“How do you make poor people feel wealthy when wages are stagnant?” The answer is rather simple: You lend them cheap money without asking any questions. On the other hand, how do you make money on loans not being paid by their holders? The answer is a bit more vibrant, but still fairly simple: You package the bad loans into bonds and sell them to clueless investors with insufficient information. This is the sad, but evidently true story on how greedy Wall Street firms spun bad debt into ‘investment grade’ securities causing the biggest credit crisis the world has ever witnessed. Michael Lewis, a former bond salesman at Salomon Brothers and now well-awarded writer portrays this ever so elegantly through his Novel, The Big Short. The tale of …show more content…
Unlike Michael Lewis, Eisman stuck to trading and became a well-known face among Wall Street veterans. His criticism of the fraudulent, incompetent and greedy practices conducted by Wall Street banks are somewhat the plot’s main trait in presenting the readers of the crooked business that went on behind the curtains at that time. Along with his peculiar affiliates at FrontPoint, Vincent Daniel (his number crusher) and Danny Moses (his right-hand trader) he decided to short the mortgage market using a sophisticated insurance policy known as a credit default swap (CDS) a bet on the mortgage bonds to plunge. Greg Lippman, the man behind the CDS, allegedly supposed to sell mortgage bonds to funds like Eisman’s, instead pitches the possibility of shorting them, with fat commissions as his carrot. Lewis describes Lippman as a sneaky inside profiteer, with opposed interests than of his colleagues at Deutsche Bank - heavily invested in mortgage backed securities. The story’s main character and the first ever to buy a CDS on subprime mortgage bonds is Michael Burry. Hilariously portrayed by Lewis as a former surgeon with a glass-eye, Asperger’s Syndrome and impeccable trading skills. He had a whole different way of understanding the financial markets – clearly reflected in, Scion Capital, his fund’s …show more content…
He’s narrative makes it easy to comprehend the essentials, thus a background in Finance is not at all required. With a great story along a cast of fascinating characters Lewis accurately explains that investment banks such as Goldman Sachs and J.P Morgan never had been more creative in designing exotic investment instruments for traders to trade whatever’s thinkable. In The Big Short, we’re mainly introduced to subprime mortgage bonds and CDOs (Collateralised Debt Obligations) - the securities that ultimately went bad, and in the end caused the crash. They would contain mortgages, both bad and subprime (junk), repackaged and put together in tranches (French for a ‘portion of something’) to represent a ‘diversified’ pile of debt that investors could invest in – receiving fixed income over the length of the loan period. Bonds, both corporate, private or government – are known to be harmless investments, but Lewis reveals a dark secret that altered their solvency. Namely, a conspiracy between originating firms and the rating agencies, to rate the bonds as triple-A (investment grade) when they basically contained subprime junk and were super risky. If lenders would fail to make their scheduled payments, the loans would go sour, and eventually go into default, causing the bonds to crash. Lewis writes “all that was needed was a 7 percent loss in the
The novel Liars Poker by Michael Lewis is a very interesting firsthand account of an inside look into the investment banking world, in particular bond trading at the firm Solomon Brothers in the 1980s. Lewis took an interesting and roundabout way to end up on Wall Street, studying art history at Yale and bombing his interview with Lehman Brothers. But he eventually found himself at Solomon Brothers through a lucky encounter with two managing directors wives. Through his book, Michael Lewis conveys the inner workings of investment banks in the 1980s to the average person using his own experience at Solomon Brothers. The book goes into Lewis’s own rise in the firm, as well as the rise and fall of the entire Solomon Brothers Mortgage department.
In the midst of the current economic downturn, dubbed the “Great Recession”, it is natural to look for one, singular entity or person to blame. Managers of large banks, professional investors and federal regulators have all been named as potential creators of the recession, with varying degrees of guilt. No matter who is to blame, the fallout from the mistakes that were made that led to the current crisis is clear. According to the Bureau of Labor Statistics, the current unemployment rate is 9.7%, with 9.3 million Americans out of work (Bureau of Labor Statistics). Compared to a normal economic rate of two or three percent, it is clear that the decisions of one group of people have had a profound affect on the lives of millions of Americans. The real blame for this crisis rests on the heads of the managers that attempted to play the financial system through securitization, and forced the American government to “bail out” their companies with taxpayer money. These managers, specifically the managers of AIG and Citigroup, should be subject to extreme pay caps for the length of time that the American taxpayer holds majority holdings in their companies, as a punitive punishment for causing the Great Recession.
