Film Reviews:

JUNE 2024:

The Big Short; directed by Adam McKay; screenplay by Charles Randolph and Adam McKay; based on The Big Short by Michael Lewis; starring Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt; produced by Brad Pitt, Dede Gardner, Jeremy Kleiner, and Arnon Milchan for Regency Enterprises and Plan B Entertainment and distributed by Paramount Pictures. (2015)
The Big Short (2015)

A Big Review…

Michael Lewis‘s 2010 book The Big Short: Inside the Doomsday Machine is a riveting and incisive exploration of the 2007-08 financial crisis, triggered by the collapse of the United States housing bubble. Lewis, a masterful storyteller with a keen eye for detail, delves into the complexities of the financial markets and the individuals who foresaw the impending disaster. The book serves as both a detailed chronicle of the events leading up to the crisis and a critique of the systemic failures that allowed it to happen.

Michael Monroe Lewis (born October 15, 1960) is an American author and financial journalist. He has also been a contributing editor to Vanity Fair since 2009, writing mostly on business, finance, and economics. He is known for his nonfiction work, particularly his coverage of financial crises and behavioral finance. Lewis was born in New Orleans and attended Princeton University, from which he graduated with a degree in art history. After attending the London School of Economics, he began a career on Wall Street during the 1980s as a bond salesman at Salomon Brothers. The experience prompted him to write his first book, Liar's Poker (1989). Fourteen years later, Lewis wrote Moneyball: The Art of Winning an Unfair Game (2003), in which he investigated the success of Billy Beane and the Oakland Athletics. His 2006 book The Blind Side: Evolution of a Game was his first to be adapted into a film, The Blind Side (2009). In 2010, he released The Big Short: Inside the Doomsday Machine. The film adaptation of Moneyball was released in 2011, followed by The Big Short in 2015. Lewis's books have won two Los Angeles Times Book Prizes and several have reached number one on the New York Times Bestsellers Lists, including his most recent book, Going Infinite. Photo Credit: Wikipedia Commons
"The Big Short: Inside the Doomsday Machine" is a nonfiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s. It was released on March 15, 2010, by W. W. Norton & Company. It spent 28 weeks on The New York Times best-seller list, and was the basis for the 2015 film of the same name. Photo Credit: Google Images
The 2007–2008 financial crisis, or the global financial crisis (GFC), was the most severe worldwide economic crisis since the Great Depression. Predatory lending in the form of subprime mortgages targeting low-income homebuyers, excessive risk-taking by global financial institutions, a continuous buildup of toxic assets within banks, and the bursting of the United States housing bubble culminated in a "perfect storm", which led to the Great Recession. Mortgage-backed securities (MBS) tied to American real estate, as well as a vast web of derivatives linked to those MBS, collapsed in value. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis. The preconditioning for the financial crisis was complex and multi-causal. Almost two decades prior, the U.S. Congress had passed legislation encouraging financing for affordable housing. However, in 1999, parts of the Glass-Steagall legislation, which had been adopted in 1933, were repealed, permitting financial institutions to commingle their commercial (risk-averse) and proprietary trading (risk-taking) operations. Arguably the largest contributor to the conditions necessary for financial collapse was the rapid development in predatory financial products which targeted low-income, low-information homebuyers who largely belonged to racial minorities. This market development went unattended by regulators and thus caught the U.S. government by surprise. After the onset of the crisis, governments deployed massive bail-outs of financial institutions and other palliative monetary and fiscal policies to prevent a collapse of the global financial system. In the U.S., the October 3, $800 billion Emergency Economic Stabilization Act of 2008 failed to slow the economic free-fall, but the similarly-sized American Recovery and Reinvestment Act of 2009, which included a substantial payroll tax credit, saw economic indicators reverse and stabilize less than a month after its February 17 enactment. The crisis sparked the Great Recession which resulted in increases in unemployment and suicide, and decreases in institutional trust and fertility, among other metrics. The recession was a significant precondition for the European debt crisis. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in the US as a response to the crisis to "promote the financial stability of the United States". The Basel III capital and liquidity standards were also adopted by countries around the world. Photo Credit: Google Images
