Reddit mentions of The Big Short: Inside the Doomsday Machine

I'd recommend "The Big Short" by Michael Lewis. It will shine some additional light on the collapse. A friend in finance recommended it after I had just seen "Inside Job" and called him about it.

http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231

Latewire's summary of what FNMA and FLMC are are beyond reproach. To add, however, they weren't the only brokerages who made really poor decisions as far as lending.

You're basically asking "what caused the housing bubble" and the simple answer is

1. banks^1 loaned money to people who shouldn't borrow money because they created ways^2 to securitize (create investable, bettable product) absolutely everything, including the likelihood of risky mortgages being paid back.
   
   
2. Banks create investment vehicles whose risk is not assessed on the basis of whether or not mortgages will get paid or housing prices will drop, but whether or not 30-year mortgages will continue to be paid off every 3 years or whether or not housing prices will continue to rise over 7% a year.
   
   
3. People who borrowed money who shouldn't have default on their mortgages (surprising damn near everyone)
   
   
4. Banks that backed these securities based on the risk that housing prices would never, ever, ever go down again end up utterly and completely screwed^3
   
   
5. Governments (not just the US) step in to provide solvency to the market to avert global Thunderdome
   
   Against that backdrop, FNMA and FLMC aren't exactly minor players, but they're mostly guilty of "me-tooism." The real problem is that while Bear Stearns and Deutsche Bank can fuck up, the government thrifts are, as Latewire mentioned, supposedly overseen (at a more and more and more diminishing level) by the government. In essence, DHL can fuck up and that's a bummer. When the USPS fucks up, there will be congressional inquiries. This does not make their crimes worse. It does not make their crimes better. It does, however, make their crimes more kabuki.
   
   

1. For "banks" see "any financial institution, be it a hedge fund, Savings & Loan, insurance firm, what-have-you whose money is made by calculating risk in financial transactions because
   
   
2. Any dividing line between a "bank" and an "insurance" firm was erased with the repeal of Glass-Steagall
   
   
3. This stuff is actually fascinating reading, particularly to anyone even vaguely interested in finance. My two favorites of the moment are IOU and The Big Short, both of which are written from a decidedly human perspective and with a great deal of insight. MY takeaway? There's a great line in The Big Short where Michael Lewis compares stock traders and bond traders, saying that stock traders are like exotic island creatures that grew up in an environment with no predators while bond traders tend to be the most ruthless sharks in an environment where "kill or be killed" has been more than an evolutionary pressure, it's been a passionate avocation since the dawn of time. The stock market is regulated due to millions of personal investors such as yourself, which means its behavior is politicized. The bond market, on the other hand, is ruled by large institutions with no oversight who write their own rules and make their money entirely by screwing others. And, frankly, as the stock market is a pimple on the ass of the bond market, and since the "stock price" of a "bond company" is about as meaningless as meaningless could be, investing in FNMA or FLMC without any insider information or a healthy and jaded comprehension of the bond market is pretty much the equivalent of pinning the tail on the donkey and hoping that, rather thank kicking you, it turns around and hands you money.

The Big Short. Very good, non-technical way of looking at the housing bubble, by telling the stories of those who had the guts to short the subprime market.

http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231

Market Data - Know this stuff. When the interviewer asks you what the 3 month LIBOR is, or what the 10 Year TNotes are yielding and you don't know, it's going to look bad.

The Big Short by Michael Lewis - Michael Lewis, a bond salesman turned financial journalist, details the Recession and the economic forces behind it.

Read the WSJ, The Economist, Bloomberg, etc. The Economist especially will give you a leg up on the competition.

These guys:

http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231

>allows the actors to hide their intentions behind

Again it's the intention of the actors.

When you are raising kids, you have to have them buy into the system you are running, otherwise they will spend most of their time working around the rules you establish. Rules can't stop bad actors. Enforcement of punishment for bad actors stops bad actors.

The only real solution is to confront or replace bad actors. The beauty is that people external to the US will eventually be more effective than the domestic audience in doing this as the US loses ground internationally do to the short term policies pursued by these interests. The elite in the US that would natural counter-balance things domestically lack the courage and character so far to even effectively rebuke their fellow elites.

The bad news is that domestically life will just get worse for most people in the interim.

Clearly identifying bad actors and their backers with public evidence, followed by effective group action, namely boycotts of the corporations responsible, and the construction of competing businesses is a good start. There is a lot of wasted money and brainpower in the current insane direction of the country. The solution is to tap into that, rather than have it continue unchallenged. Doing things like the Big Short is a positive step in the right direction.

We have a multi-dimensional problem. Single dimensional fixes will never work and are guaranteed to have negative multi-dimensional side effects.

The video in misleading. CDS can apply to a lof to things, but the pension funds that bought CDOs from Wall St were not the firms who bought CDS on the same securities from AIG. AIG's CDS were used by Wall St to create synthetic CDOs (CDOs with no real underlying mortgages), and were bought by investment banks and hedge funds. Pension funds got blown up when their CDO went to zero. Goldman, who sold them the CDOs, made money because Goldman (and hedge funds like John Paulson who personally made $4B in the crash) held CDS from AIG.

I recommend reading The Big Short by Michael Lewis to get a more comprehensive understanding than the video. http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231

Long story short - pension fund were not bailed out. Wall St was bailed out. AIG did not insure state pension from from their toxic CDOs. State pension funds got their faces ripped off.

I highly recommend reading the book The Big Short: Inside the Doomsday Machine by Michael Lewis. Not only will it lucidly explain the events leading up to the financial collapse, but the characters interviewed for the book are really interesting and sometimes hilarious. This book provided insights that just didn't hit home in 'Inside Job'. I was picking my jaw up off of the floor by the time I finished it.

And, sorry. I know this isn't r/books...

Last time I checked it takes both borrowers and lenders of loans to make crappy CDO's. Govt shouldn't have made laws to encourage and underwrite crappy loans, Banks shouldn't have lent to people with extremely bad credit history and sell them to WS, WS shouldn't have repackaged crappy BBB loans as sold them as AAA derivatives to Insurance companies and Pension Funds and Borrowers shouldn't have borrowed money they knew couldn't repay. So, as it turns out everyone was in on the easy money Orgy.

Might I suggest reading The Big Short

Actually I read this book

http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231

And I have a few conversations with my hs friend who graduated valedictorian of Wharton undergrad and some of his friends.

edit: The book is "The Big Short" by Michael Lewis

Instead of a 3 minute video maybe you should look into it a little deeper.

http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231

Also, based on the editing and her tone, she pretty clearly only learned what she is teaching a few minutes ago.