‘The Big Short’ – A Story of Self Serving Interests

The Big Short sits at the top of my favorite movies of all time list. There are a few reasons for it. An all star cast that includes Christian Bale, Ryan Gosling, Brad Pitt and my favorite of all Steve Carell, combined with a more or less accurate depiction of the truth of the 2008 financial crisis. The most important reason I love it however, is because I was there. In the middle of it. Closer to it than I realized at the time. I was a young analyst working for Standard and Poor’s (also featured in the movie) on the very website that displayed financial ratings and underlying data for all of these mortgage backed securities, asset backed securities and collateralized debt obligations (CDOs). Every single day I went to work, I looked at the same data that Christian Bale looked at in the movie before shorting the mortgage bond market. I was simply too inexperienced to notice the discrepancies that he noticed. What that means however, is that I deeply understand what happened and why. I still watch the movie once every year or so to remind myself why I need to stay disciplined about my money matters and constantly educate myself.

The purpose of me writing this post is not however to talk about what happened to me during or after the financial crisis. The purpose of this article is to talk about why everyone who has a dime needs to take time to educate themselves about personal finance and investments.

When the crisis happened in 2008, the government intervened and bailed out the economy. Whether it was the right thing to do is debatable but it was a necessary thing to do to prevent a complete collapse of the global economy as we knew it. The government also had a very important lever available to them at the time that when pulled, would instantly help boost the economy – Lower interest rates. They pulled that lever and interest rates were set down to zero which injected new life in the economy. This lever does not exist today, since interest rates are already zero due to the pandemic, so there is one less thing the government can do to help now. This is exactly why we need to protect our financial future today more than ever.

Most importantly, the crisis of 2008 showed that when it comes to money, self interest is pretty much the only thing that matters. Money managers and bankers only really cared about how many zeros they could add to their net worth and no one cared about the implosion that was becoming inevitable. My favorite moment from the movie is when Steve Carell gives a speech and talks about how throughout humanity, fraud and short sighted thinking has never worked. However, that evidence doesn’t stop most people from thinking short term.

The point is, I want to urge you to make an incredibly strong personal choice. We go to work every day, so that we can take care of our families. We save what we can for retirement (money that is – in most cases – managed by the same people that caused the 2008 crisis) and pay our taxes hoping the government will do what it can to take care of us if calamity were to befall (which recent actions have also proven is too much to expect). The choice you need to make about how you want to live your life then, is quite simple.

1. The status quo where we leave our financial futures in the hands of other entities that do not have our best interest at heart as has been proven.
2. Educate ourselves and take the reigns of our financial futures in our own hands. so that we can protect ourselves when another incident like this happens again and we know it will.

If you want to make the commitment towards educating yourself, continue reading. Over the next few posts, I will specifically talk about securing your financial future – one step at a time.

Step 1 – The Basics

Start by thinking about those absolute basic necessities for survival. 2020 has really allowed us to reflect on what is truly necessary. Food, water, shelter, warmth, transportation. Put a plan in place to lock those things down.

1. Pay off any credit card/high interest debt you have
2. Create a budget and save for 6-9 months of expenses in a high yield savings account.
3. If you have car payments, downgrade the car or pay off as quickly as you can.
4. Start creating a plan to pay off your house if you have a mortgage.

I know it seems like it can take 30 years to pay off a mortgage but that is not the case. Build a budget and start putting every extra dime towards your mortgage once you have your 6-9 months of savings secure. It will not happen overnight but it will definitely not take 30 years. I promise you that. Having these basic needs planned and taken care of also brings with it immense peace of mind.

Once you’ve secured the basics, time to start working on investing.

‘Capitalism has two types of people. The people who pay into it and the people who get paid from it‘

If you live in America or any other capitalist environment, you are one of these two people and some honest self reflection will tell you who you are. The neat thing about capitalism, however is that it is entirely possible to migrate from one side to another and that possibility is what makes people love it. Most never cross the chasm (not because they can’t, but because they lack the discipline to stick to a plan) but everyone dreams of it.

If you pay rent, you are paying into capitalism. Your landlord is the one getting paid out of it because they saved and built the asset. If you pay interest on a car loan, you are paying into capitalism. The person that has money in their bank account that was loaned to you for your car and the person who owns stock in the bank is the one getting paid out of it. You see a pattern? It takes extra money that was invested in a house/bank account/stock to get paid out of capitalism. In other words, it takes savings or spare money. If you buy more things every time you have a spare dollar, you never have savings and you continue to keep paying into capitalism making yourself entirely incapable of crossing the chasm of wealth gap. In my next article, I will talk further about how to think about paying debt and investing.

I wish all my readers a very warm and joyful holiday season and a prosperous 2021. If you’d like to give me a gift this holiday season, consider subscribing but more importantly, put some of these concepts into practice in your own life. Nothing would make me happier.