"The Big Short" tells the story of a global financial crisis caused by the collapse of Wall Street's subprime mortgage market. From the perspective of the four shorts, the film truly restores the 2008 financial crisis to us from different levels.
The story begins with Lewis Lineeri's first mortgage-backed bond at the famous Wall Street investment bank Salomon Company, which saved the banking industry from being dull, boring and depressed. Mortgage Backed Securities (MBS), which securitizes mortgage assets and sells them to investors in the form of securities to obtain financing after the guarantee or credit enhancement of relevant institutions. Plenty of liquid funds.
Official institutions and big capitalists are optimistic and buy MBS in large quantities, and various products derived from this have also ushered in a boom.
The banker made the golden pot and became the financial frontrunner.
Stimulated by the securitization of mortgages, everyone can take out loans to buy a house, the real estate economy is booming, and high-rise buildings are rising rapidly.
………………………… Short side one: Fund manager Michael Burry
Back in 2005, the film turns to a doctor with one eye, Michael Burry, who has a prosthetic eye in his left eye and a scribbled T-shirt, sitting barefoot in a fancy office Yes, he is interviewing a new employee, and his poor sociability can be seen in his words.
Dr. Bray turned out to be a doctor, a lover of metal music addiction (it is also said that he likes to use loud metal music to isolate himself from the outsiders), and he likes to delve into stocks as a hobby. Because of his unique judgment and always able to obtain considerable returns in the stock market, he is favored by various investment institutions and has become a fund manager. The funds under his management have maintained a considerable rate of return since its establishment.
He realized that after the burst of the Internet financial bubble in 2001, house prices increased instead of falling, and he thought it was strange, so he ordered his men to collect information on various mortgages.
Then he was locked in his office, playing loud metal rock music, staring sleeplessly at the digital analysis studies he had collected.
"Deferred loan for 30 days... 60 days", "Restoring payment... for another 30 days", "Only paying interest...", the loan-to-value ratio is as high as 90%, 95% or even 110%, FICO consumer credit rating (US personal credit rating Law, whose credit score ranges from 325 to 900, which can be used to predict future repayment possibilities) is low, and in 2007, the normal interest rate was adjusted back (the previous interest rate was low)...
The mortgage-backed securities MBS is full of high-risk floating-rate subprime mortgages. After the normal interest rate was adjusted back in 2007, as long as the mortgage default rate exceeds 15%, the bond value will be zero, which means that this pile of bonds is a pile of waste paper. The home loan market is predicted to collapse.
At this time, because of its high yield, the market is rushing for MBS, no one thinks that the housing loan market will collapse, and there is no financial product for short-selling the housing price market. Bray asked the bank to create a product for him—the credit default swap CDS of mortgage-backed securities.
[Credit default swap (CDS) is a credit derivative product of bonds. CDO buyers of default swaps will periodically pay a certain fee to sellers of default swaps (called credit default swap spreads). In the event of a credit event (mainly referring to the inability of the bond subject to repay), CDO buyers will have the right to receive compensation from CDO sellers. 】
The credit default swap of mortgage bonds is equivalent to buying an insurance for the mortgage bonds. The purchaser regularly pays the premium for the mortgage bonds. Once the mortgage bonds default, the credit default swap will compensate the CDO buyer at a higher rate.
At this time, the big bankers are indulging in the high profits brought by the sale of MBS, insisting on the low risk and strong stability of the housing loan market. And proud of their "unworked" premiums.
Before and after, there were many things, and Bray signed a 1.3 billion credit default swap CDS with major banks, exhausting the funds of its management funds. At this time, the bank was immersed in the wine glass.
The public agrees that the housing market is booming. Bray's move undoubtedly angered the investors used in his managed funds. Investors are unwilling to bear huge premiums for no reason, and they threaten Bray with withdrawal of capital. Bray insists on his own opinion, appeases investors and Refused to withdraw from investors.
Bray is under enormous pressure.
……………………………… There is a term in behavioral finance called herd behavior, which refers to an irrational behavior in the financial market, in which a large number of investors adopt the same investment strategy or Assets generate the same preference.
