This film is the best look to date at the rotten US housing mortgage system that developed over the last ten years. Clear enough to make you cry
The film begins with a simple enough statement to the effect that many people buying homes over the last ten years thought they were purchasing a place to live through a loan process. What they were actually doing is buying chips in a gambling casino and playing a game where some were certain to win and others were certain to lose. Not only that but the winners in this evil and corrupt game of chance would be guaranteed the power to cover their tracks under the auspices of the “free market” in plenty of time to get out of town before the roofs came crashing down.
The stock market has long since been a dice game in which some lost and some won. But the venerable personal residence has always been a sure-fire money maker. Some real estate investments gain value slowly and some quickly but in the long run it is hard to lose money on a personal residence. For this reason as well as the pride of simple ownership everybody wants to own a home of their own. The catch is that the banks will not loan to everybody because they know that some persons will not be able to make good on their commitments and keep up the payments.
At least this was true until the late 1990s. About that period of time two things happened that came together to form the perfect storm. The first thing was that home values skyrocketed, providing home owners across the USA with a seemingly endless stream of profits. The second thing that happened was that banks greatly liberalized their loan granting policies. Whereas they had been conservative before suddenly they were granting mortgages on homes to persons who the statistics showed would never succeed in making payments. This was because the payments started out with artificially low interest rates that increased over the following several years. In some case the increased interest nearly doubled the mortgage payments.
The banks did not do this out of the goodness of their hearts so that people could buy houses. They did it because houses were increasing in value so fast they didn’t think there was any way they could lose money if they had to take the houses back. This mountain of imaginary wealth fueled other financial spin-offs or “derivatives.’ These derivatives allowed mortgage lenders to package their deals into parcels that were sold as bond issues. In this way a huge portion of the US investment economy came to be based on inflated house values and on the mistaken belief that the bubble would never burst.
The people who made the loans sold not only the mortgages but the risk associated with them. They were the middlemen who collected six or seven figure salaries and bonuses before the defaults started and the public was left to pick up the tab. In retrospect the overall scheme comes to resemble a legalized large scale Ponzi scheme. The first in the gambit ill exit with their money before the last are left holding the bag.
Without getting overly technical, the most amazing invention to be thoroughly abused during the scandal probably is the credit default swap. The CDS is the perfect culmination of imaginary non-wealth creating investments in which a person or firm buys insurance that pays them if a bond goes into default. The amazing thing about this insurance is that the person who buys it does not have to have any stake in the credit instrument at risk. This is like you buying life insurance on the guy across the street who you don’t know and with whom you have no connection. These “investors” simply bought bets that mortgages across the USA would fail. But here’s the best part, we are now paying them off. All of us. Through the congressional bail-out. Yes, this film even includes an interview with one of these successful entrepreneurs in his house at Malibu. It is a powerful contrast with the interviews of the inner city residents whose houses are being taken away after their “reverse red-line” loans exploded into red-ink. They lost their houses; the guy in Malibu collected the insurance. Gotta love that free market.
The mortgage meltdown will remain one of the most memorable legacies of the Bush presidential administration; perhaps second only to the Iraq war. This film traces the crisis from its roots at the lender level all the way up through the AIG and mega-investment bank failures. Just the right mix of common sense language and technical back-up to make you want to, well, cry.
Directed by: Leslie Cockburn
Featuring: Ben Bernanke, Phil Gramm and Henry Paulson
Release: September 2, 2009
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