The 2000s United States housing bubble or house price boom or 2000s housing cycle was a sharp run up and subsequent collapse of house asset prices affecting over half of the U.S. states. In many regions a real estate bubble, it was the impetus for the subprime mortgage crisis. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011. On December 30, 2008, the Case–Shiller home price index reported the largest price drop in its history. The credit crisis resulting from the bursting of the housing bubble is an important cause of the Great Recession in the United States. Increased foreclosure rates in 2006–2007 among U.S. homeowners led to a crisis in August 2008 for the subprime, Alt-A, collateralized debt obligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007, Henry Paulson, the U.S. Secretary of the Treasury, called the bursting housing bubble "the most significant risk to our economy". A bubble had the potential to affect not only on home valuations, but also mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession. Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts. In 2008 alone, the United States government allocated over $900 billion (~$1.25 trillion in 2023) to special loans and rescues related to the U.S. housing bubble. This was shared between the public sector and the private sector. Because of the large market share of Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (both of which are government-sponsored enterprises) as well as the Federal Housing Administration, they received a substantial share of government support, even though their mortgages were more conservatively underwritten and actually performed better than those of the private sector. Photo Credit: Wikipedia Commons
The 2007–2008 financial crisis, or the global financial crisis (GFC), was the most severe worldwide economic crisis since the Great Depression. Predatory lending in the form of subprime mortgages targeting low-income homebuyers, excessive risk-taking by global financial institutions, a continuous buildup of toxic assets within banks, and the bursting of the United States housing bubble culminated in a "perfect storm", which led to the Great Recession. Mortgage-backed securities (MBS) tied to American real estate, as well as a vast web of derivatives linked to those MBS, collapsed in value. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis. The preconditioning for the financial crisis was complex and multi-causal. Almost two decades prior, the U.S. Congress had passed legislation encouraging financing for affordable housing. However, in 1999, parts of the Glass-Steagall legislation, which had been adopted in 1933, were repealed, permitting financial institutions to commingle their commercial (risk-averse) and proprietary trading (risk-taking) operations. Arguably the largest contributor to the conditions necessary for financial collapse was the rapid development in predatory financial products which targeted low-income, low-information homebuyers who largely belonged to racial minorities. This market development went unattended by regulators and thus caught the U.S. government by surprise. After the onset of the crisis, governments deployed massive bail-outs of financial institutions and other palliative monetary and fiscal policies to prevent a collapse of the global financial system. In the U.S., the October 3, $800 billion Emergency Economic Stabilization Act of 2008 failed to slow the economic free-fall, but the similarly-sized American Recovery and Reinvestment Act of 2009, which included a substantial payroll tax credit, saw economic indicators reverse and stabilize less than a month after its February 17 enactment. The crisis sparked the Great Recession which resulted in increases in unemployment and suicide, and decreases in institutional trust and fertility, among other metrics. The recession was a significant precondition for the European debt crisis. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in the US as a response to the crisis to "promote the financial stability of the United States". The Basel III capital and liquidity standards were also adopted by countries around the world. Photo Credit: Google Images
A scene in "The Big Short" (2015) Photo Credit: Paramount Pictures