Herding behavior tends to make rational investors turn to herd speculation with noise trading as the dominant strategy, and further exacerbate the deviation of asset prices from fundamental values, thereby accelerating the inflation of bubbles. Investors' crazy pursuit of MBS also makes mortgage-backed securities lose their original value, gradually deviate from the actual price of real estate, and make real estate prices increase irrationally, which intensifies herd behavior, but the bubble will eventually burst. , the damage caused by the bubble is also incalculable.
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Short Two: Mark Baum, Founder of Cutting Edge Funds
Then came Mark Baum, who was born in a Wall Street family. Because he was unwilling to curry favor with potential investors, he set up his own cutting-edge fund under Morgan Stanley. Mark - a person who was extremely angry with injustice, had been keen since childhood. Yu found the mistake and pointed out the mistake, his dearest brother who committed suicide by jumping off the building because of investment failure, so he hated and doubted the financial system deeply.
The team members he led learned on the wrong phone that someone was selling short-term mortgage bonds, which was undoubtedly a very novel finding, and then found that the ABS index, which is negatively correlated with the risk of subprime mortgage securities, was falling.
[ABS index is the subprime mortgage bond price composite index \ subprime mortgage derivative bond composite index, the ABS index falls means that the risk of subprime securities assets is rising next time. 】
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Short three: Deutsche Bank's Jared Vennet
Deutsche Bank's Jared Vennett, a talented salesman, used a stack to present to Mark's team the AAA to B mortgage-backed securities the bank was peddling.
I have to say that his two subordinates are impressive and add a lot of fun to the film.
Speaking of which, I can explain the products in the housing loan market. The mortgage bonds in the housing loan market are packaged by grades, and the bonds with high credit ratings are first purchased by investors.
What about the remaining low-grade bonds? They are packaged and bundled into CDOs, and CDOs will be rated 3A by “blind” rating agencies and sold to pension funds, insurance companies, and investors around the world.
[CDO (Collateralized Debt Obligation) is a secured debt certificate, which is a fixed-income securities and debt bond mortgage products. All mortgages are packaged together, repackaged, and then put on the market in the form of products. 】
The introduction of the chef in the film can be said to be very vivid, and the CDO is a package of junk bonds.
And how to sell the vacant loan market at this time? It is the mortgage credit default swap CDS first opened by Bray.
Jared's genius roadshow undoubtedly shocked Mark and his team, but they wouldn't buy CDS easily. This also made Mark, who doubts the entire financial system, think about whether there is a bubble in real estate and how risky the bank is, so Mark and his subordinates conducted on-the-spot investigations.
Mark's team found that most of the houses in a real estate development site were vacant. The landlord could even use the dog's name to make a loan. Some house owners left a lot of defaulted loan repayments and left. And found that there is a downturn in real estate, many residents want to sell their properties, and many borrowers are not on mortgages.
In a conversation with a mortgage broker, I learned that the threshold for mortgages is low, and the loan review is just going through the motions. You can get a loan without proof of income and without a job. The lender doesn't even know the interest rate.
Under the gullibility of the mortgage broker, the borrower did not even understand the terms of his loan, and did not understand that his repayment amount would skyrocket under the floating interest rate. A freelance stripper actually took out five houses and one apartment. . For these unreviewed mortgages, the IOUs that may not be repaid have been robbed by banks. Banks seem to not care whether the loans will default or not, and whether they can receive repayments from borrowers, they only care about the securitization of mortgages. huge profits.
Mark Bowen showed a helpless expression at the strip bar, and immediately purchased a BBB-rated credit default swap after the investigation. He believes that the series of behaviors ranging from mortgage broker loans to mortgage securitization by major banks are all frauds.
It is not difficult to understand why Mark Bowen is so angry. The existing productivity cannot support the advanced consumption. This is a huge top-down Ponzi scheme on Wall Street. The assets invested are a pile of garbage and worthless things. This pile of garbage is passed on to banks by lenders, banks to major investment institutions, and major institutions to investors, and the middlemen continue to suck blood in this transmission link.
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Short Four: Brownfield Funds Charlic Geller and Jamie Shipley
Brownfield's two brothers, Charlic Geller and Jamie Shipley, intend to enter into a contract with JPMorgan Chase International Swaps and Derivatives Association so that they can participate in the long-term options market , failed because the funds of the fund did not meet the threshold.
