BUS 201 - The Big Short - MOVIE SUMMARY PDF

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Callie Diller Professor Todd Stuart BUS 201 08 April 6, 2016 The Big Short The Big Short is a film about the real-life 2008 global economic meltdown of the housing market and portrays events leading up to it. Three groups of investment bankers see their opportunity to make loads of money with their belief of this “bubble” that the U.S. housing market is built on, will burst. The film shows Michael Burry, a strange hedge fund manager, who anticipates that the housing market is on the verge of collapse. He is dismissed by his investors as being crazy when betting or shorting against the housing market, probably to do with the fact he wears shorts and walks around the office barefoot. So, Burry bets against the housing market and begins to pump millions of his clients’ money into a type of fund that will capitalize on the economic failure. This type of fund is called a credit default swap, a financial derivative that acts as insurance to pay back on collateralized debt obligations that defaulted. Burry was the purchaser of this protection, insuring his hedge funds. The big banks in the movie played the role of promising to pay the bonds if they resulted in a default. These banks had the idea the housing market would continue to incline, so they accepted the obligation of insurance. An investor named Jared Vennett sees what Burry is trying to do and thinks he too can make profit off the same beliefs. Mark Baum, a hedge fund manager, teams up with Vennett, however, it seems that Baum is in on the scheme for more of a moral reason of being fed up with the corruption in the financial industry. Ben Rickert is a retired

investment banker that is called upon to help “mentor” other traders when they as well realize this imminent economic collapse, helping them by facilitating trades worth millions of dollars. These men took full advantage of the impending economic collapse. Burry first established this impending doom due to his realization that the U.S. housing market is propped up by bad loans, or subprime loans. Loans that have a risky rating, or are at most risk not to be paid back, are called subprime loans, which banks help debt to these loans. Loans that are the least risky are categorized as being AAA, or loans most likely to be made payments on. Banks bundle up these loans and give them a total rating. But over time, the bundles began to contain riskier and riskier loans due to millions of people taking on huge mortgages that they can’t actually pay back. The banks accepted all of these risky mortgages without blinking. When Baum and his group head to Florida, they see that people seem to not have a lot of money and unemployment is incredibly high, yet people still seem to have their on property with the ability to borrow more money and then buy more with that. These risky loans meant they would be worthless, so they were sold on and reclassified as AAA quality. These subprime loans were taken under the goodwill of the investor with not knowing the unsavory intentions of the bankers. These traders and hedge fund managers made a fortune because of their foresight of the economic collapse, seeing it would cause a collapse of bonds manufactured from subprime mortgages. The major banks engaged in this deceitful, criminal activity, in which the U.S. government bailed them out at the expense of millions of Americans who lost their homes and jobs to this crisis. The different groups of investment bankers and traders depicted were smart enough to short the mortgage back securities before the

market crashed and then cashed out with an excessive amount of ill acquired funds. They failed to realize the effect and chain reaction this will have on millions, or maybe they didn’t. In the movie, Rickert explained that by betting on the economy, millions of hardworking people will suffer in result. This sheer lack of moral recognition results in our real-life economy still recovering from this depiction of the 2008 housing market collapse....