The Big Short (film)
The Big Short is a 2015 American biographical comedy drama film directed by Adam McKay from a screenplay by McKay and Charles Randolph. Based on the 2010 book of the same name by Michael Lewis, it depicts how the 2008 financial crisis was triggered by the United States housing bubble. The film stars Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt, with John Magaro, Finn Wittrock, Hamish Linklater, Rafe Spall, Jeremy Strong, and Marisa Tomei in supporting roles.
The Big Short began a limited release in the United States on December 11, 2015, followed by a wide release on December 23 by Paramount Pictures. A critical and commercial success, the film grossed $133 million on a $50 million budget and received acclaim for the performances of the cast, McKay's direction, editing, and the screenplay. The film won the Academy Award for Best Adapted Screenplay in addition to nominations for Best Picture, Best Director, Best Supporting Actor, and Best Film Editing.
Synopsis
The film consists of three separate but concurrent stories, loosely connected by their actions in the years leading up to the 2008 financial crisis.Scion Capital
In 2005, eccentric hedge fund manager Michael Burry discovers that the United States housing market, based on high-risk subprime loans, is extremely unstable. Anticipating the market's collapse in the second quarter of 2007, as interest rates would rise from adjustable-rate mortgages, he proposes to create a credit default swap market for mortgage-backed securities, allowing him to bet against, or short, MBSs for profit.
His long-term bet, exceeding $1 billion, is accepted by major investment and commercial banks but requires paying substantial monthly premiums. This sparks his main client, Lawrence Fields, to accuse him of "wasting" capital while many clients demand that he reverse and sell, but Burry refuses. Under pressure, he eventually restricts withdrawals, angering investors, and Fields sues Burry. Eventually, the 2008 financial crisis began and his fund's value increases by 489% with an overall profit of over $2.69 billion, with Fields alone receiving $489 million.
FrontPoint Partners
Jared Vennett, the executive in charge of global asset-backed securities trading at Deutsche Bank, is one of the first bankers to understand Burry's analysis, learning from one of the bankers who sold Burry an early CDS. Using his quant to verify that Burry is most likely correct, he decides to enter the market and purchase CDSs himself. However, his large monthly premiums result in him looking to reduce the size of his position by selling CDSs. A misplaced phone call alerts FrontPoint Partners hedge fund manager Mark Baum, who is motivated to buy swaps from Vennett due to his low regard for banks' ethics and business models. Vennett explains that the packaging of subprime loans into collateralized debt obligations rated AAA will guarantee their eventual collapse.
Conducting a field investigation in South Florida, the FrontPoint team discovers that mortgage brokers are profiting by selling their mortgage deals to Wall Street banks, which pay higher margins for the riskier mortgages, creating the bubble. This knowledge prompts the FrontPoint team to buy CDSs from Vennett.
In early 2007, as these loans begin to default, CDO prices somehow rise and ratings agencies refuse to downgrade the bond ratings. Baum discovers conflicts of interest and dishonesty amongst the credit rating agencies from an acquaintance at Standard & Poor's. Vennett invites the team to the American Securitization Forum in Las Vegas, where Baum learns from a CDO manager that the market for insuring mortgage bonds, including "synthetic CDOs" which are bets in favor of the faulty mortgage bonds, is significantly larger than the market for the mortgage loans themselves, leading a horrified Baum to realize the entire world economy is set to collapse.
As the subprime bonds continue to fall, Baum learns that Morgan Stanley, under whose umbrella FrontPoint operates, had also taken short positions against mortgage derivatives. However, in order to offset the risk and the monthly premiums, it had sold short positions in higher-rated mortgage derivatives. Now that these are also collapsing in value, Morgan Stanley is facing severe liquidity problems. Despite pressure from his staff to sell their position before Morgan Stanley collapses, Baum refuses to sell until the economy is on the verge of collapsing, making over $1 billion in their CDSs. Even so, Baum laments that the banks, as well as the government, will not admit what caused the economy to collapse, but will instead blame "immigrants and poor people."
