At the suggestion of a friend of mine, I watched the movie The Big Short on Netflix. The movie is about the guys who bet against the housing bubble that burst in 2008 and made a massive amount of money on the American economic collapse that ensued. It was a good movie, and it brought to mind my own memories of the housing bubble from when I was younger and how I had an inkling of what was coming.
I grew up in San Diego. My parents had been renters for a long time, but in 1999 they bought a house and we moved in. The house was priced at right about $200,000. In 2004, my parents had the house evaluated, and it was valued at around $400,000. During the summer of 2007 I was back at home and my parents informed me that a house up the street from us that was a little smaller than our house was being listed at $700,000. Even as young man who still had much to learn about the world, I recognized the surge in housing prices for the insanity that it was. Home prices were vastly exceeding workers’ income, and there was no reasonable way to explain how people were getting loans to purchase these properties. On the evening news I distinctly remember one broadcast where the news anchor was talking about how various sectors of the American economy were faltering, but that the housing sector was still booming and thus propping all the others up. If unemployment was rising and people were losing income, shouldn’t housing also cool off, since more people shouldn’t be able to afford buying homes? In one of my college classes that year there was a group project and my group decided to do a report on the now-infamous Collateralized Debt Obligations (CDOs) and I remember how much difficulty we had in explaining them to our class. We were dumb college students, but we recognized that something wasn’t right about CDOs, though we had no idea just how badly they would destroy the American economy.
Looking back at it now, I can see that I had many of the puzzle pieces that pointed to the 2008 economic collapse, but I didn’t put them all together. If I was truly prescient, I would have tried to find some way to make money off of what was going to happen, similar to the guys in The Big Short, though as a poor college student I didn’t exactly have the resources one needs to reap a big profit off of such insight.