Month: October 2024

How Concepts in The Big Short Relate to Images of Human Landscapes in Southwest Florida.

By: Nathan Walz, Cole Kominiarek, Jayden Prashad, Lauren Bieniek, Lily Scobbo and Samantha Kim

In class, we have been reading and discussing Michael Lewis’ The Big Short and how many of our course concepts have some sort of theme throughout the book. To supplement The Big Short we also watched the documentary Inside Job narrated by Matt Damon. Both the book and documentary focus on the 2008 stock market crash and housing crisis, giving the viewer a look at what was happening behind the scenes. The Big Short pays closer attention to what led up to the crisis while Inside Job focuses on what was going on during and after the fact.  As we continued to read and talk about The Big Short, we also viewed images of human landscapes in Southwest Florida and worked to connect them to the text. The photographs were from a satellite of many different neighborhoods and landscapes that all had their own sort of structure. For example, some photos had multiple neighborhoods that were all cul-de-sacs while others had grid-style streets with houses that were close together and similar looking. This forced us to practice apophenia, which Beth described in class as the human tendency to see patterns. By observing images that all had their own sort of pattern, we were able to connect to The Big Short by thinking about the patterns that occurred throughout the crisis. More specifically, how during the time there were many powerful institutions such as rating agencies and investment banks that continuously made very risky decisions. They made decisions without thinking about who would be affected and to what degree. This cycle or pattern of poor decision making is ultimately what led up to the crisis The Big Short focuses on. 

The course concepts we find that most closely relate to The Big Short as well as the human landscape images in Southwest Florida are swapping, liquid/liquidity, trust, and moral hazard. A swap is basically described as some sort of exchange. This is closely related to liquid/liquidity which the same website defines as “the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.” Meaning they can convert or swap an asset to something else. We also found that moral hazard and trust related to each other. Investopedia defines moral hazard as “a situation in which one party engages in risky behavior or fails to act in good faith because it knows the other party bears the economic consequences of their behavior.” This can be connected to trust because the party engaging in risky behavior trusts that the other party will deal with the consequences. They often trust themselves with their decision, which then encourages them to continue the cycle.

The images of the Human landscapes in Southwest Florida and course concepts like Swapping and Liquidity illuminate connections between The Big Short. Liquidity specifically appears in these connections through different examples. One of these examples includes all the houses in the photos having standing water between or around them. This can be interpreted literally as the definition of liquid but as well as the financial terms of liquidity. This standing water could represent the inability for investment banks to sell off their mortgage bonds they purchased that had become stagnant due to the market failures. Another example that represents liquidity is the half finished developments in the picture and its connection to the market failure or “bubble pop” in The Big Short. Developers and investment banks were both unable to liquify their assets as a result. There are many examples in The Big Short of the course concept swapping. One example being CDO’s. CDO’s are a collateralized debt obligation. In chapter 4 of The Big Short, The CDO’s are swapping their bad rated investment bonds with the few highly rated ones and sell the package off as a AAA rated bond investment. A second example of swapping in The Big Short is in chapter 2 with the multitude of banks buying and selling mortgage bonds to each other. The banks swapping these bonds cause an increase in the supply of money which relates back to liquidity. The swapping of banks buying and selling mortgage bonds also allows the banks to lend with easier terms. A third example of swapping is In the pictures in Human Landscapes in SouthWest Florida. In the pictures, you can see the homeowners normal backyards with pools being swapped to a big pond which is however out of the homeowners control.

