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Fausterion18 t1_j6okngu wrote

Reply to comment by Diligent-Road-6171 in Bulls: Shut up and take my money!! by CrackCody

The derivatives they were trading are 100% a zero sum game.

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Diligent-Road-6171 t1_j6ol7ja wrote

They were trading MBS, which is a perfectly useful and positive value financial instrument that gives both borrowers and lenders options they didnt have available to them.

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Fausterion18 t1_j6om8u1 wrote

They weren't investors, they were traders. From their perspective trading those were zero sum. Any gain they had was at the cost of the bank that traded with them.

Kinda like how leaps and synthetic longs are perfectly useful instruments for long term investing, but options trading is always zero sum.

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Diligent-Road-6171 t1_j6on8va wrote

2 things:

1 - The firm in the movie wasn't purely a trading firm. They were the originators of the MBS, and that's how they made money, there would be no MBS without them. In fact that's a core reason why they took too much risk and had to liquidate. It's a key plot point!

2 - Even pure traders are not zero sum. There is value in providing liquidity and in making the market more efficient.

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Fausterion18 t1_j6onrgw wrote

  1. Two separate departments. The trading desk was zero sum.

  2. Yes they are lol. The gains and losses come purely at the expense of the counterparty. Liquidity and efficiency isn't relevant to whether the market is zero sum. This is like saying Texas holdem isn't zero sum because there's value in entertainment.

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Diligent-Road-6171 t1_j6oovrm wrote

What a dumb fucking argument, do you think that they'd be originating the MBS if they couldn't sell them?

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Fausterion18 t1_j6opilp wrote

They don't fucking sell the MBS to other investment banks through the trading desk dumbass. They sell directly to investors.

In the fire sale scene they even talk about this. The traders said things like "oh we bought too many, oh we bought this at 95, etc".

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Diligent-Road-6171 t1_j6oqinf wrote

You dumb ass they were talking about the par value of the lots that compose the MBS.

They weren't just selling the MBS in the firesale, they were selling the mortgages they used to make the MBS

This is literally spelled out for you in the board meeting.

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Fausterion18 t1_j6otu08 wrote

> You dumb ass they were talking about the par value of the lots that compose the MBS.

You dumbass the par value is always 100. The traders were lying and claiming they bought it at 97 or 95 whatever.

Goddamn you clearly don't know shit about bonds. img

>They weren't just selling the MBS in the firesale, they were selling the mortgages they used to make the MBS
>
>This is literally spelled out for you in the board meeting.

You can't sell a mortgage over a trading desk like this idiot.

They were selling their own originated MBS and pretending like they bought them for trading purposes.

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