Context and Background

Skyline of NYC - USA flag and panoramic view of New York City (real estate, money, economy, business, finance, inflation, crisis) Photo Credit: Getty Images

The 2007-08 financial crisis was one of the most significant economic downturns since the Great Depression. The roots of the crisis lay in the United States housing market, where a combination of low interest rates, lax lending standards, and speculative investment led to a massive bubble. When housing prices began to decline, the bubble burst, leading to widespread mortgage defaults and a collapse in the value of mortgage-backed securities (MBS). This, in turn, triggered a global financial meltdown, leading to the Great Recession.

The 2007–2008 financial crisis, or the global financial crisis (GFC), was the most severe worldwide economic crisis since the Great Depression. Predatory lending in the form of subprime mortgages targeting low-income homebuyers, excessive risk-taking by global financial institutions, a continuous buildup of toxic assets within banks, and the bursting of the United States housing bubble culminated in a "perfect storm", which led to the Great Recession. Mortgage-backed securities (MBS) tied to American real estate, as well as a vast web of derivatives linked to those MBS, collapsed in value. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis. The preconditioning for the financial crisis was complex and multi-causal. Almost two decades prior, the U.S. Congress had passed legislation encouraging financing for affordable housing. However, in 1999, parts of the Glass-Steagall legislation, which had been adopted in 1933, were repealed, permitting financial institutions to commingle their commercial (risk-averse) and proprietary trading (risk-taking) operations. Arguably the largest contributor to the conditions necessary for financial collapse was the rapid development in predatory financial products which targeted low-income, low-information homebuyers who largely belonged to racial minorities. This market development went unattended by regulators and thus caught the U.S. government by surprise. Photo Credit: Google Images
Unemployed men standing in line outside a soup kitchen, Chicago. © Everett Historical/Shutterstock.com
The 2000s United States housing bubble or house price boom or 2000s housing cycle was a sharp run up and subsequent collapse of house asset prices affecting over half of the U.S. states. In many regions a real estate bubble, it was the impetus for the subprime mortgage crisis. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2011. On December 30, 2008, the Case–Shiller home price index reported the largest price drop in its history. The credit crisis resulting from the bursting of the housing bubble is an important cause of the Great Recession in the United States. Increased foreclosure rates in 2006–2007 among U.S. homeowners led to a crisis in August 2008 for the subprime, Alt-A, collateralized debt obligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007, Henry Paulson, the U.S. Secretary of the Treasury, called the bursting housing bubble "the most significant risk to our economy". A bubble had the potential to affect not only on home valuations, but also mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession. Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts. In 2008 alone, the United States government allocated over $900 billion (~$1.25 trillion in 2023) to special loans and rescues related to the U.S. housing bubble. This was shared between the public sector and the private sector. Because of the large market share of Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (both of which are government-sponsored enterprises) as well as the Federal Housing Administration, they received a substantial share of government support, even though their mortgages were more conservatively underwritten and actually performed better than those of the private sector. Photo Credit: Wikipedia Commons
A mortgage-backed security (MBS) is a type of asset-backed security (an "instrument") which is secured by a mortgage or collection of mortgages. The mortgages are aggregated and sold to a group of individuals (a government agency or investment bank) that securitizes, or packages, the loans together into a security that investors can buy. Bonds securitizing mortgages are usually treated as a separate class, termed residential; another class is commercial, depending on whether the underlying asset is mortgages owned by borrowers or assets for commercial purposes ranging from office space to multi-dwelling buildings. The structure of the MBS may be known as "pass-through", where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs. Other types of MBS include collateralized mortgage obligations (CMOs, often structured as real estate mortgage investment conduits) and collateralized debt obligations (CDOs). A mortgage bond is a bond backed by a pool of mortgages on a real estate asset such as a house. More generally, bonds which are secured by the pledge of specific assets are called mortgage bonds. Mortgage bonds can pay interest in either monthly, quarterly or semiannual periods. The prevalence of mortgage bonds is commonly credited to Mike Vranos. The shares of subprime MBSs issued by various structures, such as CMOs, are not identical but rather issued as tranches (French for "slices"), each with a different level of priority in the debt repayment stream, giving them different levels of risk and reward. Tranches of an MBS—especially the lower-priority, higher-interest tranches—are/were often further repackaged and resold as collateralized debt obligations. These subprime MBSs issued by investment banks were a major issue in the subprime mortgage crisis of 2006–2008. The total face value of an MBS decreases over time, because like mortgages, and unlike bonds, and most other fixed-income securities, the principal in an MBS is not paid back as a single payment to the bond holder at maturity but rather is paid along with the interest in each periodic payment (monthly, quarterly, etc.). This decrease in face value is measured by the MBS's "factor", the percentage of the original "face" that remains to be repaid. In the United States, MBSs may be issued by structures set up by government-sponsored enterprises like Fannie Mae or Freddie Mac, or they can be "private-label", issued by structures set up by investment banks. Photo Credit: Ivestopedia
The Great Recession was a period of marked general decline observed in national economies globally, i.e. a recession, that occurred in the late 2000s. The scale and timing of the recession varied from country to country (see map). At the time, the International Monetary Fund (IMF) concluded that it was the most severe economic and financial meltdown since the Great Depression. One result was a serious disruption of normal international relations. The causes of the Great Recession include a combination of vulnerabilities that developed in the financial system, along with a series of triggering events that began with the bursting of the United States housing bubble in 2005–2012. When housing prices fell and homeowners began to abandon their mortgages, the value of mortgage-backed securities held by investment banks declined in 2007–2008, causing several to collapse or be bailed out in September 2008. This 2007–2008 phase was called the subprime mortgage crisis. The combination of banks unable to provide funds to businesses, and homeowners paying down debt rather than borrowing and spending, resulted in the Great Recession that began in the U.S. officially in December 2007 and lasted until June 2009, thus extending over 19 months. As with most other recessions, it appears that no known formal theoretical or empirical model was able to accurately predict the advance of this recession, except for minor signals in the sudden rise of forecast probabilities, which were still well under 50%. The recession was not felt equally around the world; whereas most of the world's developed economies, particularly in North America, South America and Europe, fell into a severe, sustained recession, many more recently developing economies suffered far less impact, particularly China, India and Indonesia, whose economies grew substantially during this period. Similarly, Oceania suffered minimal impact, in part due to its proximity to Asian markets. Photo Credit: The Balance

