What’s the Difference Between a $1 Chip and a $100 Chip? The Risk Factor

The Big Short describes the 2008 stock market crash from the points of view of those who work on and around Wall Street. Michael Lewis, the author, tells the stories of multiple people in the industry such as Michael Burry, a hedge fund manager, and Steve Eisman, an investor. Contrarily, the Turner House by Angela Flournoy details the story of a Detroit Family and their house a few months before the same stock market crash. While the Big Short depicts investors and banks in charge of CDOs to be egotistical and self-centered, the Turner House humanizes the other side of the crash. The Turner House, in doing so, inadvertently clarifies why the investors made the risky choices they did which caused the crash. 

The Big Short details how the investors and bond traders helped cause the stock market crash by slowly performing riskier trades. These investors would trade other people’s loans and mortgages. To create more beneficial trades, they would bundle large quantities of loans and mortgages into Collateralized Debt Obligations (CDOs). People had jobs where they had to assess and grade the contents of the CDOs and therefore ensure that the CDOs were understandably stable. As investors and stock market traders realized CDOs were highly profitable, the trading of them multiplied. As the trading of them increased, the availability of CDOs to be traded decreased. Traders then realized that they could put riskier loans and mortgages into these CDOs and still trade them as stable CDOs. Soon, the economic world was filled with toxic CDOs being traded all over the United States. This toxicity was a primary cause of the 2008 Stock Market Crash. 

I remember the 2008 crash. I was ten years old. I remember the impact the stock market crash had on the U.S. and other countries. People lost their jobs. People lost their homes. Sure, the news is never too positive but I remember watching every night and being in shock. Millions of people’s lives were affected in some way due to these investors’ decisions. Michael Lewis humanizes some Wall Street and bank employees in the Big Short. For example, he details how Steve Eisman’s son died during his career and how Michael Burry lost his eye due to cancer. Understandably good people worked in the economic field. Yet, Lewis also conveys that this crash was much bigger than any one person, even any one bank. A mindset was formed on Wall Street where investors did what they needed to do to make money and the future effects of their decisions would be ignored. It appears as though they lived by the motto, “Ignorance is bliss…” except perhaps they would add, “Ignorance with a lot of money is bliss.” Mob mentality only supported the spread of this mindset. This infuriates me. Throughout Lewis’ depiction, I continuously asked myself, “How did this happen? Why wasn’t this stopped?” I held no respect for the people who traded away others’ home loans knowing that it was a risk, nor did I want to understand why they did what they did. 

In the Turner House, Flournoy details one of the Turner children’s gambling addiction. Lelah, once again evicted, goes to a casino just to look. Contrary to common beliefs, “Lelah knew she was an addict” (Flournoy, 47).  Yet knowing this, Lelah continues to bet and gamble. Lelah enters a mindset while gambling where she would “slip into a space of just her and her hands and the chips that she tried to keep under them” (Flournoy, 49). Everything would dissolve except her and the chips. She discloses that gambling for her is about finally winning and being a victor. She had a grandson to babysit, no job, and no home, but still she went to the casino. Lelah knows what she is doing is wrong but every part of her wants to gamble. Flournoy portrays Lelah’s addiction in a manner that makes it understandable. The Turner House describes this addiction in a way the Big Short did not. 

The Mayo Clinic website details compulsive gambling as follows:

Gambling can stimulate the brain’s reward system much like drugs or alcohol can, leading to addiction. If you have a problem with compulsive gambling, you may continually chase bets that lead to losses, hide your behavior, deplete savings, accumulate debt, or even resort to theft or fraud to support your addiction.

Both Lelah and at least some Wall Street investors suffered from this addiction. Lelah’s addiction impacted herself along with her immediate family. While the investors and brokers’ addictions impacted people all over the world. Yet, the premise remains the same. They were not able to assess the risk of their bets accurately using the devices available. After being evicted, Lelah makes $300 from $20. She initially had all of her chips in $1 and $5 chips, that is over 100 tangible chips. The dealer encouraged her to change those $5 chips to $20 chips. All of a sudden, chips that represented $1 now stand for $20. The risk of betting that one chip increased by 200 times, yet the risk visually appears unchanged. Similarly, CDO managers were able to build CDOs to be riskier yet hold the same appearance. The risk of trading those CDOs were greatly increased but they visually seemed to remain the same. This change caused managers and traders to not be able to recognize the impact of trading these CDOs. They could not visualize the houses and people whose lives would be affected. Just like Lelah, their goals were to walk away as the victors.The Turner House inadvertently humanizes the Wall Street brokers who caused the 2008 Stock Market Crash. Lelah’s story speaks to the case that everyone has flaws. Addiction is not just alcohol or drugs. Addiction can be gambling. Addiction can be risky trades. The lack of fully comprehending the risk of each piece in gambles and trades increases the likelihood of them going bad. If Wall Street brokers and traders could see the impact of just how incredibly risky their CDO trades were (before they traded them), would they have still traded them? If Lelah had to gamble with cash and not chips, would she still have gambled so much? The separation between actual and perceptual cost inflates the risk dramatically. From what I understand about Wall Street and the Stock Market, traders should ensure that they are understanding the risk of their trades. The economy depends on it. Moreover, gambling addiction, including participating in trades in the Stock Market, needs to be understood, recognized, and prevented/treated. When the stakes are high enough to cause people to lose their homes, there needs to be something secure to check the health of the people trading them. 

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