Movie Summary: The Big Short
The Big Short’, truly a magnum opus, is undoubtedly the best movie I have ever seen in the recent time. Directed by Adam Mackay and based on non-fiction book, ‘The Big Short-Inside the doomsday machine’ by Michael Lewis, the movie is based on the real life incidents revolving around a group of four individuals with parallel yet unconventional story of making millions by going short on the mortgage market. Here, the term- ‘Short’ refers to a financial term when an investors foresight the downside potential in an asset class and place investment on it with the intend to gain from the downside movement. In the same way, In the movie, the four characters, Michael Burry(Christian Bale), Jaret Vennett( Ryan Gosling), Mark Baum(Steve Carell), Ben Rickert(Brad Pitt) forecast the non-fundamental growth in the mortgage market and goes short against the mortgage market, even when it was gaining record prices every day. The entire movie revolves around the parallel story of these four characters and how all of them try to share this alarming situation with the head honchos of the financial industry, however, the director has done a remarkable job by firstly illustrating the development of the mortgage market in the United States and how it got more complex with the introduction of complex financial instruments, which were the real reason behind the financial carnage of the US economy.
The movie unfolds by introducing financial derivatives and how they should have been used to spread the risk associated with the mortgage bonds. Ironically, rather than using these financial instruments in an ethical way, banks and their executives blindly expanded their mortgage loan portfolio and started including sub-prime and in many cases, ex-defaulters into the loan portfolio. The reason for poor lending standards were simple, banks were able to set-off the risk associated with these mortgage loans through the process of securitization as part of which, these loans were bundled together and were sold as Mortgage Backed Securities(MBS) and other mortgage based securities. Ironically, these securities were nothing but bad assets backed up by sub-prime loan. On the other hand, rating agencies who are entrusted to rate the securities also became part of this unethical system and issued a AAA rating to the majority. In other words, these bonds were being sold as high quality bonds and were being included in the portfolio supporting 401K of an average American, when in reality they were an extremely risky investments that could bombard anytime. Personally speaking, it was really daunting and depressing to see the woman in credit rating agency office openly accepting that the agency succumbed to the fear of losing business the competitor and thus issued a high rating to the junk bonds. Its really hard to fathom that how these highly experienced professionals ignore the fact that just to earn some more dollars, they were actually pushing the entire economy towards the black hole of the economic crisis and were profoundly supporting the environment of cowboy financing, which brought repercussions around the globe.
Amidst all these roller coaster incidents were the four main characters of the movie who saw these securities as weapons of mass destruction and with intense research and meticulous observation of the economic data, they discovered the whole paranoia prevailing in the mortgage market and thus decided to go short against these bonds, even when the entire financial community was questioning and laughing at their short position.
Eventually, when the Federal Reserve learnt about the bubble and hiked the interest rates, the system got rigged and the real estate bubble got busted and despite of multiple attempts to keep the values of subprime mortgage bonds artificially high, values collapsed. The US economy saw the erosion of trillions of dollars, but there were few men who saw the value in the short side of the mortgage market and thus earned billions and came out on the top of the financial chaos.
However, what was most touching was that each character felt horrible when they felt that they have become rich at the expense of the entire US economy. The scene where Brad Pitt shouts at two of his junior associates and telling them as how the financial crisis leads to unemployment and even a 1% increase in the unemployment rate leads to so many suicides showed the impeccable artwork by the director as how the movie was not only about the financial aspects of the mortgage market, but it also showed how the greed of some executives brought troubles for an average American who had no role whatsoever in proliferating the crisis.
Overall, this movie was a fantastic piece of film-making showing the collapse of the entire US economy through the eyes of four traders who understood the reality, when no one was ready to understand them. In order to culminate this paper, I propose a personal title for this movie,
’ The Big Short- A Wall Street Comedy that makes your blood boil’.
