The Big Short-Shady Side of Mortgages

The Big Short

 

 

The Big Short Reveals the Shady Underside of Mortgage Markets

by Neil Garfield, published on Living Lies, on December 14, 2015

 

 

Back in 2007, at the height of the foreclosure crisis, Citibank CEO Chuck Prince told the Financial Times that, “As long as the music is playing, you’ve got to get up and dance. Prince continued, “we’re still dancing.”   It appears the Big Banks are still dancing- while the judiciary has turned into a giant electronic music festival sponsored by an unconcerned judiciary and impotent government agencies. Since 2007 nothing has changed- consumers are still being foreclosed on by banks who have no standing to do so- and the foreclosure epic continues unchecked.

The Big Short, a film written by Michael Lewis (Moneyball, The Blind Side, The Big Short), will be released on December 23rd, 2015 and will hopefully provide enough outrage that Americans take to the street in protest. The movie, starring Brad Pitt (who also produced), Steve Carell, Christian Bell and Ryan Gosling- tells the story of five real estate investors who were able to anticipate that subprime mortgage loans were engineered to create the illusion of security, and exploit the market for personal gain. Michael Lewis, in his book by the same name; stated that, “Whenever an investment opportunity is presented with a high degree of security and confidence, it should warrant extra scrutiny.” In lieu of the mortgage crisis, truer words have never been spoken.

The movie reveals that the real estate crash resulted, in part, from the shadowy bond and real estate derivatives markets created by the banks to create the illusion of security. These incredibly complex and impenetrable securities were created to take advantage of lower and middle class Americans who were leveraged by stagnant incomes, high household debt, and a nationwide recession. The banks offered Americans predatory loans they couldn’t afford and knew they would fail. The banks then proceeded to bet against the loans they had created, foreclosed on homes they didn’t own and proceeded to make trillions of dollars in profit off of the misery of homeowners who lured into illegal loan contracts.

Starting in approximately the year 2000, banks began issuing mortgages that often required no down-payment and often contained adjustable rates. People began purchasing more home than they could afford believing that real estate would continue to drastically increase in value after an unprecedented run of growth. When the bubble popped in 2007, the fraud began to be exposed and it became obvious that the multi trillion-dollar mortgage bond market operated in a shadowy area without SEC oversight.  (see Shadow Banking) The Big Short is a movie that attempts to illuminate the casino like real-estate investment market- but despite Brad Pitt’s best efforts The Big Short only touches on the fraud that has been perpetuated on the American public.

The Big Short will reveal to the general public, who are still relatively unaware of what caused the real estate market to collapse, how “collateralized debt obligations” and “credit default swaps” led to unprecedented financial market fraud — the selling of “loans” that never happened 5, 10, 20 even 40 times over and then getting an unsophisticated judge to give a rubber stamp of approval on the wind-up pf a scheme that depended upon the illusion of legality.

Perhaps once people understand how their homes, retirement funds, and livelihoods were exploited by Wall Street and corporate banking interests- they might force the judiciary, government agencies and representatives to finally resolve this issue. Brad Pitt said he decided to produce The Big Short because, “It’s a story that needs to be told because nothing has changed.”

The Big Short injects humor into an issue that has destroyed the lives of millions. In one scene, mortgage brokers are seen explaining how they are pushing risky adjustable-rate loans on unqualified buyers- because those mortgages provided higher broker fees than placing borrowers into safer loans. “Why are they confessing?” Carell asks one of his employees. “They’re not confessing, they are bragging,” the employee responds. On November 24, 2015, the New York Times asked comedian Steve Carell to describe what a synthetic collateralized debt obligation was. Carell, taking a breath, responded,” You have CDO A and CDO B, and you can combine those two and put them into a CDO C, which is then made up of CDO A and B. CDO C is the synthetic CDO.” The reporter proceeds to ask Carell where he plans on keeping his money, Carell responds, “My Mattress.”

Carell echoes the sentiment of millions of Americans who have no faith in their governments, the markets, the banks or the courts. If the United States government and courts don’t deal directly with the banking fraud situation that has been allowed to continue for over 14 years now, Americans are going to lose faith and refuse to participate. It will be fascinating to see how the general public responds to this enlightening film.

The Big Short successfully conveys how families, who were subjected to predatory loans, fell victim to soaring unemployment, a recession and declining home values. However, the film fails to effectively demonstrate the fraud the banks perpetuated (and continue to perpetuate) on unsuspecting consumers, investors, and the courts.

The mortgage debacle was a criminal banking enterprise motivated by greed with no consideration for the Americans who fell victim to their predatory scheme. The Big Short fails to develop this critical element of the mortgage story. Towards the film’s end, Christian Bale’s character accuses Goldman Sachs of failing to fairly price his market bets until the bank could repackage and off-load their own liabilities onto other investors. In reality, in-house traders at Goldman were describing their own mortgage bond offerings as garbage while selling this ‘junk’ to investors and profiting handsomely. The big question is why aren’t any of these bankers in prison for their criminal venture?

The Big Short does not delve deeper into the fact that the banks have foreclosed on homes they don’t own, claimed to have funded loans they didn’t fund, and have deceived the courts in millions of foreclosure cases nationwide over the past decade. In order to cover their original fraud, the banks have resorted to more fraud in order to escape detection by filing fraudulent affidavits, forged mortgage notes, and false assignments in county records and in the courts. Although I have only reviewed movie trailers to date, I am interested not so much in the film, but how the public will respond. Will some borrowers secure mortgage audits to see if their loan was securitized? Will others conduct chain of title assessments? Will others take to the streets and demand change? The banks are not going to stop their ongoing fraudulent lending practices, court deception, or the creation of indecipherable, deceptive investment vehicles- until they are forced to. Without action, we can expect future bubbles, recessions, depressions and market volatility. Hopefully The Big Short will incite consumers to demand change.