They Bet Against What They Sell You

While Wall Street is calling you advising that you buy a product, they’re betting against that product. Sounds pretty bad, right? Sorry to inform you, but it’s perfectly legal so long as they disclose it in the fine print.

In the early 2000’s Wall Street was selling mortgage backed securities. That was just our fancy way of saying we bundled mortgages together and resold them. To resell them, we had to have them rated by credit agencies. Mind you we, Wall Street, paid those credit agencies for their services. They obviously had incentive to rate things the way we wanted.

Even though we knew those mortgage backed securities were crap, we were able to get them the highest credit rating possible. By doing so, we could sell them for a higher price with the illusion that they were low risk investments. The kicker is that Wall Street was shorting those mortgage backed securities, banks who owned them, and individuals who owned them. Keep in mind that we are the ones who sold them to those people.

So while we set you up for failure, we were betting against those very products we sold you. As long as we told you that somewhere in the small fine print, it was legal. We did it then. We did it with Greek debt. We’ll do it again so long as we can keep making our wallets fatter.

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