Key Figures and Institutions

"The Big Short: Inside the Doomsday Machine" is a nonfiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s. It was released on March 15, 2010, by W. W. Norton & Company. It spent 28 weeks on The New York Times best-seller list, and was the basis for the 2015 film of the same name. Photo Credit: Google Images

The Big Short focuses on a few key players who, unlike most of Wall Street, recognized the fragility of the housing market and bet against it.

Christian Bale as Michael Burry in "The Big Short" (2015) Photo Credit: Paramount Pictures

These individuals and their respective institutions include:

Michael Burry and Scion Capital:

Michael James Burry is an American investor and hedge fund manager. He founded the hedge fund Scion Capital, which he ran from 2000 until 2008 before closing it to focus on his personal investments. He is best known for being among the first investors to predict and profit from the subprime mortgage crisis that occurred between 2007 and 2010. Photo Credit: Google Images

Dr. Michael Burry, played by Christian Bale in the film adaption, is a former neurologist turned hedge fund manager, was among the first to identify the housing bubble. His detailed analysis of mortgage data led him to believe that the market was fundamentally unsound. Burry’s decision to purchase credit default swaps (CDS) on MBS, effectively betting against the housing market, was groundbreaking and controversial.

Christian Bale as Michael Burry in "The Big Short" (2015) Photo Credit: Paramount Pictures
Christian Bale as Michael Burry in "The Big Short" (2015) Photo Credit: Paramount Pictures
Christian Bale as Michael Burry in "The Big Short" (2015) Photo Credit: Paramount Pictures
Christian Bale as Michael Burry in "The Big Short" (2015) Photo Credit: Paramount Pictures
A scene in "The Big Short" (2015) Photo Credit: Paramount Pictures
Christian Bale as Michael Burry in "The Big Short" (2015) Photo Credit: Paramount Pictures

Steve Eisman and FrontPoint Partners:

Steve Eisman, senior portfolio manager of the FrontPoint Financial Services Fund, speaks during the Ira Sohn Investmen Research Conference in New York, U.S., on Wednesday, May 26, 2010. The event is was sponsored by The Ira Sohn Research Conference Foundation which is "dedicated to the treatment and cure of pediatric cancer and other childhood diseases." Photographer: Daniel Acker/Bloomberg

Steve Eisman, represented in the book, but asked his name to be changed in the film, hence Mark Baum as played by Steve Carell, is a hedge fund manager at FrontPoint Partners. Eisman’s skepticism and thorough investigation into the subprime mortgage industry reveal the extent of the fraud and negligence that pervaded the market. His decision to short the housing market stemmed from a moral outrage as much as financial insight.

