The Big Short

[stongle]

anonymous said:

[redacted]

Or CDO squared....

The problem really was churning out financial products, that were designed to hedge risk; but had no sound or independent price verification. If the rating agencies were complicit, it bypassed all common sense internally; which today is nuts.

[ellroy]

stongle said:

Or CDO squared....

The problem really was churning out financial products, that were designed to hedge risk; but had no sound or independent price verification. If the rating agencies were complicit, it bypassed all common sense internally; which today is nuts.

If?

AIG were as guilty as a puppy next to a pile of poo.

[anonymous-user]

Mr Whippy said:

Lord Marylebone said:

The Big Short is easily one of my favourite films of all time. I have probably watched it 5 or 6 times in full so far.

As for other financial films, most people will have seen these, but if you haven’t, you should watch them:

Margin Call
Rogue Trader
Too big to fail
Boiler Room
Wall Street
The Wizard of Lies (Film about the Bernie Madoff Ponzi scheme with Robert De Niro)

Where’s Trading Places and Pi?

With regards to Trading Places, I will admit I have never seen it.

I tend to avoid comedy films as I just don’t find them funny… strange but true, and seen as how Trading Places claims to be a ‘screwball comedy’ that kind of repels me! Maybe I should give it a go?

I had never heard of Pi until now, and a brief read suggests it is more of a psychological maths thriller than an outright film about finance? I’ll give it a watch though.

[stongle]

ellroy said:

stongle said:

Or CDO squared....

The problem really was churning out financial products, that were designed to hedge risk; but had no sound or independent price verification. If the rating agencies were complicit, it bypassed all common sense internally; which today is nuts.

If?

AIG were as guilty as a puppy next to a pile of poo.

AIG is not a rating agency, as I guess you well know. But they too left their brains at the door. If Standard and Poors, Moody's etc were whacking AAA on the dogst; no one was querying it in their risk models.

That won't happen again, as when Lehman DID go bang, everyone sitting on that st (and it was pretty much every bank you can think of), couldn't mark it to sell or refinance it (depending on whether they had it as a hedge Vs a swap or repo). The legal agreements required you to value the ABS, CDO, MBS etc at market, and there wasn't one, so people just marked it to zero. Its why it's taken years to unwind Lehmans.

What the movie didn't deal with, was the trigger point to Lehman going tits up; which was haircut ramping largely by other banks funding them. During 2008, risk teams DID start to become aware that they indeed were sitting on crap (squared), and they needed more loss buffer. When Lehman ran out of dogst to finance to cover its margin calls and the default notices came winging in; everyone was in a race to liquidate or firesale mode.

And to this date, no one has figured how to deal with firesale velocity. There isn't a circuit breaker.....

[Mr Whippy]

Lord Marylebone said:

With regards to Trading Places, I will admit I have never seen it.

I tend to avoid comedy films as I just don’t find them funny… strange but true, and seen as how Trading Places claims to be a ‘screwball comedy’ that kind of repels me! Maybe I should give it a go?

I had never heard of Pi until now, and a brief read suggests it is more of a psychological maths thriller than an outright film about finance? I’ll give it a watch though.

No not outright finance in either case, but an interesting way to look at the subject from completely different perspectives.

It’s easy for us all to get bogged down in details but the fundamentals in all this are driven by human emotions.

No matter how much analysis is done, more can be done. We always use our intuition in the end.

Be that shooting from the hip with the GI Joe with the king fu grip rationale for buying/selling pork bellies... to seeing the universe of numbers that represents the global economy. Millions of human hands at work, billions of minds. A vast network, screaming with life. An organism. A natural organism.



I can watch the financial films. But it’s good to remember it’s ALL run by emotional humans.

I suppose the best examples of these is in Margin Call where Tully just decides to sell it all on his hunch of the music having stopped.
And Mark Baum in The Big Short wanting to inflict pain by holding off selling his insurances.

Edited by Mr Whippy on Saturday 26th June 18:54

[Dr Jekyll]

This is the best summary of the whole affair

https://goggle-kid.livejournal.com/292817.html

[Mr Whippy]

I still don’t get the pension fund value issue, if there were to be a big financial crash.

People near retirement should be in bonds/cash.

Then bail out directly to those that suffer (a bit like covid19 bailouts, but even better focus).

Then let the rest burn... and the fittest survive.

The entire financial market is an unfit lazy fat vampire that needs to die and be replaced with something svelte and fit and evolved for our modern world.

[vulture1]

stongle said:

ellroy said:

stongle said:

Or CDO squared....

