Flashback to Christmas 2002. America was recovering from the twin shocks of the tech bubble crash and the terrorist attacks of Sept. 11, 2001. The stock market was rising, real estate was heating up and optimism was rebounding.
And then there was Jim Bruce, surfing in Hanalei Bay in Hawaii with his family and friends. The L.A.-based filmmaker had just wrapped up work on the campy horror flick "Freddy vs. Jason." But something much more frightening had taken hold of his imagination.
CDOs, better known as credit default obligations, were becoming a popular way for financial institutions to shift risk off their books as they ramped up lending to a new class of subprime borrowers. Bruce was worried it was all a sham, that instead of reducing risk, these complex new instruments would actually magnify it, helping to fuel a new bubble that could bring down the entire economy.