Steve Carell as Mark Baum in "The Big Short" (2015) Photo Credit: Paramount Pictures
A scene in "The Big Short" (2015) Photo Credit: Paramount Pictures
Steve Carell as Mark Baum in "The Big Short" (2015) Photo Credit: Paramount Pictures
Steve Carell as Mark Baum in "The Big Short" (2015) Photo Credit: Paramount Pictures
Steve Carell as Mark Baum in "The Big Short" (2015) Photo Credit: Paramount Pictures
Steve Carell as Mark Baum in "The Big Short" (2015) Photo Credit: Paramount Pictures
Steve Carell as Mark Baum in "The Big Short" (2015) Photo Credit: Paramount Pictures

Charlie Ledley, Jamie Mai, and Cornwall Capital:

This small investment firm, called Brownfield Fund in the film, founded by Charlie Ledley and Jamie Mai, their names are changed to Charlie Geller and Jamie Shipley in the film, represents the more unconventional players in the market. Despite their relative inexperience, they identified the same systemic risks and took significant positions against the housing market. Their story highlights the opportunities available to those who are willing to question the prevailing wisdom.
This small investment firm, called Brownfield Fund in the film, founded by Charlie Ledley and Jamie Mai, their names are changed to Charlie Geller and Jamie Shipley in the film, represents the more unconventional players in the market. Despite their relative inexperience, they identified the same systemic risks and took significant positions against the housing market. Their story highlights the opportunities available to those who are willing to question the prevailing wisdom.

Cornwall Capital, a small investment firm, called Brownfield Fund in the film, founded by Charlie Ledley and Jamie Mai, their names are changed to Charlie Geller and Jamie Shipley in the film, and played by John Magaro and Finn Wittrock represents the more unconventional players in the market. Despite their relative inexperience, they identified the same systemic risks and took significant positions against the housing market. Their story highlights the opportunities available to those who are willing to question the prevailing wisdom.

Cornwall Capital is a New York City-based private financial investment corporation. It is best known as one of the few investors to foresee and profit from the subprime mortgage crisis of 2007, as described in the book The Big Short by Michael Lewis.[2][3] Cornwall seeks highly asymmetric investments, in which the potential profit greatly exceeds potential loss. Its strategies including benefiting from market inefficiencies to thematic fundamental trades. From 2003 to 2012, the firm produced an average annual compounded net return of 40 percent (52 percent gross). Photo Credit: Google Images
Finn Wittrock and John Magaro in "The Big Short" (2015) Photo Credit: Paramount Pictures
John Magaro as Charlie Geller in "The Big Short" (2015) Photo Credit: Paramount Pictures
Finn Wittrock as Jamie Shipley in "The Big Short" (2015) Photo Credit: Paramount Pictures
Finn Wittrock and John Magaro in "The Big Short" (2015) Photo Credit: Paramount Pictures
Finn Wittrock and John Magaro in "The Big Short" (2015) Photo Credit: Paramount Pictures
Finn Wittrock and John Magaro in "The Big Short" (2015) Photo Credit: Paramount Pictures
Finn Wittrock and John Magaro in "The Big Short" (2015) Photo Credit: Paramount Pictures
John Magaro as Charlie Geller in "The Big Short" (2015) Photo Credit: Paramount Pictures
Finn Wittrock and John Magaro in "The Big Short" (2015) Photo Credit: Paramount Pictures

Greg Lippmann and Deutsche Bank:

Lippmann worked for Deutsche Bank, as global head of asset-backed securities trading, until he left in April 2010, and was succeeded by Pius Sprenger. In February 2010, Lippmann announced that he would be joining a hedge fund started by Fred Brettschneider, who was formerly Deutsche Bank's head of global markets. Lippmann co-founded LibreMax Partners with Brettschneider, and is its Chief Investment Officer and Portfolio Manager. In May 2016, Bloomberg LP reported that Lippmann was working with Promise Financial on a wedding loans business. Photo Credit: Google Images

Greg Lippmann, whose name is changed to Jared Vennett in the film, and played by Ryan Gosling, a trader at Deutsche Bank, plays a pivotal role as one of the few insiders who recognized the impending collapse and acted on it. Lippmann’s interactions with other market participants, including Burry and Eisman, provide a broader perspective on the industry’s response to the growing crisis.