Although the movie opens with a quote from Mark Twain, the next scene where Ryan Gosling is explaining the revolution in bond trading by Lewis Ranieri, with a mustard stain on his shirt, is what can be considered an exposition to the movie. Lewis Ranieri’s introduction to mortgage-backed securities in the 1970s, while ensuring their low risk and triple-A rating by humorously backing it with “who
Investment banks, Rating agencies and Insurance companies are key components of the financial market. In this presentation, I’m going to explain how these three key roles worked together to create the 2008 financial crisis.
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sexuality he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm (A&E Networks Television). Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.
Mackay, Tim. "The Ethics Of The Wolf Of Wall Street." Charter 85.2 (2014): 67.Web. 23 Mar. 2014.
Moreover, the film portrays the stock market crash of 1987 with his work eventually closing down, and him losing his job because of it. According to Goodman, Daniel Ross, “The company for which Jordan Belfort was working suffers through the Black Monday stock market crash of 1987 and lays off much of its workforce including him Belfort is fortuitously yet unfortunately provided with an opening to indulge his amoral ambitions.” The film also portrays the FBI (Federal Bureau of Investigation) starting to investigate the illegal the company Stratton Oakmont. ”But interest in Belfort’s unorthodox stock trading starts building with the FBI.” The film depicts an undercover FBI agent working at Stratton Oakmont to gather intel.
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
Mooney, Richard. "Banker of America." The Boston Globe 4 Apr. 1999: L1 "Powerful house of Morgan Changes with the Times." The San Diego Union-Tribune 24 Feb. 1986: 18 Sinclair, Andrew. Corsair: The Life of J. Pierpont Morgan. Toronto: Little, Brown and Company, 1981.
After watching the movie The Big Short, I have a much better understanding of the financial crisis that took place in 2008. One topic from the movie that really stood out to me was the idea of synthetic CDO’s, which I thought explained the crisis perfectly. For example, Selena Gomez is pictured playing a game of black jack in which she is winning. However, a large audience is in attendance making side bets on Selena’s hand. In addition, more audience members are making bets on the side bets.
At the start of Wall Street, Bud Fox is young and insecure about the business world. Bud is a broker seeking new clients and offering second-hand advice regarding the buying and selling of stock. Bud makes a visit to Gekko?s office with a box of Cuban cigars on his birthday in hopes of winning him over as a client. He wa...
The Wolf of Wall Street produced and directed by Martin Scorsese tells a story of Jordan Belfort, a stockbroker living a luxurious life on Wall Street. Due to greed and corruption, Jordan falls into a life of crime and abusive activities. Belfort made millions of dollars by selling customers “penny stocks” and manipulating the market through his company, Stratton Oakmont, before being convicted of any criminal activity (Solomon, 2013). Jordan reveals behaviours and impulses all humans have, however, on an extreme level. This movie illustrates “why ethics is another tool whose importance cannot be overstated” (Delaney, 2014). Without ethics and morality, individuals can never truly live an honest and happy life.
Eight years ago, the world economy crashed. Jobs were lost, families misplaced, hundreds of thousands of people left shocked and confused as they watched the security of their world fall to pieces around them. In, “The Big Short,” a film directed by Adam McKay and based on the book written by Michael Lewis, viewers get an inside perspective on how the financial crisis of 2008 really happened. Viewers learn the truth about the unethical actions and irrational justifications made by those who unwittingly set the world up for failure. Two main ethically tied decisions are brought into question when watching the film: how could anyone conscionably make the decision to mislead investors by misrepresenting mortgage backed securities (MBS), and why
This movie starts off as Jordan Belfort, the main character in the movie, losing his job as a stockbroker in Wall Street. After losing his job, he goes and gets a job in a Long Island brokerage room. In the brokerage room, he sells penny stocks. Thanks to him being aggressive in his selling skills, he was able to make a profit. With the new income, he gives his wife a bracelet and she asked him why doesn’t he go after the people that can afford to lose money, not the middle-class people or lower income people. That is when he gets the idea to get a lot of young people and train them to become the best stock brokers.
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sex, he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm. Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.