Housing blew up the global economy in 2008 and we learned nothing
Friday 29 January 2016 07.06 GMT
Watching The Big Short gave me deja vu – mistakes made in the US before the financial crash are being replicated in the UK housing market
Five years ago, if you’d told me I’d spend a Sunday evening in a sold out Peckham cinema screening of a film about the US housing market starring Brad Pitt, I’d have patted you on the back and suggested you cut down on the super-strength lager.
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A film about subprime mortgages isn’t an obvious choice for weekend entertainment, but The Big Short’s popularity reveals a number of things. First, most people still feel they understand little about the roots of the 2008 crash. The laypersonknows bankers were at fault, but the intricacies of credit default swaps and mortgage bonds usually prompt eyes to glaze over. Second, there is a real hunger for knowledge about the economy, how it works and doesn’t, and contrary to what those profiting from public ignorance might say, it’s relatively easy to understand economics once you break down the jargon. Third, Ryan Gosling and Brad Pitt could probably have cameos in a film about watching paint dry, and still draw in the crowds.
But the film also functions as a morality tale: people believed houses were a safe investment because “who stops paying their mortgage?”. Well, people who can’t afford to do, because they’ve been irresponsibly mis-sold a very expensive financial product and the cost is too high. This is where the uneasiness and deja vu sets in.
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The champagne-swilling bad guys in The Big Short, happily flogging subprime mortgages and mislabelling bonds’ credit ratings, are adamant that everything is fine, that prices can rise indefinitely with no market correction. A world of infinite profit and unshakeable confidence.
Link: http://www.theguardian.com/housing-network/2016/jan/29/housing-global-economy-2008-the-big-short-financial-crash
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