The course concept of “trust” relates heavily to not only the Human landscapes images but also The Big Short and the documentary Inside Job. When looking at some of the Human landscape photos we noticed that there were some developments where there were one or two houses built and no more. In some developments people put a deposit down on a piece of land of a future development and they trust the developers to then build their homes. This connects really well to the big short where people trusted mortgage lenders to not screw them over with their mortgage payments. The banks did screw them over with what was called a subprime adjustable rate mortgage.A subprime mortgage is one that’s normally issued to borrowers with low credit ratings. “A prime conventional mortgage isn’t offered, because the lender views the borrower as having a greater-than-average risk of defaulting on the loan. Lending institutions often charge interest on subprime mortgages at a much higher rate than on prime mortgages to compensate for carrying more risk. These are often adjustable-rate mortgages (ARMs) as well, so the interest rate can potentially increase at specified points in time.”The Big Short also talked about how these mortgages screw people over. “Mortgage borrowers typically repaid their loans when interest rates fell and they could finance more cheaply”(7) However with the adjustable rate mortgage there was an initial two year period in which the interest rate was really low. After that two years the interest would skyrocket as debrided in the Investopedia definition of a subprime mortgage. As the quote from the Big short said most people waited for the rates to fall and with a subprime mortgage the rates went up. This basically screwed over people who intended on actually paying off their mortgage. Another example of how the course concept of “trust” relates to The Big Short and The Inside Job was what happened between the mortgage rating agencies and the banks who bought the CDOs rated by the rating agencies. In chapter four of the big short this was shown when Gene Park, an employee of AIG FP realized that they should not have trusted the rating agencies. “Confronted with the new fact—that his company was effectively long $50 billion in triple-B subprime mortgage bonds,masquerading as triple A-rated diversified piles of consumer loans.”(89) So the banks bought these triple A rated CDOs that were really trashy subprime loans. This betrayal of trust by the rating agencies was also shown in The Inside Job. Toward the end of the documentary there was a scene in which the rating agencies were testifying in front of congress about their false ratings. The heads of the rating agencies basically said that all of our ratings are opinions and not facts. However the true ratings of these loans were facts and not opinions. This really shows just how untrustworthy these agencies were. As a result of this many large banks went bankrupt and were closed. Trust was a huge reason why the whole housing crisis and stock market crash happened in the first place.

The course concept of “moral hazard” is another concept that relates heavily to the Human landscapes, The Big Short and The Inside Job. Investopedia defines moral hazard as “a situation in which one party engages in risky behavior or fails to act in good faith because it knows the other party bears the economic consequences of their behavior.” Some of the images in the Human Landscapes collection showed houses that were extremely close to the water. The reason this is a problem is because Florida gets hurricanes in which lot’s of flooding takes place. The developers that planned the housing developments out probably knew this and still kept these risky designs because they knew it wouldn’t affect them. Unfortunately for the people who bought these houses have to bear the financial burden on these risky designs if their houses are ever flooded. The people who paid for waterfront homes get screwed if there is a water related natural disaster and the developers walk away scot-free with all of the money that they made from developing all of these homes. The concept of moral hazard also came up in The Big Short. The CDO rating agencies were persuaded to put false ratings on these horrible piles of loans. They did all of this while knowing that they wouldn’t be hurt financially in any way. “Having gathered 100 ground floors from 100 different subprime mortgage buildings (100 different triple-B rated bonds), they persuaded the rating agencies that these weren’t, as they might appear, all exactly the same things.”(73) The subprime mortgage lending agencies needed to sell these bonds to make the money they wanted so they basically fooled the big banks by working with the rating agencies. So moral hazard applies to both the rating agencies and the subprime mortgage lenders  because they knew that these were risky loans but they tricked the big banks into buying them anyway knowing that they wouldn’t feel the financial pain that the big banks were going to feel. Moral hazard also related to The Inside Job. The scene discussed earlier in the trust section is the one that moral hazard relates the most to. The rating agencies testified before congress and said that their ratings were just opinions and not fact. However this was their way of avoiding the financial hurt that the big banks experienced. They knew that the CDO’s were bad, they just knew they could make money without consequence even if they were caught. Moral hazard took a big part in this crisis. If moral hazard hadn’t taken place then there’s a decent chance that the whole crisis could have been avoided.

These connections are important because they lend the crises a more relevant and genuine feel. You can witness how bankers and investors built a system that was destined to fail while still turning a profit in The Big Short. However, the images of the landscapes in Florida capture what actually transpired on the ground. It’s simple to read about financial concepts like “credit default swaps” and “subprime mortgages” without truly comprehending the implications of individuals. Photographs of deserted neighborhoods make it abundantly evident that this crisis was about more than simply money; it was about people’s lives. Ultimately, both pieces serve as a reminder that those who can least afford to pay the price are typically the ones who do so when the system is centered solely on profit and ignores long term consequences. Combined, the pictures and narratives provide a message: actual people and communities are left to pick up the pieces behind statistics regarding lost employment and foreclosed homes. 

