Madeleine Robins

The Long and Short of It

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Oh, forever ago when I was young and foolish and had just moved back to New York City from Boston, I took a job at an investment bank. I had lived in dorms, or with room-mates, since I left home for college, and I really wanted to have an apartment of my own. And I wanted it within spitting distance of my childhood home in Greenwich Village, which was, on the face of it, ambitious to the point of insanity. So I took a job that paid very well, on the theory that I would work 9-5 and go home and write, right? Except that it was a job that ate my brain on a regular basis: there were days when I came home with my teeth clenched so hard that it took me hours to unclench. And getting any writing done was hard when all I wanted to do was slap someone upside the head. My boss was a truly smart, lovely fellow, and didn’t take himself, or his industry, very seriously. But guys who reported to him were not so relaxed or so enlightened, and they treated the support staff really poorly (which made me the one who had to take them aside and administer lessons in manners and common sense).

But I learned a certain amount about the world of finance and investment banking while I was there. The photo above is from Trading Places, a 1980s comedy about commodities training. And by the time it came out, I knew just enough about that world to understand what they were talking about, in a general sort of way, enough so that I was the first person in the theatre who cracked up at the business jokes.

Last week (after we’d gotten our fill of The Force Awakens) we went to see The Big Short, which I recommend unreservedly. The Big Short is about the housing finance bubble and how it burst in 2008. It’s well written and splendidly acted (Christian Bale and Steve Carrell are particularly good). It finds all sorts of clever ways to explain the esoterica of mortgage finance and how it all went wrong. And bing-bing-bing-bing-bing, it brought it all back.

See, at the investment bank I worked for the head of the brand new mortgage finance department. The–at the time–new idea of putting together large groups of mortgages into a bond made sense because 1) the securities would be made up of excellent, low-risk mortgages, and 2) the traditional default rate on mortgages was historically low. So these were safe, low-risk bonds–and (as my boss gleefully said) “they do good! They make it possible for people to buy houses! Everyone wins.”

Fast forward. I quit the bank so I could get some writing done. I met a guy and got married. I wrote some more books. I had a couple of kids. We moved out to San Francisco and spent a year looking for a new home. Even five years before the housing bubble burst, when we were going from Open House to Open House, there was something disturbing to me about the frenzied tenor of the housing market. There were flyers displayed in the entryways of million-dollar homes that talked about Zero-down Adjustable Rate Mortgages, and I saw people walking out with stars in their eyes and paperwork in their fists. My husband and I, being financially cowardly, eventually made an offer on a house that was a little short of our dream house, but that we could afford (with a solid down-payment and a traditional 30 year mortgage) and here we are to this day.

The disquiet I felt when I saw my fellow citizens gravitating toward San Francisco manses with massive price tags was based, in part, in my experience working in mortgage finance all those years ago. As The Big Short explains, the bonds that resulted from those sales were very often like Sunday’s fish stew at a high-end restaurant: made from the leftovers of Friday’s fresh-caught fish, and probably safe to eat. Probably. And the cynic in me believes that any time something looks too good to be true (like those Zero-down ARMs) it probably is. In The Big Short, the various people who figure out what is going on wind up betting against the market, shorting mortgage finance bonds. They all, eventually, make a bundle.

But as one character points out when his chums are celebrating the fortune their smart move has guaranteed them, each one of the bonds that failed meant families tossed out of their homes, people unemployed, schools underfunded, cities rotting at their cores. Nothing to celebrate.

I watched The Big Short with a sense of inside baseball: I actually understood some of this stuff before they explained it. But they explain it brilliantly.

At the end of Trading Places, the bad commodities traders are foiled, the good guys get rich, and everyone laughs and is happy. At the end of The Big Short some people wind up wealthy, but no one wins because the system is broken.

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