So. Like most people you’re wondering what the hell is going on, right?
Don’t worry. Well, you should worry about the fundamentals of America but you shouldn’t worry about understanding it. Because I’ve got it covered.
First, go to Blockbuster and rent the movie Boiler Room.
In real life, all of Wall Street followed the pattern of the firm in Boiler Room. Wall Street packaged incredibly crappy mortgages in a complex way and sold them to “savvy” investors that understood them about as much as the average Joe that was sold worthless stock in made-up companies in Boiler Room.
In Boiler Room, they talked about the huge “rips” (commissions) they’d get when they sold stocks and wondered out loud how it was possible to be making so much money for doing so little. The risk-reward was way off. Guess what? In real life, Wall Street was even more incompetent because they never seemed to ask how they were getting such lucrative fees for constructing these seemingly low-risk mortgage backed securities. Well, it’s either incompetence or hubris. It seems so many on Wall Street actually thought they deserved these massive fees just for existing. At least in Boiler Room, the main character wonders what the deal is.
In real life, our government was nowhere near as competent as portrayed in Boiler Room. In the film, government agents were watching the scam, looking for a way on the inside, and trying to take it down. While in actuality, our government aided these morons efforts by providing next to zero oversight or regulation, relaxing rules on leverage and capital requirements so they could ensure the firms would get “too big to fail.”
One more way that Boiler Room is different from reality? I already touched on it, but in the movie, Morgan Stanley, Goldman, Lehman, Bear, ML, et al are lionized. Today, they’re bankrupt, consolidating, or disgraced.
Go watch Boiler Room. Step one is to substitute their fictional firm with all of Wall Street’s banks. Next, substitute schilling stocks to average Joe for packaging and selling weak-ass mortgages to the world’s investors. For step three, replace a competent SEC for a worthless Washington (Alan Greenspan & company) and you’ll get government intervention only when things start blowing up and nearly a trillion dollars is lost instead of actual oversight.