Nyna Garduño

 Maggie Kiernan

Lily Gallagher

Madelyn Perry 

Mekail Boyer

Collateralized Debt Obligations and the Housing Crisis in southwest Florida may seem like two very different things but as a matter of fact, they relate to each other in many ways. Collateralized Debt Obligations are a bundle of multiple loans that investors buy to hold on to until they are worth more. In The Big Short, investors then sell these CDOs once they are beneficial for them, even though they are not beneficial to others. The people who were purchasing these mortgages did not realize this and trusted investors that these CDOs would help them. Images from the Housing Crisis in southwest Florida present a mass production of houses that are located in the middle of forests and around bodies of water. It appears that these forests were wiped out to build as many houses as possible. From a distance, it seems like there are many places for people to live, and people’s needs are being taken care of, but if you look deeper, you can see that there are no grocery stores, town centers, or hospitals which are necessary to live. The mass production of CDOs in The Big Short, and the mass production of houses in South West Florida both act on the concepts of trust, credit, bad faith, fraud, and moral hazard, which is the lack of incentive to guard against risk where one is protected. 

To accommodate the new CDO market- Collateralized Debt Obligations mostly comprised of mortgages- construction companies and developers scrambled to keep up with the boom in housing, as made evident most drastically in pictures 11 and 24 (Human Landscapes in Florida). In fact, “400 Billion dollars worth of the things had been created in the past 3 years” (The Big Short, 131) and the need for mass produced housing was enormous. Eerily similar to the contents of the CDOs, however, which were largely misunderstood by the people creating and selling them, these housing developments, especially as viewed from so far above, easily distract from the people who were intended to live inside. That is, the symmetrical patterns, spirals, and well-ordered lines naturally appeal to the human eye and give the appearance of a well-contained and orderly society, not unlike the false sense of security the bankers received when they successfully sold these seemingly risk-free loans. Unfortunately, the fraudulence of this appearance was destined to explode and create a much different reality, because the high-end homes being made in the Sunshine State would have, if construction had not been halted, come to be inhabited by people who would in large number be on the brink of foreclosure, and through no fault of their own. Lenders capitalized on pushing “teaser rates,” essentially low-interest payments for the first two years of borrowing, to then demand them to pay the “go rate,” a significantly higher interest rate that the low-income borrowers would likely be unable to pay back (The Big Short, 65-66). This comes down to a level of trust that, if the 2008 Housing Crisis taught the American people anything, is likely to not be regained, because the blind trust in expertise (in this case financial and banking expertise) misled people from even considering that lenders might be acting in bad faith, or in general, selfishly, thus personally feeding the machine that would come to destroy them. 

From analyzing the photos from the housing crisis in southwest Florida we connected the underdeveloped and mass-produced housing developments to the mass production of the CDOs (collateralized debt obligations) in The Big Short. As the CDOs were being bought and sold at an extreme level there was a need for new housing. New housing led to more people buying homes who obtained subprime mortgage loans, which inevitably led to the expansion of CDOs being traded on Wall Street, all going in to feed the machine. Just like CDOs, these new housing developments were so rushed by the increased Buyer capacity, that there was no careful consideration of where these houses were being built. Housing was dense, there were no visible shopping centers, hospitals, schools, etc. In the case of Wall Street, they demonstrated moral hazard, where there was no incentive to guard against risk because historically there has never been a country-wide financial housing crisis; and about the South Florida housing developments, developers assumed that because Florida was “ the sunshine state” the location of these developments was not a problem. We can even see how the poor planning of the developers affected people today, with Hurricane Helene and Hurricane Milton.  Because of rating agencies like AIG which insured CDOs against default with CDS (credit default swaps). One example used could be “housing bubbles”. Housing bubbles are an analogy used in The Big Short and everyday life to describe a period when rising housing prices create a false sense of security. It is an analogy for how complacency can lead to being blinded by obvious changes. It also refers to the connection of the global pool of money. The term also describes how interconnected the global economy is, as the reckless lending practices in the U.S. housing market had ripple effects that destabilized financial systems worldwide. As seen at the end of The Big Short, the big banks/investors at the end of the book removed themselves so that when the bubble “bursts” they face no repercussions. There is also a literal sense of house bubbles seen in the pictures, specifically in Image 3 which shows “a circular layout of homes” in Florida, and in Image 17 which is a “partially-developed community” in Florida. While these are not literal bubbles, they have isolated circles that “burst” when the construction and development stop. Both images serve as visual metaphors for the instability of the housing market communities built on shaky foundations, both financially and literally.

