4 ms·

> I think the problem with short selling is best summed up by the end of the Big Short, as the main characters are sitting on steps of an abandoned bank, having

by calyth2018 6y ago

> I think the problem with short selling is best summed up by the end of the Big Short, as the main characters are sitting on steps of an abandoned bank, having made billions of dollars profiting off of the destruction of the American economy. That frankly is the wrong takeaway, or at least completely missing the original sin IMO. The original sin is banks that wrote mortgages to people who shouldn't have them, with terms that basically fucks them over. In the absence of the short side, someone might not have profited, some FI may not have keeled over, but the people, who were sold those mortgages, were still fucked just the same. The short side, calling bullshit on the long side, would not have existed, or at least be very foolish to do so, if the long side weren't doing something so stupid at such a scale that actually threatened the day to day lives of people.

big_curses 6y ago
I would argue that the original original sin is the fact that the government would bail out the banks writing these mortgages. The fact that the banks knew this encourages them to do take reckless actions in the name of profit. Why wouldn't they? There's no downside for them. It's another case of the government attempting to help the economy, but only hurting it.
- calyth2018 6y ago
  Ok, that's fair. My point being that it's the wrong takeaway to get mad at shorts for calling something bullshit and getting reward for it, and it sound rather irrational to me. The dog / cat shit pile was junk mortgage bundled into a CDO and getting a AAA rating, in which pension funds buys it thinking it's safe. In the absence of the shorts, those mortgage would have gone into default, the CDOs would have become worthless, or downgraded, forcing pension funds to sell. It's still the people holding the bag. The shorts weren't the ones initiating the bad behaviour, they made money on someone else's bad behaviour. And of course, the government bailed the FIs out just the same.

big_curses 6y ago

I would argue that the original original sin is the fact that the government would bail out the banks writing these mortgages. The fact that the banks knew this encourages them to do take reckless actions in the name of profit. Why wouldn't they? There's no downside for them. It's another case of the government attempting to help the economy, but only hurting it.

calyth2018 6y ago
Ok, that's fair. My point being that it's the wrong takeaway to get mad at shorts for calling something bullshit and getting reward for it, and it sound rather irrational to me. The dog / cat shit pile was junk mortgage bundled into a CDO and getting a AAA rating, in which pension funds buys it thinking it's safe. In the absence of the shorts, those mortgage would have gone into default, the CDOs would have become worthless, or downgraded, forcing pension funds to sell. It's still the people holding the bag. The shorts weren't the ones initiating the bad behaviour, they made money on someone else's bad behaviour. And of course, the government bailed the FIs out just the same.