The traders they sold to shouldn't have held grudges
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GuyOnTheLeft — 11 years ago(August 17, 2014 11:37 PM)
It's been a while since I saw this, but didn't they even say they were unloading so much of these assets because the management had decided to do some "risk management" or "risk mitigation"? And if (as it seems based on the "fire sale" notion) they were offering them at a price that was lower than the going rate
at that time
, then I don't think it's untrue that it was a "bargain".
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civ-e — 11 years ago(August 20, 2014 12:12 PM)
what i don't quite get is the emphasis on that they normally do buying AND selling. why does the firm buy AND sell the same type of packaged securities; do they just shuffle assets back and forth between the firms? if so what's the point of doing so. if you think an asset is good, u buy it, if u think it's bad (as in this case), you sell it. why is it so catastrophic if a particular firm decides to "only sell" and not buy.
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GuyOnTheLeft — 11 years ago(October 03, 2014 02:56 AM)
Right, but if he arrived at that conclusion via a sophisticated analysis of
publicly available
information, he deserves the profit (or lack of loss) for figuring it out faster than anyone else. No?
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ul90 — 11 years ago(October 19, 2014 03:25 PM)
The traders selling knew the scale of the fire sale at their own firm. They knew that their own actions were market moving. They also actively misled their counterparties about their reason for selling and the scale. They knew anyone who bought was risking their job. This will sour a relationship pretty quickly. This is always going to happen when a firm dumps assets in this manner but it doesn't stop people from being angry at being 'duped'. There are trading etiquettes.
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JeffAtlanta2004 — 11 years ago(March 18, 2015 01:21 PM)
But if someone sells you something at 96 which is worth 83 an hour later and 62 by lunchtime, you KNOW he KNEW something was seriously wrong.
They weren't selling at $96 a share, they were selling at 96 cents on the dollar. That is a very important distinction.
If a person is willing to sell you something at below market value (cents on the dollar), then it is already clear to the buyer that the seller is dumping it. This is even more apparent when they were being sold at 85 and 65 cents on the dollar. -
philoj — 11 years ago(October 25, 2014 04:21 PM)
I tell you I have a bag to sell you, and that I just need to get rid of it. I can't tell you what's in it, but I'll offer you a really good deal on it.
We've worked together a long time, so you think I'm coming to you first as a friend, and take the deal. When you open the bag, you discover I've sold you a bag full of dog exrement.
Would you be angry at me? Or would you think "Well heck, I knew it could've been anything - it's my own fault, really. Can't blame the guy for trying to get money for canine feces"? -
GuyOnTheLeft — 11 years ago(October 25, 2014 10:55 PM)
But that analogy doesn't work at all. Both the buyer and seller know exactly what's in the bag: sliced-and-diced pieces of home mortgages. The buyer is betting that enough of those borrowers will keep making payments that the security will be worth at least what they paid for it, and probably more. The seller is betting that it will be worth less. Both buyer and seller understand that this is what a sale means in these circumstances, and the seller said they were trying to unload some risk, underlining the point.
The seller also had done some sophisticated analysis,
using information available to both buyer and seller,
that gave them a slightly early indication that in fact people were defaulting on the loans at too high a rate and thus the securities were headed for a collapse. To say that this analysis, which is what they hire "quants" for, should just be shared with everyone they trade with, is totally ridiculous. It would obviate the whole point of even having a system of "market making", of having analysts who try to figure out the value of things better and earlier than other firms. Which is the fundamental business they are in. (Jeremy Irons has a great speech underlining this essential pointI should probably try to find the script so as to be able to quote it.)
So, again, the grudge they are holding is based on "your firm is better at this business than my firm, waaahhh".
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Database_Man — 11 years ago(November 09, 2014 01:26 PM)
The good salesmen likely not only got nice bonuses, but were kept employed by the firm - such boys are a great asset.
After all, that company sold first and got out of the crisis with least losses to its share= or unit holders.
Why did the topic of "you will lose your careers and will be fired tonight" was even raised? -
philoj — 10 years ago(March 16, 2016 09:45 PM)
Both the buyer and seller know exactly what's in the bag: sliced-and-diced pieces of home mortgages.
But they didn't know - this was actually the root cause of the subprime mortgage meltdown.
Figure an average mortgage is around $100,000. So if they're selling, say, $26,000,000 worth of mortgages, that's 260 mortgages. Except they're selling at a discount, so it's 300 or more. How long will it take you to audit the value of 300 mortgages and decide who's going to make payments vs. who's going to end up in foreclosure? (Or who's going to declare bankruptcy and make the entire income stream unreliable?)
They've been rated A+, but you know for a fact there are some subprime mortgages in there. But how many? 30? Or 270? Is this a nice discount on a decent investment? Or is it a bag of canine feces?
But wait, there's more it's not 300 discrete mortgages! The $26,000,000 is actually 10% of a $260,000,000 bundle of mortgages - not a specific 10%, just 10% of whatever the pile is worth. And once again - there are "some" subprime mortgages in there.
And here's where it gets really fun - and it turns out that
the bank that put this whole thing together has no idea whatsoever what the makeup of the security package is.
Changing the analogy, it's like your best friend handed you a revolver for your round of russian roulette, but he's not sure if he put in one bullet or five. Or maybe it's a shotgun. Who knows.
As the bailouts were being debated, at least one economist pointed out that the best course of action would be to freeze trading on the securities, then send in SEC auditors to pick apart all the MBS and rate them honestly, giving them a solid stamp of approval that could be relied upon for trading. It would have shored up the whole industry. But of course that would have resulted in a lot of harm to the investment houses, their executives, and their stockholders. So we didn't do that.
Philo's Law: To learn from your mistakes, you have to realize you're making mistakes. -
GuyOnTheLeft — 10 years ago(March 18, 2016 08:30 PM)
How do you explain that the "quant" was able to figure it out? If you say IRL this wouldn't have been possible, then that could be a criticism of the movie, or we could say that the movie universe is not exactly our real world.
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sbowesuk — 11 years ago(April 02, 2015 09:05 AM)
If you (and only you) knew a building was going to blow up 5 minutes from now, would you let people choose to walk inside? Their choice right?
That's basically how the final trading day in the movie played out. The traders working for Sam Rogers knew full well what the consequences of their sales that day would be. It would absolutely destroy the people buying, and the companies they worked for. The traders even knew it would end their own careers, but unlike everyone else, they'd go out with a golden parachute to the tune of over $2M. The people they be destroying would not get that luxury.
Ultimately this movies poses a simple question. Are you a scumbag who'll crush everyone around you for your own gain, then flimsily justify it so you can sleep at night? Think about it. -
GuyOnTheLeft — 11 years ago(April 02, 2015 09:29 AM)
Again: they weren't using secret information. And the crash was going to happen whether they started it or not. They were just smarter at seeing the writing on the wall sooner than everyone else, which is the whole point of going into that business.
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bpollen — 9 years ago(July 21, 2016 02:10 PM)
I think it's unethical for them to sell investments that they know to be worthless, representing that they are worth something. But I guess not illegal.
Once a trader does that and it becomes known, his career is over. No one would ever trust him again.
I'm not sure the default rates of the security packages was true public information, but they weren't selling to the general public. They were selling to institutions and funds, those in the know who subscribe to all sorts of informational sources, so they had access to that information, as Jeremy Irons referenced. In actuality, no one actually delves into the individual mortgages, since the package is rated by the rating agencies, and such. That was what the guy in The Big Short did.he read thousands of papers on the actual mortgages and saw that many would likely default.