Ultimately, the level of destruction that the big banking folks on Wall Street caused was enormous and all encompassing. From the clearing of the land that the housing developments were built on, which proved to be a waste, to the billions of dollars in tax-payer money spent on bailing these banks out, the Global Financial Crisis of 2008 is a tragedy that cannot happen again, not only because the CDO market thrived on widespread fraud and alleged criminal activity, but also because the CEOs and higher-ups behind the market have, in large part, not been held accountable. And, the reliance on these same folks in the Bush and Obama administrations as seen in Inside Job rightfully incite the fear that, should another crisis again lurk beneath the surface, it would again be a shock the world, and it would again prove that the normalization of a practice does not equate to the morality of a practice. 

The mass production of CDO’s casts an alarmingly large shadow upon the reality of the situation. It is important to point out that no one thought about the amount of deforestation that was done to create these communities. In their eyes the only outcome was income. These homes were built for the “benefit” of people who actually didn’t benefit from them at all. Several communities were poorly placed without the safety of the families that would live inside of them in mind, and the effects of those poor decisions have even made their mark today. Poverty stricken people, taken advantage of by lenders and misled into believing that they had finally found exactly what they had been looking for. Overcharged and overrun, it is safe to say that the circumstances were nowhere near ideal for anyone involved other than the lenders that pocketed endless amounts of cash until the inevitable crash and burn of it all.

The Big Short is a nonfiction book that ties the stories together of a few people who predicted the 2008 financial crisis and made massive profits from betting against the housing market. The book dives deeper into how the housing bubble was created by risky mortgage lending, subprime mortgage backed securities, and the complicity of banks and rating agencies. The book also follows the stories of hedge fund owners like Micheal Burry and Steve Eisman, who saw the potential collapse and how unaware Wall Street was of the risks. The book ultimately highlights the greed, corruption, and failures that contributed to the worst financial crisis in history. While we are analyzing the big short, we have connected it to the Human landscapes in SW Florida pictures. This is a series of photographs that all have a commonality. Within this picture essay these photographs are all of developments within SouthWest Florida. However, it is important to note that most of these developments are incomplete or partially complete. Many of these incompletions are due to bankruptcy and the partially complete are due to foreclosures. Although amongst these photos there are completed developments full of 100s of houses. You must also know that they are complete but the houses are completely empty. It is hard to pinpoint an exact reason for the financial loss within these developments, it can be assumed and connected to the concepts stated and explained within The Big Short. We will analyze these terms and what they mean Risk, Trust, Foreclosure, Mortgage, and Moral Hazard. Risk is defined in financial terms as “the chance that an outcome or investment’s actual gains will differ from an expected outcome or return.” (Investopedia). Trust is “a legal entity with separate and distinct rights, similar to a person or corporation.” (Investopedia). Foreclosure is “a legal process that allows lenders to revolver the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property.” (Investopedia). Mortgage is “a loan used to purchase or maintain a home, plot of land, or other real estate.” (Investopedia). Moral hazard is “the risk that a party has not entered into a contract in good faith or has provided misleading information about its assets, liabilities, or credit capacity.” (Investopedia). Throughout this essay we will be unpacking each concept and how they connect to The Big Short and the SW Florida pictures.  

Moral Hazard is a top concept within The Big Short. Many bank owners knew and did not care about hurting the working people who lost their houses, 401k plans, and money. “And that banks that used it were really just banking on being able to rip off poor people even more than they could if they charged them for their checks.” (Lewis, pp. 19-20) Risk is represented in that the economists and big finance institutions took the risk in the trading of these CDO’s. These CDO’s and the mortgages given at the time were actually hurting the people. The mortgages given way exceeded what people could pay causing most of the time for houses to go into foreclosure. During the time in which this trading was happening the money was coming in and no one could’ve expected the foreclosures that would happen by the thousands. Many of the loans that were given people couldn’t afford. A lot of houses went into foreclosure because of the loans given out. “On June 25 the total number of loans in default spiked to 18.68% percent” (Lewis, p. 197) The Big Short pays a lot of attention to the bankers and the money makers rather than talking about those who had faulted on their loans and the effects these loans had had on the people taking these loans out. The number of people who couldn’t or barely made their mortgage payments was large and it shows in the numbers. Within The Big Short mortgages were given despite evidence that they could be paid back. These mortgages were then sold from company to company as CDO’s. Economists had trust in the CDO’s they were buying, they had faith that the CDO’s would make them money. Was eager to make the most money and just did that. These shortly fell through and a crash happened and the CDO’s were no longer profitable.

