The Big Short is a 2015 American comedy-drama film directed by Adam McKay and written by McKay and Charles Randolph, based on the 2010 book The Big Short: Inside the Doomsday Machine by Michael Lewis about the financial crisis of 2007–2008 which was triggered by the United States housing bubble. The film stars Christian Bale, Steve Carell, Ryan Gosling, Brad Pitt, Melissa Leo, Hamish Linklater, John Magaro, Rafe Spall, Jeremy Strong, Finn Wittrock and Marisa Tomei.
The film is noted for the unconventional techniques it employs to explain complex financial instruments: among others, cameo appearances by Margot Robbie, Anthony Bourdain, Selena Gomez and Richard Thaler, who explain concepts such as subprime mortgages and collateralized debt obligations as a meta-reference. Several other actors also break the fourth wall, most frequently Gosling, who serves as the narrator.
The film began a limited release in the United States on December 11, 2015, followed by a wide release on December 23 by Paramount Pictures The film was a financial and critical success, grossing $133 million against a $28 million budget, and receiving positive reviews. The film was nominated for five Academy Awards, including Best Picture, Best Director, Best Supporting Actor for Bale and Best Adapted Screenplay, winning the latter.
In 2005, eccentric hedge fund manager Michael Burry (Christian Bale) discovers that the United States housing market is extremely unstable, being based on high-risk subprime loans. Anticipating that the market will collapse during Q2 2007, as interest rates would rise from adjustable-rate mortgages, he envisions an opportunity to profit. His plan is to create a credit default swap market, allowing him to bet against market-based mortgage-backed securities. He proposes his idea to several major investment and commercial banks who readily accept. Burry’s huge long-term bet, exceeding $1 billion, entails paying substantial monthly premiums to the banks. This proviso incurs his clients’ ire, believing he is “wasting” capital, and many demand that he reverse and sell, but Burry refuses. He later discovers that the banks collude with a major bond-rating company to maintain ratings on worthless bonds, allowing them to sell off their losing positions before the true values became known. Under pressure, Burry restricts withdrawals from his fund, angering his investors. Eventually the housing market collapses and his fund’s value increases by 489% with an overall profit of over $2.5 billion, but the backlash he receives, coupled with self-disgust, convinces him to close his fund.
Salesman Jared Vennett (Ryan Gosling) is one of the first to understand Burry’s analysis, learning about his actions from one of the bankers that sold Burry an early credit default swap. Vennett uses his quant to verify that Burry’s predictions are likely true and decides to put his own stake in the market, earning a fee on selling the swaps to firms who’ll be profitable when the underlying mortgage bonds fail. A misplaced phone call alerts hedge fund manager Mark Baum (Steve Carell) to his plans, convinced to buy credit default swaps from Vennett due to his own personal distaste with the banks. Vennett explains that the market collapse is being further perpetuated by the packaging of subprime loans into collateralized debt obligations (CDOs) large enough to be considered AAA ratings. Baum sends staff to investigate the Miami housing market and they discover that mortgage brokers are making money by selling risky mortgages to the Wall Street banks, which created the bubble. In early 2007, these loans begin to default, but the prices of the CDOs somehow rose. Meanwhile, ratings agencies refused to downgrade the ratings of these failing bonds. When Baum questions an acquaintance at Standard & Poor’s, he discovers conflict of interest and dishonesty amongst the credit rating agencies. When Baum’s employees question Vennett’s motives, he maintains position and invites Baum and his team to the American Securitization Forum in Las Vegas. Baum interviews CDO manager Wing Chau, who creates CDOs on behalf of an investment bank, claiming to represent the interests of investors. Chau describes how synthetic CDOs make a chain of increasingly large bets on the faulty loans, involving up to 20 times as much money as the loans themselves. Baum horrifyingly realizes that the fraud will completely collapse the global economy and decides to purchase as many swaps as possible, profiting from the situation at the banks’ expense. Waiting until the last minute to sell their position, Baum’s fund makes a profit of $1 billion, but he laments that the banks won’t accept blame for the crisis.
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