However, they found someone on a table of abandoned prospectuses trying to short the market, which is really a very lucky two boys (of course, the video also shows that it was not by chance). This discovery is in line with their investment strategy of shorting the market to make a profit, and of course they are reluctant to pass up this opportunity.
However, they didn't sign the International Swaps and Derivatives Association contract, and they couldn't afford such a transaction at all, but they had a nobleman - Ben Likert. Ben Likert was originally a Morgan trader based in Singapore, but resigned because he thought it was too dirty.
They contacted Ben to short the low risk BB and BBB bonds, which Ben thought was a viable investment, and with the help of Ben's strong connections, they qualified for the deal and successfully became a short seller loan market a member of . At this time, I have to sigh how important it is to meet noble people in life! ! ! Is it because I didn't go downstairs to walk the dog? And relationships aren’t unique to us. Is this a short to tell us that luck is also one of the important reasons for profiting in the economic retrograde wave? If it is said that this huge economic crisis is due to the crazy profit-seeking, blind confidence, ignoring or even avoiding risks of the big bankers described in the events in the first half of the film, but the second half presents us with other reasons.
The shorts were correct in their judgment on the market. On January 11, 2007, the loan default reached a new high, but the bond grade was raised, and the bond price was also pushed up. The shorts had to increase the guarantee fee. (This is also mentioned at the beginning of the movie, if the bond does not default and the price rises, the buyer of the credit default swap will pay a higher premium.)
Mark Bowen was furious at the rating agency raising the MBS rating of mortgage bonds, and in his view the MVBS value had dropped and it wasn't worth the price, so he and his men ran off with S&P Theory. But Mark got an answer that turned his imagination on its head.
[Credit rating agencies mainly rate securities credit. Standard & Poor's, Moody's Investors Service and Fitch Ratings are known as the world's three major rating agencies. 】
This also has an interesting look, that is, the Standard & Poor's staff member with sunglasses, and she has to see an ophthalmologist, which may be a mockery of the bad eyesight of the rating agency.
Mark reasoned with it and thought they could make a little less, but it was considered hypocritical by the rating agency people because they bought the CDS, and they just hoped the bond credit rating was lowered and they could make a profit, Mark was speechless about it. right. Standard & Poor's took off her sunglasses when she said that Mark was hypocritical. I guess it was a metaphor that she could see the mutual interests and the collusion between them.
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Who is more noble than whom in the face of interests? This is a question worth pondering. You can criticize financial institutions for only caring about profits, but which company is not born for profits? Who is not in the world for profit? But most of them lost themselves in money and lost the responsibility that the company should bear. People broke their moral bottom line and used unfair and fraudulent means to obtain benefits. This is hateful. . If an apple vendor sells you a box of apples, and all the apples in it are rotten, you'll feel like you've eaten a mouthful of shit. So why are such junk products still in the market? Is investor greed for profit one of the reasons for the existence of junk bonds? When there is an avalanche, no snowflake is innocent. People are dark and selfish deep in their hearts. People are civilized and moral. Civilized morality can suppress our darkness, but when we are blinded by money, we often forget our morality. Bottom line.
The fragility of the financial system is clearly revealed at this moment. For their own commissions and service fees, mortgage brokers induce borrowers to make large loans without knowing the details, and induce them to consume beyond their capacity; banks ignore the loans. People's ability to repay debts, rating agencies are blinded, and in order to compete with competitors, they even raise the rating of mortgage bonds when mortgage defaults are reaching new heights. The upper end of the financial system protects each other, the Securities and Exchange Commission does not act, and only investors are kept in the dark. Big financial institutions and big capitalists grab benefits from investors, and investors will always bear the brunt.
.......... In extreme stress, the Brownfield Fund suffered huge losses. The bears are very controversial about their investments, so the two buddies and Ben, Mark and his team, and Jared plan to go to Las Vegas to participate in the US Securitization Trading Forum to snoop information and collect information. At the forum, government representatives insisted that despite losses in the subprime sector, the home loan market remains strong and default rates are unlikely to hit record highs. The Charles brothers tried to find out whether the mortgage market would decline, but they repeatedly hit a wall. They wanted to know if the SEC cared about the mortgage market, but the response was indeed an understatement that they don't study the mortgage market.
