Way OT: Frontline Documentary on Financial Crisis

Submitted by jcorqian on April 26th, 2012 at 7:40 PM

For those of you interested in finance, Frontline has done a tremendous documentary on the recent financial crisis.  It is a four part series (currently parts one and two are out) with tremendous detail.  You can watch it here.  I have written a blog post on it, Inside Job, and some of my quick thoughts on the financial crisis here.

I would highly recommend watching this for those of you still in school and are thinking about working in finance.  At least when I was interviewing, there were definitely questions on the crisis (although that was about two years ago).  However, you should definintely watch it regardless of just interview preperation to gain a broader understanding of the industry and the recent turmoil.



April 26th, 2012 at 9:15 PM ^

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



03 Blue 07

April 26th, 2012 at 9:30 PM ^

I've watched, I believe, every Frontline episode since 2003. In my opinion, it is the best television journalism in existence in the U.S. And, subjectively, I think it's the best show on TV of the last 10 years, along with The Wire, Breaking Bad, Mad Men, and Lost. I love Frontline. I even thought really hard about donating once.

His Dudeness

April 26th, 2012 at 9:35 PM ^

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.


April 26th, 2012 at 10:37 PM ^

Like you said, regular market capital is not flowing anywhere.  That is precisely because of the lack of savings.  Market capital is savings, and if we want to get that flowing again then we need to be more frugal and bank our paychecks to rebuild our capital and urge liquidation and recovery.  


April 26th, 2012 at 10:31 PM ^

so your sitting at home on ur lazy ass watching a documentary about financial shit that noone cares about...........better make a thread about it on mgoblog, id make a meme making fun of you but im not a fuckin geek like the rest of you


April 26th, 2012 at 10:36 PM ^

this board is complete trash sometimes. theres craploads of "way OT" threads about financial documentarys..........manwhile the lions picked their first draft pick and theres not even e athread about that...what the hell


April 26th, 2012 at 11:00 PM ^

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.


April 26th, 2012 at 11:12 PM ^

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.

Mitch Cumstein

April 27th, 2012 at 10:42 AM ^

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.  


April 27th, 2012 at 2:16 PM ^

The ball really started rolling in 99 when provisions of the Glass-Steagall Act were repealled.  At that time there were 2 types of bank:  investment banks (Bear Stearns, Goldman-Sacs, Lehman and so on) and commercial banks (Washington Mutual, Capital One and so on).  When provisions of the GS act were repealled, it allowed commecial banks to proprietary trade and it allowed investment banks the ability to deal with mortgages.  This created a huge conflict in interest.

As far as buying risk, these companies were niave to think the housing market would continue to go up.  This is exactly what happended with the tech bubble in the 90's. No one ever thought the market would correct itself and drop.  And it did in a big way.  The reason for buying this risk is there is reward on the other side of the trade.  When you trade/invest, you can't have one without the other.  The greater the risk, the greater the reward.  And it was working until the bubble became to big, and then pop.  It all comes down.

I know this subject matter well because I'm a day trader.  I've been trading since 2000.  I've traded anything from stocks to futures and now I trade the forex market.  All this volitility has been good for day traders, not so good for investors.  Hope I've help make some sense of this for you.  A good book to read or movie to watch explaining all of this is To Big To Fail by Andrew Sorkin, currently on CNBC in the mornings.



April 27th, 2012 at 10:51 AM ^

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.


April 27th, 2012 at 12:55 PM ^

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.


April 27th, 2012 at 2:54 PM ^

...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.

Mitch Cumstein

April 27th, 2012 at 9:53 PM ^

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).