January 06, 2016

“The Big Short” and Ontario government debt: A prediction for 2016

Mitch WolfeRebel Blogger

As I was sitting through Adam McKay’s brilliant film The Big Short for the third time, it suddenly hit me: Ontario is heading for a financial meltdown.

And thinking like the film's fictional Mark Baum character (played by an excellent Steve Carell), I wondered: How can I profit from the stupidity and greed of the debt-ridden Wynne Liberal government?

To understand how The Big Short -- a film about the 2008 collapse of the US housing and mortgage markets -- relates to the Ontario of 2016 (the most heavily-indebted sub-national in the whole friggin' world) a brief film review and analysis is required.

Unlike The Big Short, I cannot trot out naked actress Margot Robbie in a bubble bath to explain the film's complexities, you will just have to bare -- I mean, "bear" -- with me.

The film, based upon the Michael Lewis book by the same name, was adapted and directed by former SNL writer Adam McKay.

McKay took on a complex, serious topic, riddled with arcane financial mumbo jumbo about “mortgage-backed securities" and “credit default swaps" and made these terms fun, sexy and even somewhat understandable using visual metaphors demonstrated by the likes of Anthony Bourdain and Selena Gomez.

McKay immediately establishes the context of the story -- from the 1980s to the early 2000s -- through a rapid fire montage of iconic political and pop culture imagery.

In other words: There was much going on in the world that average Americans (and even the experts) were blind to the fact that the booming economy was really just a house of cards built by greed, debt and more debt.
One who does understand all this is Christian Bale's character, Dr. Michael Bury, an Asperger-affected neurosurgeon with a glass eye who becomes a hedge fund manager.

Bury foresaw the housing market collapse several years in advance, so he influenced Wall Street banks to create insurance contracts against the decline in value of mortgage bond portfolios, which Bury then bought. In betting against the housing and mortgage bond markets, Bury was betting against the American economy itself.

My other favorite character was the Mark Baum figure played by Steve Carell. I have never been a fan of Carell’s humour, but in this film, he nailed the role of the perpetually angry, distrustful but (believe it or not) principled hedge fund manager.

We learn that as a young man, Baum studied the Torah and Talmud, specifically trying to find internal contradictions in the words of God. This suspicious, inquisitive nature is in keeping with Baum's later belief that banks were ripping off small and large businesses alike.

Given the opportunity to expose the bank’s stupidity, greed and malfeasance (and profiting from them at the same time), Baum bets against the banks and the crappy mortgage bond portfolios they've been selling to unsuspecting investors.

Baum and his wacky band of misfits are aided by Jared Vennett, played by Ryan Gosling as a spray-tanned, coiffed, douchey investment banker who wants to profit by selling Baum the same credit swap deals Bury had secured.

Gosling/Vennett often punctures the fourth wall to move the film along, explaining financial technicalities or offering comic asides about the businessmen he's forced to deal with.

Underlying the craziness is a palpable sense of outrage and sadness. That's fitting since, when the American economy inevitably went down the toilet, millions of average Americans lost their homes, savings and jobs.  

And note -- the warning signs we see in the film can also be seen in real life Ontario, right now:

Rising house and condo prices. Stagnant incomes. Rising mortgage rates. Rising personal debt. Rising provincial debt. Rising unemployment. Declining provincial revenues. And rating agencies paid by the province of Ontario to value its own government bonds. What rating agency is going to bite the hand that feeds it?

If I was a betting man, I would be "big short"-ing Ontario government bonds, because Ontario is in serious decline and heading for a major correction. Perhaps a financial bloodbath.

Is there a Dr. Bury in the house?


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commented 2016-01-06 13:56:21 -0500
Bravo Zulu Good comment bravo , im ready for it, as are many of my friends and fellow work mates in southern alberta.
commented 2016-01-06 13:29:13 -0500
The debt rating agencies and Wynne have a relationship similar to that of the Mirror and the Evil Queen in Snow White. They keep telling her what she wants and needs to hearto stay in power. Sooner or later the mirror will have to tell her how ugly she is and the entire house of cards will collapse.
commented 2016-01-06 13:27:48 -0500
Ontario is on an unrecoverable slide to being a rustbelt economy (think Detroit/Baltimore/east St. Louis/Akron/Phillie etc. but province wide). I have a close friend and business acquaintance there who sees the provincial debt collapse coming and the inescapable government pillage of any wealth left in the jurisdiction to fund its welfare liabilities. He’s already closed one bricks and mortar business and now he’s winding down his consultation/contracting business in preparation for a move to a less hostile jurisdiction. He’s currently selling off assets and converting them to tangible investments with easily liquidity for transport of his savings out of the jurisdiction. He’s doing so because he says there is a head office evacuation from the province which started with the manufacturing sector and has now spread to the midsize marketing sector.

Here’s a productive asset and a primary tax base element who is leaving the province due to malfeasant reckless mismanagement, and he’s not alone – in another 4 yrs time this current regime will hollow out the private sector economy to a point where it will never be able to cover its liabilities with the permanently decreased productivity left. A text book example of kakistocratic socialism.
commented 2016-01-06 12:18:40 -0500
There is a gentleman named Peter Schiff who was mocked before he correctly called for the last financial meltdown before it happened and he is again stating the U.S. in going to have a crisis. He is the C.E.O. of Euro Pacific Capital and is quite educational to watch and a worthy debater. In one video he courageously wandered in and spoke to protesters in the occupy Wall Street movement and tried to educate them on why they should be protesting the government. https://www.youtube.com/watch?v=kGdH7iGNqlY
commented 2016-01-06 12:12:38 -0500
Deborah said, “… now that the faux PM has set Canada on a course of self-destruction.”

The sad part is that they have no clue that they are on that path. They actually believe that they are the “enlightened ones” and that the conservative minded people are the backward peoples. There really is only one one possible way that they will see that what they are doing is destructive. That is why they unwittingly work so hard are eradicating any trace of Christianity from Canadian culture.
commented 2016-01-06 11:44:33 -0500
Peter Netterville – watch as Junior and his empty headed brigade of criminals, go after Brad Wall now. It will mirror the attacks on Rob Ford and PM Harper, or anyone with white skin, or anyone who has a conservative nature. I just keep thinking that one day, those who have sold their souls to the devil, are going to pay for eternity. It makes it easier to deal with all of the treachery going on in Canada, now that the faux PM has set Canada on a course of self-destruction.
commented 2016-01-06 11:31:29 -0500
Good article, Mitch.

What you did not mention is that Ontario has been up to this point supported by Alberta’s Provincial Equalization payments. This will soon be changing as the payments will all but drop to nothing as Rachel Notley continues to stab the golden goose to death.

I guess that does not change the overall outcome of Ontario’s situation as you have described it. I just though it worth mentioning. Anyway, even if the equalization payments from the west drop next to nothing, Justin will dole out the money from Ottawa to support Ontario. Ontario along with Quebec and now Alberta is going to drag Canada down. It’s up to Brad Wall now.
commented 2016-01-06 10:56:44 -0500
Pay off your debts or sell what you cannot afford and down size – be comfortable – be ready.

It is your own “fire insurance”.