“I reluctantly watched The Big Short on a plane ride recently. Here is a HUGE, HUGE takeaway: The S.E.C., some private plaintiffs, and mostly liberal government officials/politicians have claimed that sophisticated investors were fraudulently deceived by mortgage securities’ issuers and underwriters (Wall Street) into buying securities that they otherwise would not have bought…

…Yet, the entire premise of The Big Short (The movie. I started to read the book, but couldn’t finish because it was far too fresh and painful at the time…I need to do it now.) is that these groups of unrelated investors/speculators, by reading the publicly-available securities prospectuses, which include the individual mortgage loan information (FICO’s, LTV’s, etc.) on every loan in the security and monitoring the publicly-available monthly mortgage loan servicing tapes (which discloses current, delinquent, and nonperforming mortgages), made the decision to investigate further, share their investment hypothesis with others to seek confirmation, and ultimately decided to SHORT some of these mortgage securities (and also various financial institutions and mortgage lenders/insurers). In other words, the securities disclosures weren’t fraudulent. They didn’t have misleading or omitted information. They were in fact the core piece of information that allowed these investors to make their ultimately winning investment decision. Maybe that’s why at the end of the movie, when they described each of the main characters and what they were doing today, it said that: “Dr. Michael Burry reached out to the federal government and offered to be interviewed and share with the government all that he had learned, but had never heard from them. Yet, he had been audited by the IRS twice since then”? Maybe the government didn’t want to know how he and others used publicly-available securities disclosures by mortgage securities issuers and by other S.E.C. registrants to make their investment decisions, because that would have destroyed their claims in all of the bogus securities fraud cases they wanted to file against the industry? Don’t believe me? What has the S.E.C. or any private securities plaintiffs proved in a court of law? As far as I am aware, not much.”, Mike Perry, former Chairman and CEO, IndyMac Bank

Posted on April 13, 2016, in Postings. Bookmark the permalink. Leave a comment.

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