The Big Short

PLOT (spoiler alert!!!):

In 2005, eccentric hedge fund manager Michael Burry discovers that the U.S. housing market is extremely unstable, being based on high-risk subprime loans. Anticipating that the market will collapse during the second quarter of 2007, as interest rates would rise on many adjustable-rate mortgages, he envisions an opportunity to profit. His plan is to create a credit-default swap market, allowing him to bet against the mortgage-backed securities that are based on the housing market. He proposes his idea to several major investment and commercial banks. These firms, believing that the housing market is secure, readily accept his proposal. Burry’s huge long-term bet, in excess of $1 billion, entails paying substantial “premiums” to the banks. This proviso incurs his clients’ ire because they believe that he was wasting their capital. Many demand that he reverse course and sell his swaps, but Burry, confident in his analysis, refuses. When the rate-hike arrives and begins triggering heavy mortgage failures, however, the freefall he anticipates did not occur. As he later discovers, the banks collude with a major bond-rating company to maintain high ratings on bonds that were essentially worthless. This ploy allows the banks to sell off their losing positions before the true value of the bonds became known. Pressed by his investors, Burry restricts withdrawals from his fund, again angering his investors. Eventually, as the housing market collapsed as he predicted, the value of his fund increases by a net of 489% with an overall profit of over $2.5 billion, but the backlash he received from his investors, coupled with his own sense of disgust for the industry, convinces him to close down his fund.

Salesperson Jared Vennett is one of the first to understand Burry’s analysis, learning about Burry’s actions from one of the bankers that sold Burry an early credit default swap. Vennett uses his quant to verify that Burry’s predictions are likely true and decides to put his own stake in the credit default swap market, earning a fee on selling the swaps to firms who understand that they will be profitable when the underlying mortgage bonds fail. A misplaced phone call alerts hedge fund manager Mark Baum to his plans, and Baum is convinced to buy credit default swaps from Vennett due to his own personal distaste with the big banks. Vennett explains that the impending market collapse is being further perpetuated by the packaging of poor, unsellable loans into CDOs large enough to be considered diversified and thus given AAA ratings. Baum sends some of his staff to investigate the housing market in Miami, and they discover that mortgage brokers make more money if they only sell risky mortgages to the Wall Street banks – and these mortgages are so easy to acquire that a speculative housing bubble has been created. In early 2007, the mortgages loans begin to default, but the prices of the corresponding bonds increase and their ratings remain the same. When Baum questions an acquaintance at Standard & Poor’s, he discovers there is conflict of interest and dishonesty amongst the credit rating agencies. When Baum’s employees question Vennett’s motives, Vennett maintains his position and invites Baum and his team to the American Securitization Forum in Las Vegas, where Baum interviews CDO manager Wing Chau, who creates CDOs on behalf of an investment bank while claiming to represent the interests of investors. Chau describes how synthetic CDOs make a chain of increasingly large bets on the faulty loans, involving twenty times as much money as the loans themselves. Baum realizes, much to his horror, that the scale of the fraud will cause a complete collapse of the global economy. Baum convinces his business partners to go through with more credit default swaps, profiting from the situation at the banks’ expense. Baum laments that the banks will not accept any of the blame for the crisis.

Eager young investors Charlie Geller and Jamie Shipley accidentally discover a prospectus by Vennett, which convinces them to become involved in the credit default swaps, as it fits their strategy of buying cheap insurance with big potential payouts. Since they are below the capital threshold for an ISDA Master Agreement needed to pull off the trades necessary to profit from the situation, they enlist the aid of retired securities trader Ben Rickert. When the value of mortgage bonds and CDOs rise despite the rise in defaults, Geller suspects the banks of committing fraud and thinks they should buy more swaps. The three visit the Mortgage Securities Forum in Las Vegas, where they learn that the Securities Exchange Commission has no regulations to monitor the activity of mortgage-backed securities. They manage to successfully make an even higher-payout deal than the other hedge funds by shorting the higher rated mortgage securities, as they will become worthless if defaults rise above 8% and their real value is likely less than stated. Shipley and Geller are initially ecstatic, but Rickert is disgusted, since they’re essentially celebrating an impending economic collapse and soon-to-be-lost lives (40,000 for each 1% rise in the unemployment rate). The two are horrified, and take a much more emotional stake in the collapse by trying to tip off the press and their families about the upcoming disaster and the rampant fraud amongst the big banks. Ultimately, they profit immensely, but are left with their faith in the system broken.