Within the picture essay of the “Human Landscapes in SW Florida” At the time these developments were being built and or were built their emptiness was due to the mass of foreclosures due to the unreasonable mortgages given to people who were unable to pay these mortgages. This essay has examples of foreclosure like in pictures 1, 4, 13, 15 developments went bankrupt and had to stop construction. Also in pictures like 2,3,4,5 and so many show fully completed developments. To the eye they look full however it is stated in the beginning that most of these developments are empty due to mass foreclosures. Moral Hazard is represented in most to all of these pictures, these houses are built close to water sources like the ocean, man made lakes, or even rivers. The hazard with this is the potential for flooding, storms, or any other type of water related damages. These home owners had more care about the mortgages they were offered instead of the potential risks of being in such close proximity to water. Another course concept in this picture essay is trust in the literal sense banks granted money to these developers to build. But either the bank or developer fell through with money and they could not be finished, defaulting on their trust to the other party. It was also trusted that there would be people to fill these houses and they did. Until they could no longer make their mortgage payments. Developers took risks in building these developments with the promises they would be filled. Homeowners took risk of living near the water

Although it’s hard to make conclusions about these developments and the true story behind them by just having pictures. This is closely similar to the CDO’s in which no one truly knew what they were and it became hard to make conclusions about the CDO’s also. However, we can take the course concepts we have been focusing on to make connections between the picture essay and The Big Short. Moral Hazard is prevalent within both of these pieces for example the financial institutions that participated in the CDO trades had no care for what would happen to anything but their wallets, this carelessness led to the 2008 housing crisis. The photo essay shows the effects of the decisions of the developers and governments who made these housing lots prioritizing profit and growth, placing the weight of the consequences on vulnerable people and communities who are trying to live in these housing developments. Due to the crisis and greed of these large companies, countless homes are left vacant and thousands of people are forced to default on their mortgages. 

 “A giant number of individual loans got piled up into a tower.” (Lewis, p. 26) The metaphor of the tower is an interesting one, as Lewis describes that the mortgages with the lowest interest rates got paid back first and had the highest ratings. The lower floors had the lower ratings and the highest interest rates, but these floors were risky as you risked people defaulting on their mortgages. (Lewis) It was the higher interest rates that were more attractive as these mortgages would take longer to pay back making more money for those who owned the mortgages. However, the risk comes in because of the higher interest rates it makes these mortgages difficult for the payer to pay back causing in these defaults and foreclosures. The Big Short is a textual example of these defaults but the picture essay gives us picture evidence of this. In the picture essay all of these developments that are complete are empty like in pictures 16,19,21, and 22. Most of these houses in these pictures are empty due to foreclosures and defaults on mortgages. Customers trusted mortgage lenders and banks, “The subprime mortgage loan was a cheat. You’re basically drawing someone in by telling them, ‘You’re going to pay off all your other loans–your credit card debt, your auto loans—by taking this one loan. And look at the low rate!’ But that low rate isn’t the real rate. It’s a teaser rate.”(Lewis, p. 19)

 There’s a quote in The Big Short on page 145 that says “The shotgun kicked and bruised your shoulder, but the Uzi, with far more killing power, was almost gentle; there was a thrilling disconnect between the pain you experienced and the damage you caused.” Although within the context of the book it is talking about guns and the shooting range, this quote applies to the whole housing economy of the time. During this time economists within the housing and mortgage industry were trading and selling these CDO’s. It wasn’t promised that these CDO’s would make any money but the risk was worth the outcome. This relates to the incomplete housing developments in pictures 1,4,13,15 of the picture essay because in the same way the economists were taking a risk in buying and selling these CDO’s banks were taking risks on developers and developers were taking risks on bankers. Bankers took the risk of writing these loans to developers to build these houses and huge developments. The more houses you have the more mortgages you can write, which means the more CDO’s you can sell and the more money you can make! Although it appears the crash and faulty mortgages caught up to the developers leaving their developments bankrupt and unable to complete.

