Top 10 Questions “Too Big To Fail” Failed to Answer

May 26, 2011 4:08 AM ETGS, MS, GE, MCD, WFC, JPM
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Long/Short Equity, Growth, Value

Contributor Since 2009

HBO’s “Too Big To Fail” is a good adaption led by great actors but end result is a boring movie for the average viewer.  Whileit kept me interested, mainly due to the great cast, it didn’t teach me anything I didn’t already know. If you were the average TV viewer you might have been confused the whole way through.  They failed the viewer in leaving many with so many unanswered questions about it was hard to keep track. As a result, I have made a cheat sheet for those in need answering the top ten most crucial questions that should have been answered in the film.

  1. What is a Subprime Mortgage? I find it hysterical that Hank Paulson would need to be explained what a subprime mortgage is but anyways in plain English? A subprimie mortgage is a lousy mortgage given to people who probably can never pay back the loan.
  2. Why Do We Hand Out These Loans? Thank the Clinton Administration for that and frankly even as far back as Jimmy Carter as they were the first who led the charge to rewrite the rules of who qualifies for a loan. Before it was you needed a credit score of 620 and a down payment of 20%, now it’s a mere joke as you only need a credit score of 500 and no down payment.  This is how white trash has moved out of the trailer back and into the suburbs.
  3. Why are the Buyers so Naïve? The problem was when all these loans were being handed out, the buyer had noclue what he was getting himself into.  The buyer assumes that if the bank’s experts feel he is qualified for a loan then he can truly afford it. The first major mistake.
  4. Why Would the Banks Want to Assume so Much Risk, How Do they Profit? Easy, the bank doesn’t care if you’re good for the money or not as they will never be the one who has to collect.  As long as you sign across the dotted line then they are happy, what the banks end up doing is take the loan chop it up and sell it to 20 other people and institutions across the globe leaving them with all the risk.
  5. When Did the Crisis First Begin? Well without going way back when, the first major sign was the collapse of Bear Sterns.  This was huge and completely unexpected, how could the 4th largest bank on Wall Street just collapse? Then the next biggest problem came, the government bailed them out. I believe this bailout led to more banks assuming more risk over the course of the next six months with the reassurance that if all fails the government will be there with a fat bailout check.  Dick Fuld and Lehman Brothers are a perfect example; they were the 5th largest Wall Street firm and assumed huge amounts of risk leading to the demise of the whole firm.  Dick Fuld watched his personal stock options fall from over a billion dollars to a mere $46,520.  He never expected the government to not be there to bail him out and he thought he had a better relationship with Hank Paulson and the fed than he actually did.
  6. Was Hank Paulson to Blame? No, not at all.  None of what happened can be blamed on Hank Paulson.  At first he was hesitant to even take the Treasury job as he didn’t want to be attacked by the public.  In the movie, they joke about this aspect as Hank’s advisor reassures the SEC that Hank sold all his Goldman shares and that down at the Fed they get touchy about the Government Sachs stereotype. Hank was just put in an awful position and had to be the cleanup guy for all of this.
  7. Why Did the Fed Bailout AIG and not Lehman? This is one of the hotly discussed subjects; at the time when Lehman was close to going bankrupt the treasury had no idea that AIG’s also was about to go under.  They thought that bailing out Lehman would be a sign of weakness “a moral hazard as the movie states” and that the banks needed to see blood on the streets to realize that reality had struck.  Then when they were informed of AIG’s troubles they had no other option as without any government interaction the whole banking system would have collapsed.
  8. How Would One Bank Lead to the Collapse of All of Them? When Lehman Brothers failed many investors and institutions were denied the ability to take out their money, if this continued it could have led to a systematic path where all investors would haven taken out their money.  Banks all run on trust, if every depositor went to the bank and asked for their money back all the banks would collapse.  The banks never actually have all the depositors money in hand, as they are constantly using it to leverage or invest in other things. If the government didn’t step in and help AIG then Morgan Stanley would be the next to fail then Goldman then it would hit Main Street with General Electric leading to a systematic collapse that would be catastrophic with the whole American economy failing across the board.
  9. How Did the Banks Affect General Electric? What happened with General Electric was just like if you went to the ATM with your check card and went to pull out $20 for that day and couldn’t get your money, just think of that across the whole financial system. When Lehman collapsed not only did the Dow Jones fall 700 points but credit across the globe dried up rapidly. Rumor was that during that exact week, McDonalds was having troubles unable to pay its employees, as Bank of America would not hand out any credit. That was the link between Main Street and Wall Street.
  10. Was the TARP Money Truly Needed? Had the government not stepped in we would have had some major systematic collapse leading to one far worse than the great depression.  TARP was the only option, like Bernanke stated in the movie “If we don’t do this now, we won’t have an economy on Monday” TARP has worked better than anyone could have imagined.  It shore up credit, restored confidence and trust in the banks. Without the banks the economy doesn’t operate.  The average person didn’t know how close we came to our whole financial banking system falling apart.

Too Big to Fail”, HBO’s adaptation of Andrew Sorkin’s Best-Selling novel is a story of greed, ego, ambition, and how our economy came one day away from a potential financial Armageddon. While I’ve heard the book is great, the movie didn’t live up to the hype and too many viewers will be left bored and confused. The one reason to watch would be to see James Woods, William Hurt, and Paul Giamatti, all who deliver stellar performances as not only did they pull off all the psychical aspects to look the part but were by far the lone highlight of the film.  I’ll give HBO one thing; their adaptation was way better than CNBC’s awful rendition, however that’s not much to say.  If you have an hour or two to spare, watch it, you might be entertained though feel free to let us know your thoughts and opinions below.

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