The problem really was churning out financial products, that were designed to hedge risk; but had no sound or independent price verification. If the rating agencies were complicit, it bypassed all common sense internally; which today is nuts.

If?

AIG were as guilty as a puppy next to a pile of poo.

AIG is not a rating agency, as I guess you well know. But they too left their brains at the door. If Standard and Poors, Moody's etc were whacking AAA on the dogst; no one was querying it in their risk models.

That won't happen again, as when Lehman DID go bang, everyone sitting on that st (and it was pretty much every bank you can think of), couldn't mark it to sell or refinance it (depending on whether they had it as a hedge Vs a swap or repo). The legal agreements required you to value the ABS, CDO, MBS etc at market, and there wasn't one, so people just marked it to zero. Its why it's taken years to unwind Lehmans.

What the movie didn't deal with, was the trigger point to Lehman going tits up; which was haircut ramping largely by other banks funding them. During 2008, risk teams DID start to become aware that they indeed were sitting on crap (squared), and they needed more loss buffer. When Lehman ran out of dogst to finance to cover its margin calls and the default notices came winging in; everyone was in a race to liquidate or firesale mode.

And to this date, no one has figured how to deal with firesale velocity. There isn't a circuit breaker.....

To add to this I remember at the time getting 6% and then 7% on a years fixed interest for a savings account. Thinking I was really clever locking my money into that. When in fact the bank was trying to increase its capital and I was unknowningly risking my cash if they went down... Obviously Governments aka the taxpayer bailed them out.

[stongle]

vulture1 said:

To add to this I remember at the time getting 6% and then 7% on a years fixed interest for a savings account. Thinking I was really clever locking my money into that. When in fact the bank was trying to increase its capital and I was unknowningly risking my cash if they went down... Obviously Governments aka the taxpayer bailed them out.

Yep, quite alot of people (and Local Authorities) got burned on doing that with Icelandic Banks. Who also went the same weeks Lehman did.

Mr Whippy's comment above is probably unfair. There are 2 issues with it:

1. Most peoples retirement planning does not allow them to make almost zero returns. Cash won't make inflation positive, and Bonds are little better. If you look at where Govts borrow (and out to when); anyone thinking you are seeing substantial IR growth over the next decades is very optimistic. Very.

2. Financial education / literacy for most, is almost zero. Even in this part of the forum there is a lot of misunderstanding and bks. Few people would understand the principal of de-risking for capital preservation. They would generally leave it to others, even when an IFA or provider steps them through a risk questionnaire they still probably don't appreciate what is going on (and why).

Most peoples relationship with Risk / Reward, is (IMHO) incorrect. Those calling for a return to higher interest rates, believe their prudence should be rewarded - but that's counter to generating any form of return. They also don't understand what deposit taking actually costs. The government even taxes the banks for providing it. Levy and Operational cost of deposit taking probably add 0.2% cost alone; and in a near zero interest rate environment that's eating them alive. In a negative environment (like Europe) where you cant pass through the negative rate; you are approaching nationalisation.

Given the size of the stimulus pumped in since 2008, then again for Covid; the common view is inflation will take hold. HOWEVER, that traditionally requires raising rates to remove cash from the system; but the govts can't afford to that when they have to roll over and service the debt. Whilst rates may well increase, they are going to meet a ceiling. Its probably NOT going to result in rates high enough to make a reasonable return (for retirement saving).

People complaining about current economy / market; might have a point about it being bloated; but what's the solution to size? A reset? Not going to happen. I think the biggest problem since 2008 is wealth inequality, and access to credit. Whilst credit and leverage has exploded; its almost impossible to access it IF you have no assets. And there are a lot of "suppossed" Liberals in here who WANT That continued.

[Mr Whippy]

anonymous said:

[redacted]

Hang on hang on.

Pensions always (used to any way) move to low risk as your chosen retirement date approaches.

The risk is the proportion left exposed loses value and doesn’t bounce back... but if that happens it could be generally seen that stuff wouldn’t be inflating away either... ie, a crash and an economic depression, so you’d probably get away with a bit less pension to play with.


In any case, the video linked to made the pension point.
It’s a non entity point. It’s used by those who play the system to scare the masses into accepting bailouts because it’s in their interests too.
We’ve seen tons of crashes in the past without bailouts, and people survived, people retired and did ok.

Without allowing healthy enterprise to flourish, and instead supporting zombie enterprise, we’re doing more damage to our economic futures and pension “worth” come through time we’ll need it to pay the bills.


Any way it’s too big to bail out this time. So I’m not sure why I’m bothered as hopefully the point will be made in the next few years.

[stongle]

Mr Whippy said:

anonymous said:

[redacted]

Hang on hang on.

