If you just go in there as an amateur, you’re probably going to lose, and he was effectively going into the mortgage market as an amateur. Why were Michael Burry’s colleagues so opposed to him betting against the economy?īecause he had no background in the product he bought, so I completely sympathize with his skeptical colleagues. He actually looked at what the details were, all that public information inside these packaged bonds, and could see that the borrowers would not be able to pay off their loans. So he had banks create a credit default swap on mortgage bonds. Nobody had any interest in betting against them-since they were backed by housing, which was supposedly solid-but he did. This added some symmetry to the market, so you could go either way. Before Michael Burry, there was no convenient, efficient way to bet on the default happening You could just bet bullishly that a borrower would fulfill the bond. If you buy one, you get paid if the bond defaults. He bought a specific product, a swap on mortgage backed securities, which is basically like insurance on a bond.
The big short full movie movie#
In this case, the right time corresponded to housing prices peaking, which I don’t believe anyone could know for sure. I thought the movie did this very well, because he knew he was right, and he was right in a sense. As one character says to Burry, being early in a bet on the market is the same as being wrong. If you had the information that made Christian Bale’s character, Michael Burry, bet against the economy, would you have been as confident as he was? That whole feedback loop is really systematic and it’s interesting, and I don’t know that anybody at the time could’ve really seen that. And not only did the bubble infect these products and make them bad, there was also a feedback loop so that the more these products had sold, the more demand there was for loans, which then drove banks to be more willing to buy these crappy loans, which then meant the mortgage brokers made more crappy loans, which meant more people could buy houses, which pushed the market up more. It also helped me understand-if research bears it out, which I think it probably will-that these products themselves helped inflate the bubble. The Big Short helped me understand the incentives of the guys who saw the collapse coming. The fact that an organization can act stupidly even though it has a bunch of smart people in it, that’s interesting.ĭid The Big Short change your perspective on the collapse in any way?Ībsolutely. I’ll go on the side of stupid, not criminal. So a big part of the debate about the recession-and this is simplifying a bit-is whether the banks were stupid or criminal in this. They really thought, Oh it’s just a subprime thing it’ll be contained. Working at my bank, I talked to some of those high level people towards the end of 2007, when the first real cracks were happening in subprime loans, but it hadn’t spread to everything else yet and the big crisis came a year later. Alan Greenspan didn’t see it, Ben Bernanke didn’t see it, and neither did the head of the Treasury-super smart people who did have their fingers on the pulse of a million different things. We had lots of quants-quantitative experts-and very smart people at the banks who presumably didn’t see it, or somehow it didn’t reach the right people. It was surprising to me that some people, portrayed by Ryan Gosling and Christian Bale and others, actually got to the bottom of some of those mortgage products-figuring out that they were being fundamentally mispriced-when so many others didn’t. What surprised you the most in the movie’s portrayal of the impending financial collapse? What he had to say was illuminating, not only because of how he related with the characters-played by Ryan Gosling, Brad Pitt, Steve Carrell, and others-but also because of the context he gave. (Henderson’s article is now available to read.)īefore we publish his feature, we wanted to get his opinion on The Big Short. He details his story tomorrow, the 24th, in an exclusive Nautilus feature.
Bob Henderson, a physics PhD turned Wall Street trader, lost $200 million in a single month in 2008 (before ultimately recovering from the loss and making a profit), while working at a major investment bank in New York. Still, nothing can replace the insight of someone who worked in the industry during the crisis. The film, which is being released across the United States today, is based on the book by Michael Lewis, and describes how a few prescient financiers bet against the debt bubble and made millions. After watching The Big Short, I felt I had a decent grasp on the causes of the 2008 financial crisis.
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