Brownfield Fund
Young investors Charlie Geller and Jamie Shipley run a small firm called Brownfield Fund. They accidentally discover a marketing presentation by Vennett on a coffee table in the lobby of JPMorgan Chase, convincing them to invest in CDSs, as it fits their strategy of buying cheap insurance with big potential payouts. As they are far below the capital threshold for an International Swaps and Derivatives Association Master Agreement required to enter into trades like Burry's and Baum's, they enlist the aid of Ben Rickert, Shipley's neighbor and a retired securities trader who was based in Singapore.
When the bond values and CDOs rise despite defaults, Geller suspects the banks are committing fraud. The trio also visit the American Securitization Forum, where they learn that the SEC has no regulations to monitor mortgage-backed security activity. They successfully make profit by shorting the higher-rated AA mortgage securities, as they were considered highly stable and carried a much higher payout ratio.
Later, as home mortgage defaults increase, the price of their CDSs does not rise nor does the price of the underlying mortgage bonds drop, and they realize the banks and the ratings agencies are secretly freezing the price of their CDOs in order to sell and short them before the inevitable crash. Outraged at the banks' cheating, Geller and Shipley try to tip off the press about the upcoming disaster and the rampant fraud, but a reporter from The Wall Street Journal whom they have known since college and regard as principled declines to report the story in the interest of preserving his relationships with Wall Street investment banks. As the market starts collapsing, Ben, on vacation in England, sells their CDSs. Ultimately, they turn their $30 million investment into $80 million, but their faith in the system is broken when Ben tells them of the severe consequences for the general public.
Epilogue
Jared Vennett receives a bonus of $47 million for profits made on his CDSs. Mark Baum becomes more gracious from the financial fallout, and his staff continue to operate their fund. Charlie Geller and Jamie Shipley go their separate ways after unsuccessfully trying to sue the ratings agencies, with Jamie still running the fund and Charlie moving to Charlotte to start a family. Ben Rickert returns to his peaceful retirement. Michael Burry closes his fund after public backlash and multiple IRS audits, now investing only in water securities.
The personnel of the banks responsible for the crisis escape any consequences for their actions, with the single exception of one trader, Kareem Serageldin. It is noted that as of 2015, banks are selling CDOs again under a new label: "Bespoke Tranche Opportunity".
Cast
- Christian Bale as Michael Burry, one of the first people to discover the American housing market bubble. Burry operates his own hedge fund, Scion Capital, and uses his liquidity to short the housing market.
- Steve Carell as Mark Baum, the leader of FrontPoint Partners, a small independent trading firm. Baum is in a state of constant disgust with the American banks. The character is based on Steve Eisman.
- Ryan Gosling as Jared Vennett, a salesman from Deutsche Bank who decides to sell Burry's credit default swaps for his own profit. The character of Vennett is based on Greg Lippmann.
- Brad Pitt as Ben Rickert, a retired former trader who helps Jamie and Charlie with their trades. The character is based on Ben Hockett.
- John Magaro as Charlie Geller, one half of Brownfield Fund, who discover Vennett's prospectus and also decide to short the housing market. The character is based on Charlie Ledley.
- Finn Wittrock as Jamie Shipley, Charlie's partner in Brownfield Fund. The character is based on James Mai.
- Hamish Linklater as Porter Collins
- Rafe Spall as Danny Moses
- Jeremy Strong as Vinny Daniel
- Marisa Tomei as Cynthia Baum, Mark Baum's wife.
- Tracy Letts as Lawrence Fields, an investor in Burry's hedge fund, a fictional composite of Joel Greenblatt and others who had invested with Burry but came to disagree with his strategy.
- Adepero Oduye as Kathy Tao, an employee of Morgan Stanley, who oversees Baum's fund.
- Karen Gillan as Evie, an employee of the SEC and Jamie's brother's ex-girlfriend, whom he meets with in Las Vegas.
- Byron Mann as Wing Chau, a CDO manager whom Baum interviews in Las Vegas.
- Melissa Leo as Georgia Hale, an employee of Standard and Poor's based on Ernestine Warner, who admits to giving inaccurate ratings for bonds.
- Jae Suh Park as Burry's wife.
- Max Greenfield and Billy Magnussen as mortgage brokers taking advantage of people looking for homes.
- Stanley Wong as Ted Jiang, a quantitative analyst working for Jared Vennett. The character is based on real 'quant' Eugene Xu.