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Academy Award Winner Movie: The Big Short: On 2008's Market Crash

Updated: Jan 4

The Big Short Movie Poster. Source: Google

IMDb 7.8/10

Rotten Tomatoes 88%

2016 Oscar Winner for Best Adapted Screenplay

Drama I Comedy

The movie starring: Christian Bale as Michael Burry, Ryan Gosling as Jared Vennett, Steve Carell as Mark Baum, Brad Pitt as Ben Rickert, Finn Wittrock as Jamie Shipley, Jeremy Strong as Vinny Daniel

Directed by Adam McKay

Based on a true story & a book with the same name ‘The Big Short: Inside the Doomsday Machine’.

Before reading the explanation, I'll suggest going through these links;

Collateral Debt Obligations (CMO)

Credit Default Swap (CDS)

In the market, generally, money is made when the market goes up but experienced investors use complex ways to make money when the market declines. This is called short selling. In 2008’s financial crisis when everyone lost money, there were some people who made millions. This is a story of those people.

Michael Burry- The manager of Scion Capital

In 2005 Michael Burry finds the bubble of the housing market that soon going to burst. He analyses the reports and checks the creditability of each mortgage in underlying CMOs (CMO or Collateral Mortgage Obligation is a complex financial instrument which is a derivative of underlying debts arranged in tranches).

As soon as he discovers the bubble of the housing market, he requests to use his client’s money to bet against the housing market. But everyone denies his allegations against the housing market.

Anyway, Michael uses their money to buy CDS (Credit Default Swap is a complex instrument which works like insurance. In case of credit event CDS buyer is eligible to get back all his money from CDS seller). The investment banks that sell CDS thought Michael is a fool and signs contract (CDS) with him.

When Michael’s clients get to know about this investment, they demand their money back but Michael places a moratorium on withdrawal.

Jared Vennett & Mark Baum

Jared has worked in one of these companies that made tranches of debts. As the bond market was growing fast, investment banks became hungry to make more money. The banks also started giving loans to ineligible people just to make more bonds.

These loans were rated by rating agencies poorly and then investment banks made theer tranches to prepare bonds (CMOs). The banks were safe as their risk of credit default was shifted. The banks were getting paid as they also bought the CMOs.

Jared tells Hedge Fund Manager Mark Baum about the irregularities/fraud in the making of CMOs. Till then the default rate has already started to increase. Jared tells Mark that when the default rate will reach 8% the whole market will collapse in a chain reaction.

Jared came to know about Michael Burry’s CDS investment and so Baum also do short selling.

Jamie Shipley & Vinny Daniel

These two young men accidentally come through the article of Jared. Now they also want to bet against the market but are short in funds. They take help from Ben Rickert to short the market.

Everyone was so sure about the bursting of the housing market bubble but they didn’t know exactly when. They waited for ,it to happen which seems unethical. Anyway they all made money amidst the global crisis.

In one scene when Selena Gomez was winning in the casino, some people bets on her win & some against the win. Other people also bet on the people who are betting and some others these betters. This creates a chain. When one loses the money he drowns others with him causing a chain reaction. This same concept is with the collapse of global market.

In another scene, Baum’s co-worker calls him nonstop to close the trade. And if he doesn’t do it he’ll lose all his money. Deep inside Baum doesn’t want to do it as he knows the chain reaction & its effects on the the economy. He hates that people will lose everything because of foolishness of big companies.

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