Ryan Gosling as Jared Vennett in "The Big Short" (2015) Photo Credit: Paramount Pictures
Deutsche Bank AG, sometimes referred to simply as Deutsche, or internally as DB, is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York Stock Exchange. Deutsche Bank was founded in 1870 in Berlin. From 1929 to 1937, following its merger with Disconto-Gesellschaft, it was known as Deutsche Bank und Disconto-Gesellschaft or DeDi-Bank: 580  Other transformative acquisitions have included those of Mendelssohn & Co. in 1938, Morgan Grenfell in 1990, Bankers Trust in 1998, and Deutsche Postbank in 2010. As of 2018, the bank's network spanned 58 countries with a large presence in Europe, the Americas, and Asia. It is a component of the DAX stock market index and is often referred to as the largest German banking institution, with Deutsche Bank holding the majority stake in DWS Group for combined assets of 2.2 trillion euros, rivaling even Sparkassen-Finanzgruppe in terms of combined assets. Deutsche Bank has been designated a global systemically important bank by the Financial Stability Board since 2011. It has been designated as a Significant Institution since the entry into force of European Banking Supervision in late 2014, and as a consequence is directly supervised by the European Central Bank. According to a 2020 article in the New Yorker, Deutsche Bank had long had an "abject" reputation among major banks, as it has been involved in major scandals across various issue areas. Photo Credit: Google Images
Ryan Gosling as Jared Vennett in "The Big Short" (2015) Photo Credit: Paramount Pictures
Ryan Gosling as Jared Vennett in "The Big Short" (2015) Photo Credit: Paramount Pictures
Ryan Gosling as Jared Vennett in "The Big Short" (2015) Photo Credit: Paramount Pictures
Christian Bale as Michael Burry in "The Big Short" (2015) Photo Credit: Paramount Pictures
Steve Carell and Ryan Gosling in "The Big Short" (2015) Photo Credit: Paramount Pictures
Jeremy Strong, Rafe Spall, Hamish Linklater, Steve Carell, Jeffry Griffin, and Ryan Gosling in "The Big Short" (2015) Photo Credit: Paramount Pictures

Analysis of Key Themes

"The Big Short: Inside the Doomsday Machine" is a nonfiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s. It was released on March 15, 2010, by W. W. Norton & Company. It spent 28 weeks on The New York Times best-seller list, and was the basis for the 2015 film of the same name. Photo Credit: Google Images

Greed and Corruption:

A scene in "The Big Short" (2015) Photo Credit: Paramount Pictures

Lewis meticulously documents the greed and corruption that pervaded the financial industry. He exposes how major banks, driven by short-term profits, engaged in reckless lending practices and created complex financial instruments that obscured the underlying risks. This unbridled greed and systemic corruption were central to the housing bubble’s creation and eventual burst.

The 2007–2008 financial crisis, or the global financial crisis (GFC), was the most severe worldwide economic crisis since the Great Depression. Predatory lending in the form of subprime mortgages targeting low-income homebuyers, excessive risk-taking by global financial institutions, a continuous buildup of toxic assets within banks, and the bursting of the United States housing bubble culminated in a "perfect storm", which led to the Great Recession. Mortgage-backed securities (MBS) tied to American real estate, as well as a vast web of derivatives linked to those MBS, collapsed in value. Financial institutions worldwide suffered severe damage, reaching a climax with the bankruptcy of Lehman Brothers on September 15, 2008, and a subsequent international banking crisis. The preconditioning for the financial crisis was complex and multi-causal. Almost two decades prior, the U.S. Congress had passed legislation encouraging financing for affordable housing. However, in 1999, parts of the Glass-Steagall legislation, which had been adopted in 1933, were repealed, permitting financial institutions to commingle their commercial (risk-averse) and proprietary trading (risk-taking) operations. Arguably the largest contributor to the conditions necessary for financial collapse was the rapid development in predatory financial products which targeted low-income, low-information homebuyers who largely belonged to racial minorities. This market development went unattended by regulators and thus caught the U.S. government by surprise. After the onset of the crisis, governments deployed massive bail-outs of financial institutions and other palliative monetary and fiscal policies to prevent a collapse of the global financial system. In the U.S., the October 3, $800 billion Emergency Economic Stabilization Act of 2008 failed to slow the economic free-fall, but the similarly-sized American Recovery and Reinvestment Act of 2009, which included a substantial payroll tax credit, saw economic indicators reverse and stabilize less than a month after its February 17 enactment. The crisis sparked the Great Recession which resulted in increases in unemployment and suicide, and decreases in institutional trust and fertility, among other metrics. The recession was a significant precondition for the European debt crisis. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in the US as a response to the crisis to "promote the financial stability of the United States". The Basel III capital and liquidity standards were also adopted by countries around the world. Photo Credit: Google Images

Innovation and Complexity:

A scene in "The Big Short" (2015) Photo Credit: Paramount Pictures

The book explores the innovation and complexity of financial products, such as mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). While these products were initially designed to spread risk, they ultimately concentrated it in opaque and poorly understood ways. Lewis demystifies these instruments, explaining their role in the crisis in clear and accessible terms.

