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'American Casino': How Our Nation's Financial Sector Became a Massive and Unregulated Gambling Operation

An incredibly powerful new documentary finally lets those who've lived it tell the story -- from the "creative" financiers to the home buyers duped by brokers.

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These closings were often scheduled at the end of the day so that you'd have to pick up your kids at day care, as one community lawyer in Baltimore points out.

This is a crime. This is people being lied to, people being squeezed, people being scammed. It really is shocking when you realize that really good people have been duped, and that they then default.

And the people who have given them this mortgage don't care, because they passed it on. It's this whole game of hot potato. You pass it on to the next guy, and then to the next guy.

As this incredible banker in the film points out, "There is no skin in the game. Get your fees up front, make a lot of money, pass it on to the next guy."

So the only person who is destroyed is the person who was naive enough to believe in the system. The ones who believed that the broker or banker was actually a decent human being doing a job as a professional and giving them good advice. It's a shocking story.

JH: Now help us connect these securities based on bad loans -- what economic bloggers have called "the shit pile" -- and how they were sliced and diced into these pieces that basically make them AAA-rated ... connect that to this lust for selling mortgages that people couldn't afford to service.

AC: Well, you know, the idea of mortgage-backed bonds has been around for a while. What really happened in the 2000s was they discovered that instead of diversifying and having bonds that were partly backed by mortgages and backed by other things like aircraft leasing and so on and so forth, that it was much better, much more profitable, there was an extra few basis points in concentrating on subprime. Basically loan-shark loans.

So, we have a banker explaining all this in very candid, and I think ... very clear terms, because we just let him explain it. You take all these mortgages and you put them together in a bond.

Then you slice it up -- you sell slices of that bond, and you get an obliging rating agency, which you are paying and which wants your business as an investment bank. They say, oh 80 percent of these are AAA. And there were only about eight or nine corporations in the United States that were considered AAA at the time -- General Electric, Exxon. So suddenly you had thousands of these mortgage bonds being rated AAA, or parts of them.

Then you take little bits of those bits that are BBBs, BB, BBB and B. You take those lower-down bits, which are considered more risky. You take those tranches out, you pour them into another instrument called a collateralized debt obligation. You rate the top 80 percent of that AAA. So what was B is now A, magically!

Then you could do it all again. You take the B bits out of that, and put it in another one. A CDO-squared, as they called it. And what our banker makes very clear is you were taking garbage and spray-painting it with a can of gold paint, and then calling it gold.

JH: Now, one of the people you interview calls this "the civil rights issue of the 2000s." Tell me, what is "reverse red-lining"? What does that mean?

AC: Well, originally, whole areas of the population, specifically African Americans and other minorities, were "red-lined." There would literally be a red line around areas on realtors' maps. And you don't make a loan to people living inside those lines. Because they weren't part of the credit system.

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