Pensions always (used to any way) move to low risk as your chosen retirement date approaches.

The risk is the proportion left exposed loses value and doesn’t bounce back... but if that happens it could be generally seen that stuff wouldn’t be inflating away either... ie, a crash and an economic depression, so you’d probably get away with a bit less pension to play with.


In any case, the video linked to made the pension point.
It’s a non entity point. It’s used by those who play the system to scare the masses into accepting bailouts because it’s in their interests too.
We’ve seen tons of crashes in the past without bailouts, and people survived, people retired and did ok.

Without allowing healthy enterprise to flourish, and instead supporting zombie enterprise, we’re doing more damage to our economic futures and pension “worth” come through time we’ll need it to pay the bills.


Any way it’s too big to bail out this time. So I’m not sure why I’m bothered as hopefully the point will be made in the next few years.

Except we haven't.

2008 exposed a fundamental issue in our global financial system - interconnectedness. It was nothing like prior "crashes", and it was nothing to do with allowing "healthy enterprise to survive". And if you really knew what was going on in Sept 2008, it wasn't the 15th (the day Lehman's went bang) that was scary - it was the 19th and wondering whether Morgan Stanley and Goldman would survive the weekend. If they went down, they probably took everyone with them. By Monday / Tuesday, we'd be in a barter based economy. You know those images from Greece in 2012, imagine that globally.

Everyone knows that banks are engaged in carry trading (or lending money long term / borrowing it short term OR in Lehman, Northern Rocks case overnight); but when the whole "interconnected" system stopped funding each other (because who actually knew who had dog st, dog st squared, of cat st cubed in the balance sheets), than bank runs start and you die.

Thinking that huge growth in leverage / stimulus was a response to 08, is pretty wrong. Western economies were already doing it long in advance, using monetary expansion to supplement for poor wage inflation. Once the wholesale system clammed up; it was pretty fked and it only took a trigger event to expose its fragility (without those Government interventions).

I'm not saying that the bank's didn't make out like bandits on TARP etc, but ALREADY by 2008 that system was over leveraged. We are 13 years on, and Central Bank (and bank balance sheets) are probably 4 or 5 times what they were in 08.

The creation of zombie companies is a by-product of that intervention, not an aim of it. Indeed this is a problem large areas of the global economy face today, but looping back to your de-risking bonds / cash in pension funds - do you think that government bonds are low risk? Most people (in financial circles), now expect the next crisis to be sovereign triggered. You and many might think, oh well if Italy goes bang; so what. The problem is that the post crisis regulatory reform just punished the banks by making them carry and support public sector spending largesse. Its a doom loop.

Its crazy, but the only sane (almost) solution; is to carry on as we are, but engage in microscopic long term deleveraging.

Given the size and proportion of our aging population (and level of saving), the Western economy is in a cul-de-sac.

Oh and the point on pensions "automatically" moving to de-risk, this is not universally true. Your risk / asset allocation is largely dependent on capacity for loss and knowledge. There is nothing wrong with having 100% Equity allocation in a pension fund if you have other assets.

[Stedman]

Lord Marylebone said:

The Big Short is easily one of my favourite films of all time. I have probably watched it 5 or 6 times in full so far.

As for other financial films, most people will have seen these, but if you haven’t, you should watch them:

Margin Call
Rogue Trader
Too big to fail
Boiler Room
Wall Street
The Wizard of Lies (Film about the Bernie Madoff Ponzi scheme with Robert De Niro)


Edited to add really geeky watch related stuff:

I collect watches, and the choice of watches worn by the characters in this film are so good that I have started to acquire some of the same models as seen in the film.

Notable watches that are featured:

Rolex Submariner as worn by Mark Baum (Steve Carell)
IWC Portuguese Chronograph as worn by Jared Vennett (Ryan Gosling).
Rolex Oysterquartz as worn by Vinny Daniel (Jeremy Strong)
Breitling Emergency (as worn by Ben Rickert (Brad Pitt).

Bonus watch fact: The Rolex Sub worn by Steve Carell in the film is a 116610 ‘maxi case’ model, which wasn’t released by Rolex until 2010, and yet the film is set in 2007-2008.

Edited by Lord Marylebone on Friday 25th June 18:11

Fabulous taste.

[stongle]

Stedman said:

Lord Marylebone said:

The Big Short is easily one of my favourite films of all time. I have probably watched it 5 or 6 times in full so far.

