How 2008 Will Happen Again

The best theory on how 2008 will happen again - the bigger short

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Original reddit thread

WHAT HAPPENED IN 2008:

This is one of the more interesting theories on how the bigger short will happen, a repetition of the economic collapse of 2008. In 2008, banks started lending money to people who weren't able to pay back their loans, when they realized the real estate market would collapse, they packaged up their loans into CDOs and sold them off as "AAA" rated investments to unsuspecting buyers. In this theory, the collapse will be triggered by the "derivatives" market.

WHAT ARE DERIVATIVES?

Derivatives are investments that "derive" their value from the performance of another underlying asset which can be a contract, an asset, an interest rate or virtually anything that can be "securitized" (turned into an investment). A real world example of a derivative is call and put options in the stock market that retail investors play with. This is much more exciting than ordinary investing because your gains are amplified, especially if that money was borrowed on margin. However, this is extremely risky.

THE CREATION OF THE CASINO:

At the turn of the century, Bill Clinton passed something called the CFMA or the Commodity Futures Modernization Act of 2000 which made it impossible for anyone to properly regulate the derivatives market.

HOW BIG ARE DERIVATIVES?

Derivatives are massive, bigger than you can imagine. The entire crypto currency market which includes every crypto coin you’ve ever heard of combined is worth $1.5 trillions dollars, the world’s budget of military spending about $2 trillion dollars, the combined value of the whole world’s real estate market is $270 trillion dollars, the value of all the money that is owed in the world $281 trillion dollars, the world’s entire wealth is $360 trillion dollars. That’s a lot of money but not when you compare it against the derivative market because it is worth between 600 trillion, to 1 quadrillion - that's 1,000 trillion.

HOW WILL 2008 HAPPEN AGAIN?

Instead of predatory lending to ordinary people who couldn’t afford their loans, one of the ways they’re doing it again is through predatory lending to businesses through what’s called CMBS or Commercial Mortgage Backed Securities.

Independent research shows that the reported income falls 5% short or more, in 28% of the loans that these banks gave out. That was just the average though because they found some banks like Goldman Sachs, UBS, Citigroup, Morgan Stanley, it was 5% or more in 35% of cases where they were purposely over reporting the income of their clients. Why?

Because these derivatives seem a lot safer than they might actually be. If you make it seem like they are super safe investments because your clients are making a lot of money, it appears safer than it might actually be, which is exactly what happened with the CDOs in 2008.

PROTECTIONS:

DTC-004 and ICC-005 which is protection, wind down, and auction plans. And then there’s OCC-004 and OCC-003 which protects different parts of the market, shields them from any legal wrong doing and allows third parties to join in and buy up assets from any corporations in default.

They also created an index fund that allows them to invest in the collapse of the entire market with something called Credit Default Swap Indexes with ICC-014.

WHY ARE THEY DOING THIS?

The theory is a consolidation of power. Sounds like a conspiracy right? Actually it's capitalism at work. Companies acquiring each other when they are the most vulnerable even if it means crashing the entire economy.

WHAT ABOUT MEME STOCKS?

They play the role in exposing the over leverage in the market that is happening today. Instead of allowing hedge funds to crash the market at our expense, it's time for Wall Street to pay for its carelessness.