This past Sunday, I was watching “The Big Short,” a film about the crisis in the mortgage-backed securities market, in a theater a few hundred feet away from a major mortgage-backed securities servicing center.
The heroes of that film, who are based on the stories of real-life people, showed what geniuses they were by figuring out how to short the mortgage-backed securities market.
The movie makes it look as if the pirate traders in that film were the only people who understood that the U.S. mortgage market was going to crash. Of course, that’s not at all true. Many people who were running and watching life insurance companies’ investment portfolios knew very well that the housing market and the mortgage-backed securities market were eventually going to crash.
The only surprise, to anyone paying attention, might have been how much the collateralized debt obligation (CDO) market and the synthetic CDO market magnified the risk.
Meanwhile, on Jan. 12, President Obama will give a State of the Union address (which, as I wrote this, was is still a few hours away).
The American Academy of Actuaries (AAA) very kindly offered to have some actuaries available to talk about the challenges facing the U.S. health care, long-term care and retirement benefits systems.
I ended up turning down that kind offer, because I knew the AAA representatives would say the obvious, sensible kinds of things they’ve been telling reporters from LifeHealthPro.com and predecessor news organizations (example: National Underwriter) since before the panic of 1907.
What I really want to know is: Partisan views aside, does anyone in the White House or Congress who’s really involved with policy pay any attention to AAA advice, or have the basic chart-reading and compound interest understanding abilities to know what the heck the AAA folks are talking about?
As I was watching “The Big Short,” wondering what wise remark I would make if someone asked me what the big current “short” opportunity is, it occurred to me that the obvious answer is to short the dollar and other major world currencies.
In “The Big Short,” the mortgages in the portfolios backing the mortgage-backed securities turn out to be much more terrible than commonly understood.
The current equivalent (which, to be honest, I’m not sophisticated enough to fully understand) is that the current and anticipated assets in the virtual folders backing U.S. dollars (and the dollars’ various international sisters) are full of bad math.