It ain’t what you don’t know that gets you in trouble.
It’s what you know for sure that just ain’t so – Mark Twain
(from the beginning of the movie, “The Big Short”)
Starting July 6, 2016 “The Big Short”, a movie on the greatest institutional fraud in U.S. history, is on Netflix Canada. It follows three groups of people who analyzed the data and bet successfully that the US banks, government regulating agencies, Alan Greenspan, and (allegedly) independent bond rating agencies all were wrong. It won 20 awards (including an Oscar) for Best Screenplay from the book by Michael Lewis.
The movie makes a boring topic entertaining (7.8 out of 10 at imdb.com). Having Margo Robbie explain Credit Default Swaps helps. (Warning: they R-rated the movie. Small children, and those with their life savings in banks, should not be in the room.) It also has heart. Brad Pitt plays ex-banker Ben Rickert who helps two young men, Charlie and Jamie. When they realized they were going to score big (the payoff was 200 to 1), Ben chastised them, “Don’t celebrate. Every time unemployment goes up 1%, 40,000 people die. Did you know that?”
Previously, Federal Reserve Chairman Alan Greenspan said everything was fine. Mortgages were supposedly one of the securest forms of investment – until the banks lent mortgages to people who filled out applications with the income statement left blank, aka NINJA loans, or No Income No Job loans. The bond rating agencies rated toxic stuff to be AAA (the highest rating) simply to avoid losing business to competitors. It was only when these three parties did their research that the inevitability of the impending meltdown became evident.
One party was Scion Capital’s Dr. Michael Burry (Christian Bale) who has Asperger Syndrome. Perhaps Asperger’s was why he read all 12,000 pages of disclosure. Most refused to look. The Wall Street Journal chose not to run a story on how the bond rating agencies were not doing their job.
Mark Baum (Steve Carell) said towards the end of the movie (around 1:52:00):
“We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball. What bothers me isn’t that fraud is not nice or that fraud is mean. It’s that for 15,000 years fraud and short-sighted thinking have never, ever worked. Not once. Eventually, people get caught, things go south. When the hell did we forget all that? I thought we were better than that. I really did.”
What has this to do with Apu’s Theory about income tax? Everything. Most find it inconceivable that how Canadian income tax supposedly works is also institutional fraud. The movie The Big Short clearly shows it is not. The average person cannot understand Canada’s deliberately obfuscated income tax laws. It is not taught in professional schools how it really works. That means CRA is also probably not aware of it. The courts refuse to address it so nothing is on the record. Just like the 2008 banking crisis, all parties are colluding to perpetuate institutional fraud. This is not surprising. According to the movie’s epilogue, after it was all over,
“Charlie and Jamie tried to sue the ratings agencies but were laughed out of all law offices. Michael Burry contacted the government several times to see if anyone wanted to interview him to find out how he knew the system would collapse years before anyone else. No one ever returned his calls. But he was audited four times (by the IRS) and questioned by the FBI.”
Mark Baum bemoans the fact that in the 2008 crisis, people got away with institutional fraud. Only one Wall Street banker went to jail. 8 million people lost jobs, 6 million lost homes, and it wiped out $5 trillion. In Canada it is even worse. Daring to question the income tax fraud often means jail for Canadians. They are punishing people to protect their fraud. Like Mark Baum said, we thought we were better than that. Much, much, better.