basically shoveling risk to people that didn't understand what they were getting into?  For me its just hard to understand why there would have been buyers to start.  It wasn't really clear from the show what there was to gain on the other side of things.  Thanks to anyone that can help me out on this.  

These shows are great at the broad strokes. I have been involved in two federal securities class action cases against the worst offenders and the really, really egregious specific acts never see tne light of day because everyone settles and the settlements and all discovery is confidential.

I'm amazed that Frontline got the interviews they did because some of the actors should have been frog marched back in 2009 or otherwise under indictment for fraud.

I live in southern California. For those of you in Michigan or the Midwest, the HELOC abuse that took place out here would probably put you into a coma. It's was that pervasive. Everyone did it - from school bus drivers to corporate CEOs.

Except we're now all reading about how foreclosure is "destroying families". Actually foreclosure is the one solution that's going to get us (and many underwater Americans) out of this mess, into a better place in 2-3 years, and normalize markets.  As for banks, they are not in the clear yet. It's now 2012 and the Texas Ratios of hundreds are shocking.

And just think, government intervention and the Fed caused it all.

...normal people.

Interest rates / inflation have been kept very low for a long time due to a variety of forces.

1. Globalization

a.) lots of new workers, mature economies can afford to not raise wages as they can make the same products with the same quality with cheaper labor

2. Low inflation no need to increase interest rates

3. With low interest rates, it's very difficult to meet pension obligations.

a.) pensions generally can only invest in lower risk securities, but these securities don't return very much

With US treasuries and corporate debt yielding very little, people needed another way to meet their pension obligations. Think huge funds like CALPERS or various other "sophisticated" investors. They bought a lot of junk assets that was yielding a lot more than traditional securities yet had AAA ratings by credit ratings. Residential mortgage backed securities seemingly defied all concepts of finance; here was something that was as risky as a US treasury but yielding 5% higher. That wasn't accurate.

Lots of investors didn't do the diligence or appreciate the risks they were taking.  But these people were chasing yield to a certain extent to meet their defined benefit obligation. So my parents and grandparents were in some way to blame for achieving unaffordable retirement benefits that their former employers had to pay for.

This is very superficial analysis but the basic gist is that in the show of 2007 - 2009 lots of very smart and not so smart people made a lot of bad decisions and the world-wide financial system was very close to collapse. My first day in investment banking was July 7, 2007. Market highs were October 2007, lows in March 2009. It's been pretty interesting see it all go down.

My advice, find someone you can trust who loves the markets and have them take care of it. Ideally a hedge fund manager, but if you are a few million short look to keep your assets diversified---no jargon if you need the money soon (cash, investment grade debt) if you need in 50 years to retire (stocks, commodities, risky volatile stuff). If you really like getting weird, let's do some derivatives.

Book it.

Also, this is a great free book on the housing crash:

http://www.thegreathousingbubble.com/images/uploads/book/The%20Great%20Housing%20Bubble%20ebook%20(printable).pdf

After watching the 2nd episode I decided to read your blog.  While I still don't know much about finance, and I'll have to "take your word for it" for now with regards to the crisis, I also read some of your other posts and enjoyed reading them.  Especially the one about the Cap1  bowl.   That was the year after I graduated and despite the first 2 games of the season, I really enjoyed watching that team, and that last win for Lloyd was as rewarding for me as a fan than any win I can remember (Ohio this year and some other ones while I was a kid as well).