As for other financial films, most people will have seen these, but if you haven’t, you should watch them:

Margin Call
Rogue Trader
Too big to fail
Boiler Room
Wall Street
The Wizard of Lies (Film about the Bernie Madoff Ponzi scheme with Robert De Niro)


Edited to add really geeky watch related stuff:

I collect watches, and the choice of watches worn by the characters in this film are so good that I have started to acquire some of the same models as seen in the film.

Notable watches that are featured:

Rolex Submariner as worn by Mark Baum (Steve Carell)
IWC Portuguese Chronograph as worn by Jared Vennett (Ryan Gosling).
Rolex Oysterquartz as worn by Vinny Daniel (Jeremy Strong)
Breitling Emergency (as worn by Ben Rickert (Brad Pitt).

Bonus watch fact: The Rolex Sub worn by Steve Carell in the film is a 116610 ‘maxi case’ model, which wasn’t released by Rolex until 2010, and yet the film is set in 2007-2008.

Edited by Lord Marylebone on Friday 25th June 18:11

Fabulous taste.

A lot of things changed after 08, the 3k suit gave way to to the Patagonia Power Vest, EU bonus cap killed the annual Ferrari / Porker whanger fest; but the watch culture largely remained. Weirdly, pre 08 you'd get 10% off in Watches of Switzerland if you worked for the right bank. These days, I reckon they'd just piss themselves if you suggest it.

[JaredVannett]

Lord Marylebone said:

The Big Short is easily one of my favourite films of all time. I have probably watched it 5 or 6 times in full so far.

As for other financial films, most people will have seen these, but if you haven’t, you should watch them:

Margin Call
Rogue Trader
Too big to fail
Boiler Room
Wall Street
The Wizard of Lies (Film about the Bernie Madoff Ponzi scheme with Robert De Niro)

Just a quick point about Wall Street for those who have and haven't seen it.

The film as we know is a classic and a must-watch.... but you can safely skip the sequel 'Wall Street 2: Money Never Sleeps (2010)' .... this is a classic modern hollywood remake that ruins basically everything about the original. As you would expect from modern hollywood - it's loaded with biased moral grandstanding about the "evil" world of finance... money = BAD! ... and the side actors are awful.

The first film does expose morality issues, but it's not one-sided and rammed down the viewer's throat, rather the viewer is left to make up their own mind.


"Greed is good"

[Mr Whippy]

stongle said:

Except we haven't.

2008 exposed a fundamental issue in our global financial system - interconnectedness. It was nothing like prior "crashes", and it was nothing to do with allowing "healthy enterprise to survive". And if you really knew what was going on in Sept 2008, it wasn't the 15th (the day Lehman's went bang) that was scary - it was the 19th and wondering whether Morgan Stanley and Goldman would survive the weekend. If they went down, they probably took everyone with them. By Monday / Tuesday, we'd be in a barter based economy. You know those images from Greece in 2012, imagine that globally.

Everyone knows that banks are engaged in carry trading (or lending money long term / borrowing it short term OR in Lehman, Northern Rocks case overnight); but when the whole "interconnected" system stopped funding each other (because who actually knew who had dog st, dog st squared, of cat st cubed in the balance sheets), than bank runs start and you die.

Thinking that huge growth in leverage / stimulus was a response to 08, is pretty wrong. Western economies were already doing it long in advance, using monetary expansion to supplement for poor wage inflation. Once the wholesale system clammed up; it was pretty fked and it only took a trigger event to expose its fragility (without those Government interventions).

I'm not saying that the bank's didn't make out like bandits on TARP etc, but ALREADY by 2008 that system was over leveraged. We are 13 years on, and Central Bank (and bank balance sheets) are probably 4 or 5 times what they were in 08.

The creation of zombie companies is a by-product of that intervention, not an aim of it. Indeed this is a problem large areas of the global economy face today, but looping back to your de-risking bonds / cash in pension funds - do you think that government bonds are low risk? Most people (in financial circles), now expect the next crisis to be sovereign triggered. You and many might think, oh well if Italy goes bang; so what. The problem is that the post crisis regulatory reform just punished the banks by making them carry and support public sector spending largesse. Its a doom loop.

Its crazy, but the only sane (almost) solution; is to carry on as we are, but engage in microscopic long term deleveraging.

Given the size and proportion of our aging population (and level of saving), the Western economy is in a cul-de-sac.

Oh and the point on pensions "automatically" moving to de-risk, this is not universally true. Your risk / asset allocation is largely dependent on capacity for loss and knowledge. There is nothing wrong with having 100% Equity allocation in a pension fund if you have other assets.

Default pensions go high equity to high safe assets at retirement date.

No one should worry about their pension value due to an economic event unless they’re gambling with it.


