If it's Saturday, I must be pointing out more simply stunning stupidity coming from the mouth of Bill Maher.
Never letting me down, the host of HBO's Real Time Friday said the financial crisis was caused by "something new in politics where Wall Street was sort of betting on things to fail as opposed to for things to succeed" (video follows with transcript and commentary):
BILL MAHER: I mean, if it was just about housing it wouldn't be that giant a crisis. It’s that the banks took side bets on failure. Isn’t it? I mean, that's something new in America. Is it not? I mean, it’s okay, we all want capitalism. I mean, I am not a communist. I'm not. But this is something new in politics where Wall Street was sort of betting on things to fail as opposed to for things to succeed.
It amazes me that people actually think this man is bright let alone that he has his own nationally televised show.
Wall Street has been betting on things to fail since the first stock market was created in America. It's called short selling, and it's when you borrow stock from someone that owns it in order to sell it and take advantage if it goes down. You can then hopefully buy it at a lower price with your gain being the difference.
The top brokerage firms and investment banks have been doing this for years. In fact, most of them have whole divisions that are at times net short stocks in order to be profitable during bear markets.
I myself represented such a division when I worked for Merrill Lynch in the '80s. Our options arbitrage and block trading units were often "net short" a stock, meaning that we'd benefit from its decline.
Such "bets" have gotten more complicated in recent decades when listed options first started trading in the '70s. The "put" option is specifically a bet that a stock is going to go down within a certain number of days or months. Such options eventually were created for commodities, currencies, treasuries, and a whole host of investment categories.
These tools have also been used by securities firms and banks to hedge their exposure to things such as interest rate fluctuations. A financial institution with a large portfolio of fixed rate mortgages for example will use such derivatives to reduce their losses if interest rates suddenly begin to rise.
Maher may not be pleased to know that in recent years, many firms and hedge funds have been almost constantly short the U.S. dollar due to how low interest rates are here. This allows them to borrow money at almost no cost and buy other investments such as gold for instance, which has been a very common strategy for roughly a decade.
Something else to consider is the two derivatives at the heart of the financial crisis aren't new. The first collateralized debt obligation was created in 1987, and the first credit default swap in 1991.
As such, Maher was once again demonstrating how his opinions quite often have absolutely no basis in fact.