We care because this was happening to other human beings. Customers were trusting banks and mortgage lenders to be honest and transparent with them. These banks and mortgage lenders were backstabbing customers by issuing high-risk subprime loans to borrowers who couldn’t afford them. This led to many people losing their jobs, homes that were in foreclosure, and poverty. These connections tell us about the housing market and how people interact with mortgages now because the 2008 crisis and the landscape photos taught us we must be more careful with who we give out loans. This taught the banks to be more strict about people’s FICO scores instead of giving away big loans to people with low/bad credit reports.

By: John McKiernan, Cassidy Hand, Ericeliz Carrillo, Kyle Footer, Rylie Capezzuto, and Mia Hendrickson

The images from “Human Landscapes in SW Florida” intersect with multiple course concepts that illuminate what we read in The Big Short. These concepts include liquidity, foreclosure, moral hazard, bad faith, toxicity, and expulsion. To grasp the significance of these concepts, it is crucial to understand their definitions, as many words can have various meanings. Liquidity can be assumed to be liquid, which is true in some cases, in other cases Investopedia explains how liquidity is, “the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.” Next, as we have talked about in class foreclosure is the action when property is taken away if someone fails to pay their mortgage, Investopedia explains it as, “Foreclosure is the legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the mortgaged property and selling it.” Investopedia also describes moral hazard as, “the risk that a party has not entered into a contract in good faith or has provided misleading information about its assets, liabilities, or credit capacity.” People might understand bad faith as the intent of having an understanding that is not true. Investopedia states that bad faith is, “this can include misrepresentation of contract terms by using confusing language and unfixed rates and terms. This is purposefully done to avoid fulfilling the understood obligation.” Next is toxicity and many people understand that as something toxic or poisonous. Lastly is expulsion, oxford languages explain expulsion as the action of depriving someone of membership in an organization. Together tying the pictures from “Human Landscapes in SW Florida” and these six course concepts help us build a deeper understanding of what we read in The Big Short. 

Throughout the book, Lewis repeatedly refers to the system of subprime loans as a tower, where “the top floors got their money back first and so got the highest ratings from Moody’s and S&P and the lowest interest rate.” However, “the low floors got their money back last, suffered the first losses, and got the lowest ratings from Moody’s and S&P” (Lewis, 26). In a literal sense, this relates to the concept of liquidity, something that often has a financial connotation. Furthermore, Lewis uses water to demonstrate the destruction of the subprime loan system and the subsequent economic crisis, with the lower levels of the tower—those with subprime loans—being the first to experience the flood. Although those responsible for the housing crisis claim ignorance over their actions, not all finance personnel were fooled, as pointed out by Lewis, who invokes the skepticism of Mike Burry, saying “As the value of the insurance contract changed—say, as floodwaters approached but before they actually destroyed the building—he wanted Goldman Sachs and Deutsche Bank to post collateral, to reflect the increase in value of what he owned” (Lewis, 49). Nevertheless, “In 2005, over $1 trillion of bonds like Toxie were created. It was an ocean of money flowing into the housing market, contributing to the crowds of people showing up at open houses—and to home prices that kept rising” (“Human Landscapes in SW Florida”). In this sense, the floodwaters persisted.

The aftereffect of the housing crisis is shown in “Human landscapes in SW Florida.” In these pictures, vast areas planned for development are left desolate and abandoned, a legacy of the housing crisis. The fact that the pictures were taken in Florida is significant because “First, the underlying loans were heavily concentrated in what Wall Street people were now calling the sand states: California, Florida, Nevada, and Arizona. House prices in the sand states had risen fastest during the boom and so would likely crash fastest in a bust” (Lewis, 184). Interestingly, while talking with Joel Greenblatt, Burry noted that “It became clear to me that they still didn’t understand the [credit default swap] positions” (Lewis, 191). This is significant because, unlike subprime loans and credit default swaps which were indecipherable, the Florida landscapes were optically pleasing with a clear structure and plan (often relying on basic grid structures). Although the reliance on subprime loans and credit swaps made the finance industry incredibly rich, it created immense poverty for the masses.