A synthetic CDO is a variation of a CDO (collateralized debt obligation) that generally uses credit default swaps and other derivatives to obtain its investment goals. As such, it is a complex derivative financial security sometimes described as a bet on the performance of other mortgage (or other) products, rather than a real mortgage security. The value and payment stream of a synthetic CDO is derived not from cash assets, like mortgages or credit card payments – as in the case of a regular or "cash" CDO—but from premiums paying for credit default swap "insurance" on the possibility of default of some defined set of "reference" securities—based on cash assets. The insurance-buying "counterparties" may own the "reference" securities and be managing the risk of their default, or may be speculators who've calculated that the securities will default. Synthetics thrived for a brief time because they were cheaper and easier to create than traditional CDOs, whose raw material—mortgages—was beginning to dry up. In 2005, the synthetic CDO market in corporate bonds spread to the mortgage-backed securities market, where the counterparties providing the payment stream were primarily hedge funds or investment banks hedging, or often betting that certain debt the synthetic CDO referenced – usually "tranches" of subprime home mortgages – would default. Synthetic issuance jumped from $15 billion in 2005 to $61 billion in 2006, when synthetics became the dominant form of CDOs in the US, valued "notionally" at $5 trillion by the end of the year according to one estimate. Synthetic CDOs are controversial because of their role in the subprime mortgage crisis. They enabled large wagers to be made on the value of mortgage-related securities, which critics argued may have contributed to lower lending standards and fraud. Synthetic CDOs have been criticized for serving as a way of hiding short position of bets against the subprime mortgages from unsuspecting triple-A seeking investors, and contributing to the 2007-2009 financial crisis by amplifying the subprime mortgage housing bubble. By 2012 the total notional value of synthetics had been reduced to a couple of billion dollars. Photo Credit: Investopedia

Moral Hazard and Accountability:

Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts. Photo Credit: C-SPAN

A recurring theme in The Big Short is the concept of moral hazard, where individuals or institutions take on excessive risk because they do not bear the full consequences of their actions. Lewis illustrates how the lack of accountability at various levels—from mortgage brokers to investment banks—exacerbated the crisis. This theme resonates strongly, highlighting the need for regulatory oversight and ethical conduct in financial markets.

President Barack Obama signs the Dodd-Frank Wall Street Reform and Consumer Protection financial overhaul bill at the Ronald Reagan Building in Washington, Wednesday, July 21, 2010. From left to right: House Speaker Nancy Pelosi, D-Calif., Senate Majority Leader Harry Reid, D-Nev., Rep. Mel Watt, D-N.C., Rep. Maxine Waters, D-Calif., Rep. Luis Gutierrez, D-Ill., Sen. Chris Dodd, D-Conn., Rep. Gregory Meeks, D-N.Y., Rep. Barney Frank, D-Mass. Photo Credit: AP Photo/Charles Dharapak

Human Fallibility and Hubris:

The Big Short; directed by Adam McKay; screenplay by Charles Randolph and Adam McKay; based on The Big Short by Michael Lewis; starring Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt; produced by Brad Pitt, Dede Gardner, Jeremy Kleiner, and Arnon Milchan for Regency Enterprises and Plan B Entertainment and distributed by Paramount Pictures. (2015)

The book also delves into the psychological aspects of the crisis, exploring how human fallibility and hubris contributed to the disaster. Lewis portrays the main characters not just as financial experts but as individuals grappling with their own beliefs and biases. This human element adds depth to the narrative, making it more relatable and compelling.

