A consistently intelligent (or at least bright), coherently constructed comedy that is on occasion a rather pointed critique of the American education system in the…
I don't fully understand the working of the derivatives and credit swaps we've heard so much about. But I'm learning. These are ingenious, computer-driven schemes in which good money can be earn-ed from bad debt, and Wall Street's Masters of the Universe pocket untold millions while they bankrupt their investors and their companies.
This process is explained in Charles Ferguson's “Inside Job,” an angry, well-argued documentary about how the American financial industry set out deliberately to defraud the ordinary American investor. The crucial error was to allow financial institutions to trade on their own behalf. Today, many large trading banks are betting against their own customers.
In the real estate market, banks aggressively promoted mortgages to people who could not afford them. These were assembled in packages. They were carried on the books as tangible assets when they were worthless. The institutions assembling them hedged their loans by betting against them. When the mortgages failed, profits were made despite and because of their failure. This process has been targeted by financial reform measures that many in both parties oppose because — well, lobbyists have persuaded them. There is no moral justification for how Wall Street functions today.
A Chicago group named Magnetar was particularly successful in creating such poisoned instruments for the sole purpose of hedging against them. Most of the big Wall Street players knew exactly what the “Magnetar Trade” was and welcomed it. The more mortgages failed, the more money they made. They actually continued to sell the bad mortgages to their clients as good investments. There was a famous exchange on C-SPAN as Sen. Carl Levin (D-Mich.) grilled Daniel Sparks, head of the Goldman Sachs mortgages department, on why the company aggressively sold investments its own traders described to one another as “shitty.” It was entertaining to watch Sparks maintain a facade of studious probity as Levin socked him with the word “shitty” again and again.