A note is given that CDOs have come back into the current market, under a different name: “bespoke tranche opportunity”.

REVIEW:

Anyone who lives in the US is more than aware of the housing market crash that happened not too long ago, especially if you were one of those that owned and/or bought a house during that time. While many of us claim to know about that time, I’m sure when pressed we couldn’t tell you anything about it, other than some suff happened with the economy. Perhaps, The Big Short will clear some things up for us all.

What is this about?

Before the housing and credit bubble of 2007 triggers an international economic meltdown, a handful of financial outsiders sees the crash coming and bets against the big banks in a daring play that could reap them huge profits

What did I like?

The Office. Steve Carrell has made a name for himself as a comedic actor, but he isn’t afraid to veer off into drama every now and then, and isn’t too bad when he does so. Taking the reigns as one of the lead protagonists of this film, he shows us a character filled with range and depth, someone not happy with the way things are headed financially. Some have said that this is perhaps the best performance of his career.

Pitt and the pendulum. I’ve read more than a few articles calling Brad Pitt the “best actor of our generation”. I don’t quite agree with that statement, but I will rank him in the top 10. When he first showed up in the film, I couldn’t even tell it was him. Maybe it was the beard, the haircut, or the increased girth he was sporting, but he was unrecognizable. This wasn’t Brad Pitt playing a character, but rather Pitt becoming someone else, and that isn’t even going into the way he portrayed this character of Ben Rickert.

Break the walls down. When covering such confusing subject matter, it doesn’t hurt to break the fourth wall. Obviously, this isn’t a film like Deadpool, where breaking the fourth wall is done with comedic effect, instead it is done to inform the viewer about what is going on. I found this to be a nice touch and break up the constant monotony of big words and rooms full of business men in dark suits.

What didn’t I like?

Truth of the matter. Brace yourselves, I am about to scare you to near death. This is a true story, only the names have been changed. Did you know any of this was going on? I sure didn’t! With that in mind, what’s going on as I type this? Something worse? It isn’t hard to imagine so, and that (coupled with this lesser of two evils election) scared the bejesus out of me!

Tone. I will never complain about comic relief, as long as it is the right place. However, this film seemed to not know what it wants to be, a serious drama or something lighter with comedic moments. A lot of films and tv shows (not on HBO) seem to have this problem these days and it is a disturbing trend. Stop blurring the lines and either be funny or serious!

Dramatization. Like all biopics and true stories, facts and names were changed to protect the people involved and to put butts in the seats. Watching this flick reminded more of those dramatizations shown in documentaries, news shows, and such. It didn’t feel much like a motion picture, but rather something that was made for the sole purpose of telling what happened. Only later was the “story” added and names changed. Now, that is my opinion, I could be totally wrong.

Final verdict on The Big Short? There is one thing that this film makes more than abundantly clear. We, as a country, society, and human beings are way too dependent on money. So much so that rather that taking care of people who lose their homes, jobs, etc., folks are seeking to make more money while shifting the blame to others and seeking a bailout of some sort. It is just sickening. That being said, this is a film that brings home the point of what went down in the housing crisis of 2007. It gives a face to the people who tried to stop it, as well as those who ignored all the signs (maybe someone should do this with global warming!) All in all, it isn’t too bad a flick. Do I recommend it? Yes, it is worth a viewing, but it isn’t one of those pictures that you’ll be wanting to watch over and over again, unless you have some sadistic plan to watch the world burn by causing another financial crisis.

4 out of 5 stars

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