Finn Wittrock as Jamie Shipley in "The Big Short" (2015) Photo Credit: Paramount Pictures

The 2015 Film Adaptation

The Big Short; directed by Adam McKay; screenplay by Charles Randolph and Adam McKay; based on The Big Short by Michael Lewis; starring Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt; produced by Brad Pitt, Dede Gardner, Jeremy Kleiner, and Arnon Milchan for Regency Enterprises and Plan B Entertainment and distributed by Paramount Pictures. (2015)

Directed by Adam McKay and co-written by McKay and Charles Randolph, the 2015 film adaptation of The Big Short brings Lewis’s book to the screen with a blend of humor, drama, and educational insights. The film stars Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt, with a strong supporting cast that includes John Magaro, Finn Wittrock, Hamish Linklater, Rafe Spall, Jeremy Strong, and Marisa Tomei.

Adam McKay directing Steve Carell in "The Big Short" (2015) Photo Credit: Paramount Pictures
Director and screenwriter Adam McKay attends the "The Big Short" New York premiere at Ziegfeld Theater on November 23, 2015 in New York City. Photo by Andrew H Walker/Variety/Penske Media via Getty Images
Screenwriter Charles Randolph attends the "The Big Short" New York premiere at Ziegfeld Theater on November 23, 2015 in New York City. Photo by Jim Spellman/WireImage
The Big Short; directed by Adam McKay; screenplay by Charles Randolph and Adam McKay; based on The Big Short by Michael Lewis; starring Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt; produced by Brad Pitt, Dede Gardner, Jeremy Kleiner, and Arnon Milchan for Regency Enterprises and Plan B Entertainment and distributed by Paramount Pictures. (2015)
Christian Bale as Michael Burry in "The Big Short" (2015) Photo Credit: Paramount Pictures
Steve Carell as Mark Baum in "The Big Short" (2015) Photo Credit: Paramount Pictures
Ryan Gosling as Jared Vennett in "The Big Short" (2015) Photo Credit: Paramount Pictures
Brad Pitt as Ben Rickert in "The Big Short" (2015) Photo Credit: Paramount Pictures
John Magaro as Charlie Geller in "The Big Short" (2015) Photo Credit: Paramount Pictures
Finn Wittrock as Jamie Shipley in "The Big Short" (2015) Photo Credit: Paramount Pictures
Hamish Linklater as Porter Collins in "The Big Short" (2015) Photo Credit: Paramount Pictures
Rafe Spall as Danny Moses in "The Big Short" (2015) Photo Credit: Paramount Pictures
Jeremy Strong as Vinny Daniel in "The Big Short" (2015) Photo Credit: Paramount Pictures
Marisa Tomei as Cynthia Baum in "The Big Short" (2015) Photo Credit: Paramount Pictures

The Big Short: Inside the Doomsday Machine by Michael Lewis is an essential read for anyone seeking to understand the 2007-2008 financial crisis. Through its detailed exploration of the housing bubble and the systemic failures that led to the crisis, the book provides both a comprehensive analysis and a gripping narrative. The 2015 film adaptation by Adam McKay successfully brings this complex story to the screen, making it accessible and engaging for a wider audience.

"The Big Short: Inside the Doomsday Machine" is a nonfiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s. It was released on March 15, 2010, by W. W. Norton & Company. It spent 28 weeks on The New York Times best-seller list, and was the basis for the 2015 film of the same name. Photo Credit: Google Images
The Big Short; directed by Adam McKay; screenplay by Charles Randolph and Adam McKay; based on The Big Short by Michael Lewis; starring Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt; produced by Brad Pitt, Dede Gardner, Jeremy Kleiner, and Arnon Milchan for Regency Enterprises and Plan B Entertainment and distributed by Paramount Pictures. (2015)

Both the book and the film serve as powerful reminders of the consequences of unchecked greed and the importance of accountability and transparency in financial markets. Whether you are a financial expert or a layperson, The Big Short offers valuable insights into one of the most significant economic events of our time.

The Big Short; directed by Adam McKay; screenplay by Charles Randolph and Adam McKay; based on The Big Short by Michael Lewis; starring Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt; produced by Brad Pitt, Dede Gardner, Jeremy Kleiner, and Arnon Milchan for Regency Enterprises and Plan B Entertainment and distributed by Paramount Pictures. (2015)

The Big Short is available now on Hulu…

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