Sovereign debt risk. Well yeah.
But what about sovereign currency value risk? Inflation.
And if your sovereign debt goes to zero, your equities and cash denominated in that debt based fiat go to zero too.
At that point we’re back to that barter economy so it’s not like you could do better than anyone else.


And yes, a few days away from a barter economy.
The system is screwed and needs to evolve. While no one is willing to change it, then we’re just on the slow road to that barter economy any way.

Nothing will change without pain.

Human nature is to not change. Change is painful so we try avoid it, even if it’s necessary.

Human nature is also to be greedy.


We’re doomed while those who are meant to manage these macro-societal concerns indulge in those human traits which work counter to our interests on larger scales.

[stongle]

Mr Whippy said:

Default pensions go high equity to high safe assets at retirement date.

No one should worry about their pension value due to an economic event unless they’re gambling with it.
.

You are gambling with it, whether the return is 10% or 0.52%. You won't get a return otherwise, so keep it under the bed and let inflation do its thing....

The system isn't going to reward prudence. The banks don't really need the deposit business, it's just a way to crank the leverage handle.

The film (back to the OP), deals with a specific event not the wider financial system. Sure it nearly brought the whole thing down Jenga style (still probably the greatest sales pitch ever - it it was genuine); but its a fk ton more complex. Or rather the way its abused is. If people view the whole thing as a bit if a wider conspiracy, you really don't want to know how the Central Banks, Regulators and institutions game the system. There is a clear argument, we learned nothing and rather than the private sector taking the piss the baton was handed to the public sector and they run with it....

We had access to the ECB window / APP, what we couldn't give away to zombies; we threw at US investment banks and rented them our balance sheet. Every European bank was doing it, as despite the global response to 2008 being uniformly agreed by the G20, they all calibrated the response locally. That meant US banks hold nearly double the capital for each $ of balance sheet than their EU peers.... that won't be a problem at all if the balloon goes up - EU bank balance sheet is only 3-400% of the entire areas GDP....

[Northernboy]

stongle said:

A lot of things changed after 08, the 3k suit gave way to to the Patagonia Power Vest, EU bonus cap killed the annual Ferrari / Porker whanger fest; but the watch culture largely remained. Weirdly, pre 08 you'd get 10% off in Watches of Switzerland if you worked for the right bank. These days, I reckon they'd just piss themselves if you suggest it.

The bonus cap has been a good thing for me. My bank added a “role based allowance” to my basic salary, intending to not pay it in the bad years, but they were then told that that wasn’t acceptable, as it was a bonus under another name, so those of us who’d received it got to keep it. The idea was that I could still be paid at the level that I had always been if I had a good year.

It’s still there in my pay packet each month, and will likely be there until and unless the bonus cap is removed.

It was pretty tough on those who missed out, there was a two-tier system created that is also still there.

[Mr Whippy]

anonymous said:

[redacted]

Jeez. The default one. Or the one you tell them when they set it up and they explicitly ask. That's which one.

Does anyone here read their document pack or annual statements?

[Mr Whippy]

stongle said:

You are gambling with it, whether the return is 10% or 0.52%. You won't get a return otherwise, so keep it under the bed and let inflation do its thing....

You're gambling with it if you remain exposed to high risk near to your chosen retirement date.

I spent a decade in pension comms. Maybe it's been drilled into my head by re-writing the same stuff a thousand different ways... and I'm certain it's not changed.

The defaults exist to protect people from market crashes just before they retire.

IF you choose to remain in full equities up until you retire, and the markets crash, that is your choice, and it would be seen as a high risk, or a gamble.


This isn't some matter of arbitrary perspective, it's been standard pension policy for as long as a I can remember. Take risks when you have a lot of time to play with, don't when you don't.

[5pen]

Mr Whippy said:

You're gambling with it if you remain exposed to high risk near to your chosen retirement date.

I spent a decade in pension comms. Maybe it's been drilled into my head by re-writing the same stuff a thousand different ways... and I'm certain it's not changed.

The defaults exist to protect people from market crashes just before they retire.

IF you choose to remain in full equities up until you retire, and the markets crash, that is your choice, and it would be seen as a high risk, or a gamble.


This isn't some matter of arbitrary perspective, it's been standard pension policy for as long as a I can remember. Take risks when you have a lot of time to play with, don't when you don't.

The reasoning for this has been somewhat overtaken by changes to legislation in the name of 'pension freedoms' though.

Sure, if you were close to a point in time where you about to purchase an annuity it was a sensible approach, but a drawdown arrangement over many years means that the value of the pot on a notional 'retirement' day is less important. Indeed, if you wish to protect your pot from inflation, exposure to equities and the associated risk of that leaves few alternatives.