What You Need to Know About "The Big Short"

Townhall.com ^ | December 30, 2015 | John C. Goodman

[Teacher317]

The movie entirely ignores the Democrats numerous contributions to the collapse, and instead blames the greedy rich. Typical Hollywood fabrication.

[Oatka]

Wanna buy some tulip bulbs?

I think it was that Mackay book that told of a sea captain, just back from the Orient and unaware of the craze, saw a shopkeeper's prize tulip lying on the counter, thought it was an onion and chewed off a thousand guilder chunk.

The shopkeeper was upset, :-)

[zeestephen]

Re: “so the banks ended up giving loans to illegal aliens”

And here’s the proof...

I live in Seattle. My Home Page is MSN.com.

For at least a month in late 2007, Bank of America was running a home mortgage ad on MSN.com.

The large cap last line of the ad said this:

“No Social Security Number Required”

I knew the real estate market was DOOMED the moment I saw that.

[zeestephen]

Re: “Most of those subprime mortgages that folded went to illegal aliens.”

Re: “Do you have a source for that?”

Mojo, I didn't make the original post, but please see my Comment #43.

Also - from memory - the top three USA cities for foreclosures were located in Central California. The rest of the top ten included the usual suspects: Detroit, Las Vegas, Arizona, and Florida.

[generally]

What do the mortgage bubble and climate change have in common?

Faith in computer models.

If you knew how these computer models were concocted, you would not believe in any of their predictions. I’ve seen similar models built (and have been involved with a few) and I am stunned that anyone would trust their predictive ability. A good model maker can create a model to predict any outcome he wants. Sure, some are better than others and they can even be useful. But ALL of them are fallible. All of them have built-in biases. These biases are caused by the model makers. The biases can be willful and deliberate manipulation; they can be wishful thinking; they can be caused by failure to consider various inputs and other factors, they can be caused by over- or under-weighting the importance of inputs, etc., etc., etc. They can never account for all the factors that drive a complex system.

People want ouija boards and crystal balls so they try to create them.

[generally]

Multiple factors contributed. Fuel prices were one of many.

I’d point out that one reason for the fuel prices and related dotcom boom and bust is that Clinton created artificial prosperity by releasing the federal oil reserves at rock bottom prices which fueled much of the dotcom speculation. That was like running up your credit cards for several years, then being forced to pay them off. The party was good while you were spending like crazy (Democrat years) but a lot less fun when you ran out of what you thought was free money and had to get a job and pay the bills (Republican years).

[rbg81]

Exactly right. The vast majority of people who use computer models have almost no understanding of how the model spits out its answers. They are just trained not to put “garbage in” (and many times they don’t even do that properly).

Their faith is predicated on the fact that these models can seem very solid for years and years. This breeds complacency and intellectual laziness on the part of the users, even the smarter ones. But when you get into situations where their the fundamental assumptions of the model makers are violated, they start to break down—sometimes catastrophically. This is partly what happened with AIG. I think all humans have a built in bias to believe that what was true yesterday will always be true. The alternative is to deal with a highly chaotic world, which most people are not equipped to do. Especially when the chaos is a six sigma occurrence.

[generally]

I am betting that if they do, it will be by spinning off subsidiaries or smaller banks. Those spinoffs will have all the losses and be hung out to dry while the profits will stay with the parent company.

[rbg81]

BTW—I used to work a lot with software cost estimation models. Considered most of them to be garbage, but I also knew people who had blind faith in ‘em. Disconcerting.