A few factors drive the entire fiasco of the economic meltdown in 2008 as per ‘The Big Short’.
Lies:
The financial firms and banks kind of bundled up the not so well performing stocks together and rebranded them to market them as some gold standard. The people believed it.
And, people believed it because they blindly trusted the banks and the financial firms to do well. And these firms took advantage of it. They lied.
Ignorant:
Imagine I come to you with a bag of sand and tell you that it costs a thousand bucks. You, not knowing its a bag of sand (as it is packed in a shiny material, and since you’ve looked across your shoulder at another gentleman who you believed in this stuff for acknowledgement rather than ripping it open), you bought it.
Then, later on, you’ve got to know about it suddenly. But everything around has already crashed. There’s not much to be done. The layman was ignorant.
Competition:
The rating companies which were ideally to rate the companies basis the health (and this was kind of the guiding principle for the normal human to choose the ones he would like to invest in), rated them in such a way so as to ensure that their survival is ensured.
And the big banks used to show their love to those rating companies that have rated them generally as per their needs, that is higher on a lot of stocks (even if undeserving).
The rating companies were not doing their job, just competing against each other.
Blind:
The loans have been stashed out, people were given huge amounts of loans. Then people bought some shit stocks with this money and thought they have owned something valuable.
Now, this reinforced the user again to further put the stuff that he owns (through loans) as collateral for new loans. The banks were not seriously evaluating the fact of whether these loans would actually be paid back or not.
The banks were blind.
Greed:
The bonuses of a certain hierarchy of people all along the banking and financial service providers were dependent on a couple of things. Selling as much as ‘packaged sand’ as possible and writing off as many ‘loans’ as possible.
The people who were responsible to either sell these off or write these off were just concerned about that alone. Because that maximised their incentive — Wealth.
The entire hierarchy was driven by greed in a faulty design.
Victim:
The truths about the ‘packaged sand’ slowly sapped out — it had to when you invest in a company, you do so because you believe it’ll turn stuff into profits. When the investment is made for sand, at one point or the other, the truth would come out.
When these huge loans have been dished out, at some point or the other the banks would need the mortgages to be paid back. When the users understand that their financial wealth is predominantly sand, there’ll be no money to pay back. And the banks suffer.
But, in the whole fiasco, the victims are laymen. As they cannot pay the mortgage, the wealth would be confiscated. So, the users would be left with nothing. And when they wanted to invest, the institutions guided them to buy sand. So they own sand.
The victim is obvious.
Repeat:
The banks were kind of written off by the government. There’s almost no one relevant made accountable for the entire fiasco. The collateral has only been the public which has lost wealth and jobs. The wrongdoers are not part of the collateral. Don’t see a reason why anything would change going forward too.
When the cause for the mistake is not identified and acted upon, the behaviour would repeat.