And the staff of the Financial Supervision Commission, which is supposed to supervise financial institutions, actually handed over their resumes to the bank, and they were ambiguous with the bank staff.
The two brothers of the Field Fund have limited funds, they can no longer afford high premiums, and because other institutions stepped in to buy default swaps with BB and BBB credit ratings, the price of default swaps was pushed up, and they couldn’t afford them either, but they came up with A coup - short AA-rated bonds, a coup that even Mark Bowen and Michael Bray didn't think of. At this time, AA-rated bonds are less risky and people are more willing to sell default swaps, so the price Also relatively low. They made some operations on the forum and successfully completed a large number of transactions. When the two brothers danced and celebrated, Ben sternly scolded that they were gambling with the US economy. If they were correct, then a large number of people would lose their houses, Pensions, retirement savings, and even job losses. Ben left angrily after speaking, leaving the two brothers stunned.
On the other side, Mark Bowen can finally talk to his bet, the manager of the CDO of the bond-collateralized bond from Hatton Investment. The CDO manager selects the bond-collateralized bond and is responsible for supervision. Most of the Merrill Lynch securities are managed by this The manager is in charge. Mark questioned that the bank provided the manager with bonds, clients and investors, and generous fees, but the manager claimed to represent the interests of the investors. Such an interested person says that he represents the interests of investors. Who would believe it? What shocked Mark even more was the COD of CDO—synthetic collateralized debt bond, which guarantees that the mortgage bond market is twenty times larger than the mortgage market. That is to say, if the mortgage market is 50 million, it will be magnified to one billion. Mark, also fully aware that the world economy could collapse, immediately decided to short the manager's synthetic CDOs.
What is a synthetic CDO? At this time, Richard H. Thaler and Selena Gomez, the fathers of behavioral economics, came out to explain. Richard also proposed a theory of the "hot hand fallacy", which could also explain the rise in house prices.
As they leave the forum in Las Vegas, there are a few interesting scenes, looking at the car they were leaving in, the close ex-SEC officer and the banker in front of the gate, intoxicated and confused. what will happen to the world.
Michael Bray rejects investor divestment and fights back against the odds.
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The storm is coming, and the mortgage market is constantly crashing. The housing loan market continued to collapse, and the subprime mortgage company New Century Financial Corporation went bankrupt. Mark's parent company, Morgan Stanley, pressured Mark to sell the credit default swaps.
Bank of America, Morgan Stanley and Goldman Sachs, who bet against Bray, all shied away for various reasons and did not want to admit it.
CDOs of CDOs are worthless, but the price of CDOs in the market remains unchanged. Banks frantically sell junk CDOs and then reduce the value of bonds after the sell-off is complete. The two brothers wanted to break the news to the media, but the media refused to publish this kind of news that was not confirmed by banks and rating agencies, for fear of offending the boss.
The default rate in the mortgage market continues to rise, and everyone wants credit default swaps. At this time, Mark finds that the object of his bet is Morgan Stanley, which is himself. Morgan Stanley also needs to be due to investment mistakes. Pay huge reparations.
At this time, Mark began to be caught in a dilemma. If Morgan Stanley went bankrupt, then their fund would also be used to repay the debt. Mark's team suggested that Mark get rid of the credit default swap immediately, but Mark was reluctant to help the bank, believing that this would make the big banks get out of the crisis completely.
Jared received his proceeds of 40 million yuan.
On the other side, the two brothers heard that Bear Stearns Bank was facing bankruptcy, and most of their credit default swaps were purchased from Bear Stearns Bank. If they went bankrupt, the two brothers might not get any benefits. In the end they got 80 million dollars by selling CDS to Swiss Bank.
On March 14, 2008, the housing loan market continued to collapse, but investors still defrauded investors, claiming to believe that the housing loan market was still strong, while secretly shorting the market.
Michael Bray sold all the default swaps and ended up closing the fund he managed with a 489% gain.