Acts of bad faith in the financial industry, according to Investopedia, can include using convoluted language and shady non-disclosure of policy provisions and exclusions. Insurance companies often prey on a client’s naivete and excitement in the process of purchasing their ultimate American home, achieving for themselves a steady salary while the homes sold were balanced on fragile ownership and immense risk. In Chapter 6 of The Big Short, while the reader follows Charlie Ledley, it says, “There was a thrilling disconnect between the pain you experienced and the damage you caused” (p. 145). Many of the characters indicated they understood the basic fact that something cannot come from nothing. They overlooked the collateral damage of their actions because they had so much personal profit. Moral hazard is a conscious and purposeful effort to lower one’s guard against risk because they know they will be covered if it in fact went all wrong. In The Big Short, Lewis uses the term moral hazard to describe these routine practices: “The subprime lending industry was fragmented. Because the lenders sold many–though not all–of the loans they made to other investors, in the form of mortgage bonds, the industry was also fraught with moral hazard” (p. 9). Again and again, the financial industry engages in moral hazard because they take huge risks and incur consequences they will ultimately be protected from. The same cannot be said for those who were not insured against all consequences and now face the loss of property, home, and financial security. The crash in the housing market was the result of many selfish decisions made by the various unregulated components and members of the Wall Street finance industry. Looking at Florida from above shows the gravity of what was lost due to these unregulated dealings. Countless dollars had been funneled into building homes that would never be accessible for the majority of Americans, some developments never completed and some just standing bare while an estimated 57,751 Floridians experienced homelessness in 2010. 

During the housing crisis, many people’s homes would have been considered “toxic assets,” which are “investments that are difficult or impossible to sell at any price because the demand for them has collapsed” according to Investopedia. Because the housing market completely collapsed and so many Americans were in debt due to adjustable loan rates, they were forced to sell their homes back to the bank, expelling them in the process. This was because of a lack of understanding and an excess of fraudulence and corruption within Wall Street. A radio show from NPR documented their experience with the housing market, buying a house in 2005, in Florida they nicknamed “Toxie” because it was a toxic asset. This was not always the case though because “back in 2005, when Toxie was created, the housing market was booming, and mortgage bonds made it easier for people to buy houses.”(https://www.npr.org) 

Though there was a risk across every state in the entire country, states considered “sand states” such as Florida were among the most affected because the “house prices in the sand states had risen fastest during the boom and so would likely crash fastest in a bust.” (Lewis p. 97) After this flood of money going into the market, a housing bubble unlike anything the United States had ever seen was created. Only when the bubble popped did “toxie” become a toxic asset, unable to sell on any market. As was the case for millions across the country, expelling them from their homes. Expelling is the act of “forcing someone to leave a place”(merriam-webster) which was evidently seen in the empty developments of houses or foreclosed homes in “Human Landscapes in SW Florida” and the article stating that “many homes there are empty and have been for years.” The toxicity from an asset goes hand in hand with the eventual expulsion of the homeowner.

Michael Lewis serves to show all the hidden intricacies of the 2008 housing crisis throughout The Big Short, directly representing the government’s neglect and abuse of the homeowners of this time. Tied with the toxie developments built in southwest Florida, we’re able to build a stronger understanding of the people’s struggle caused by their bad faith and misrepresentation throughout the early 2000s. Hundreds of thousands of people were tricked into buying toxic loans that ultimately led them to foreclosure and without any home at all. As banking industries like Moody and S&P became more and more focused on their own profit, the homeowners got washed out and forced lower and lower until they had nothing at all, as the banks specifically targeted them to take the hits first and whatever was left of the profits last. The housing industry specifically targeted the naivete of their clientele in order to enforce worse and worse policies that they themselves barely understood. This power struggle caused such a catastrophic loss that many of these victims still struggle with housing to this day, almost two decades later. Taking a look at the concepts of both the toxie developments and the Big Short endeavor to expose, we’re forced to see how the lack of regulations does nothing but favor the same industries that have only used homeowners in the past. One of the main focus points in The Big Short was how the crash was something everyone could have seen coming, had they only been paying attention. Understanding what led to the crash, and how those same practices are still in use today, and the lack of substantial change puts everyone at risk today. Furthermore, understanding the moral hazard we put ourselves in when working with these industries, as well as the bad faith they are known for allows us to move forward with a sense of security that these circumstances have otherwise taken from us.