“The Big Short” and Bernie’s Plan to Bust Up Wall Street

July 24, 2024 | admin

(COMMON DREAMS) Robert Reich, January 13, 2016 — If you haven’t yet seen “The Big Short” – directed and co-written by Adam McKay, based on the non-fiction prize-winning book by Michael Lewis about the housing and credit bubble that triggered the Great Recession — I recommend you do so.

Not only is the movie an enjoyable (if that’s the right word) way to understand how the big banks screwed millions of Americans out of their homes, savings, and jobs – and then got bailed out by taxpayers. It’s also a lesson in why they’re on the way to doing all this again – and how their political power continues to erode laws designed to prevent another crisis and to shield their executives from any accountability.

Most importantly, the movie shows why Bernie Sanders’s plan to break up the biggest banks and reinstate the Glass-Steagall Act (separating investment from commercial banking) is necessary – and why Hillary Clinton’s more modest plan is inadequate.

I’ll get back to Bernie and Hillary in a moment, but first you need to know why Wall Street wants us to forget what really happened.

The movie gets the story essentially right: Traders on the Street pushed highly-risky mortgage loans, bundled them together into investments that hid the risks, got the major credit-rating agencies to give the bundles Triple-A ratings, and then sold them to unwary investors. It was a fraudulent Ponzi scheme that had to end badly – and it did.

Yet since then, Wall Street and its hired guns (including most current Republican candidates for president) have tried to rewrite this history.

They want us to believe the banks and investment houses were innocent victims of misguided government policies that gave mortgages to poor people who shouldn’t have got them.

That’s pure baloney. The boom in subprime mortgages was concentrated in the private market, not in government. Wall Street itself created the risky mortgage market. It sliced and diced junk mortgages into bundles that hid how bad they were. And it invented the derivatives and CDOs that financed them.

The fact is, more than 84 percent of the subprime mortgages in 2006 were issued by private institutions, and nearly 83 percent of the subprime loans that went to low- and moderate-income borrowers that year.

Source: “The Big Short” and Bernie’s Plan to Bust Up Wall Street | Common Dreams | Breaking News & Views for the Progressive Community

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