Mark was under enormous pressure. He thought that if he sold, he would be no different from other bankers. In the end, he decided to sell the swap, making a profit of $200 million.
…………………………………………………………………………………… Some thoughts on the content of the film
The film restores the 2008 economic crisis to us from different angles, and explains a lot of financial knowledge to us in a lively and interesting way. It is a film suitable for people who understand financial knowledge to watch, but the film also has some shortcomings. It does not explain many reasons for the subprime mortgage crisis, and ignores some of the reasons for the financial crisis. At the end of the film, the financial crisis generation is somewhat incomprehensible.
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Finally, let's review the video
A sentence from the movie can be a good illustration of this crisis. "If the mortgage bonds that Michael Bray discovered were matches, CDOs were like kerosene-stained cloth, synthetic CDOs were the atomic bomb, and the president who held the keys was drunk."
Looking back, how did the subprime mortgage crisis come about? After the Internet economic bubble in 2000, the U.S. economy was in recession, and the Federal Reserve implemented quantitative easing policies to significantly reduce interest rates, resulting in lower bond yields. The Federal Reserve repurchased government bonds, and money flowed into the market. With the falling interest rates of government bonds, people also began to look for investment products with high interest rates, and people began to turn their attention to real estate. The underground interest rate also made it easier for people to borrow, and the real estate began to boom. At this time, the American mortgage securities companies Freddie Mac and Freddie Man began to issue housing mortgage securities MBS. Due to the high returns of MBS, more financial institutions such as Investment banks such as Lehman Brothers, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, etc. participated. With the fierce competition in MBS, housing loans have also shifted from high-quality loans to subprime loans, and the loan targets have also turned to FICO with low consumer credit scores. , the population with a higher default rate. With the continuous innovation of finance, investment banks not only focus on housing loans, but also collect various student loans, car loans, etc. from lending institutions, package various bonds into new securities-backed bonds CDO, and send these products to rating agencies for evaluation. Because most of the income of rating agencies comes from commissions for rating financial institutions such as investment banks. Under the condition of coexistence of such interests and severe competition, high-risk bonds are transformed into 3A-level products, which are used by pension funds, Purchased by financial institutions such as hedge funds. In order to transfer the risk of bonds, financial institutions also purchased insurance from AIG, an American insurance agency, to transfer the risk to AIG, but AIG did not retain enough funds for compensation. When the Federal Reserve moved back to normal interest rates in 2006, many ordinary residents struggled to pay off their loans, more and more houses were mortgaged, and the supply of houses on the market increased, causing house prices to drop. The decline in housing prices has made it more difficult for people to refinance with housing mortgages, more and more people are still not paying, and the decline in housing prices has also made people reluctant to repay, more and more houses are mortgaged, housing The price of the stock has continued to fall, and the bonds have become worthless. At this time, the insurance agency AIG has no funds to pay claims. A series of reactions have brought down many financial institutions and Wall Street has fallen into a huge dilemma. The reason that is worth mentioning in this crisis is the high leverage ratio of financial derivatives such as CDOs. It is also mentioned in the movie that the 50 million housing loan market has been enlarged to one billion.
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Hegel once said that the only lesson history has taught mankind is that people never learned any lessons from history.
Tulip Bubble, South Sea Bubble, Mississippi Bubble, 1929 Great Depression, 1989-Japan Economic Bubble, 2000 Internet Tech Bubble, 2007 Real Estate Bubble. It seems that people have never stopped being greedy. In order to obtain high returns in a short period of time, they have increased market leverage and pushed the market to rational prosperity again and again. However, historical development has its inevitable laws. As the development of the financial industry far exceeds the pace of people's progress, it also makes the financial system more unstable.
On the other hand, one of the major reasons for the financial crisis is the inaction of the financial regulatory structure and the incompleteness of the financial regulatory system. Throughout the film, the financial regulators did not stop the crazy speculation, indulged the crazy mortgage loans of the mortgage institutions, allowed the financial institutions to amplify the ultra-high leverage of the financial market, ignored the unfair transactions between the financial institutions and the rating agencies, and complied with the financial institutions. Vicious competition among institutions turns a blind eye.
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