Nearly a decade ago, I wrote an article about how workers in a peculiar American industry were beginning to worry about subprime home loans. They were Wall Street lawyers who specialized in a dark financial art called securitization — bundling up assets, such as home mortgages, into bonds for sale to investors.
The financial pipeline supplying the loans was beginning to dry up as more and more people fell behind on their mortgages, the lawyers told me.
It was the beginning of a two-year slide that culminated in the failure of Lehman Brothers and brought the American economy to the brink of collapse.
Like most people, and most journalists, I didn’t see it coming. I wrote my story, then unwisely turned to other topics. I had no idea that the entire mortgage industry was wormed through with rot and disease and fraud, that the mortgage bonds that had fueled an unprecedented run of growth and profit were stuffed with adjustable-rate loans doomed to fail.
I didn’t realize that ratings agencies like Standard & Poor’s and Moody’s were bought-and-paid-for tools of the Wall Street banks, and that their supposed oversight of the industry was a complete sham.
I didn’t realize that a multi-trillion-dollar shadow market had emerged that allowed hedge funds and other investors to place wagers on the performance of mortgage bonds in the same way that gamblers in Las Vegas can bet on the outcome of the Super Bowl.
But not everyone was so dumb. A handful of oddball investors, working independently from each other, began to short the housing market — or bet against it — in a big way. Michael Lewis, the great nonfiction storyteller, profiled a few of these people for his 2010 book, The Big Short, which has now been made into an improbably compelling movie of the same name.
I saw a screening of the film last week at a theater in Manhattan. Brad Pitt’s production company made the movie, and at a Q&A afterwards, he explained why he felt it was important to tackle a subject as complex as the mortgage crash. “It’s a story that needs to be told because nothing has changed,” he said.
“The Big Short” should be required viewing for every mortgage and banking professional in America, and maybe every high school civics class, too. It is a direct, frontal assault on the bogus claim peddled by Wall Street and conservative media that poor people and irresponsible borrowers were to blame for the housing crash and the resulting chaos.
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