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.