In 2007-08, the
world experienced an economic recession that led to a financial crisis affecting
many countries, people’s lives, and created a vast scarcity of jobs available
to the public. The financial crisis was the worst economic recession since the
Great Depression of 1929. The financial crisis simply means that when liquidity
immediately disappears due to the fact that accessible cash is withdrawn from
banks, forcing banks either to sell different investments to compensate for the
deficit or to collapse. This report will be talking about a movie called “The
Big Short” based on a true story which talks about how a group of people working
in a hedge fund in the United States who foresaw the disastrous mortgages set
by banks, were soon to collapse and found a way to buy out insurance against
the possibility that the housing market will collapse.

 

  The movie begins
with a hedge fund manager, Michael Burry who realizes the US housing market set
by highly inflated risk loans was soon to collapse. He then invests in credit
default swaps that basically meant he was able to buy out insurance on the
housing market to collapse and bet on it by paying a monthly fee. At this point
of stage he was going to many investment banks that were handing out mortgages
to almost everyone including people with bad credit scores. This meant that
majority of individuals in The United States were able to buy not one but many homes
by taking out mortgages even though they were not able to pay back the banks. Meanwhile,
Jared Vennett, a low ranking sales man at Deutsche Bank inadvertently was able
to understand Burry’s strategy and reaches out to another hedge fund manager
Mark Baum, and convinces him to join Burry strategy in investing in these
credit default swap. Mark Baum had his confusions at first because it was known
to be that the housing market in The United States was very stable and no one
expected it to fall out. After questioning the innovation and finding out that
the market was run by massive risks, Baum was convinced to join Burry and bet
big stating that the housing bubble will eventually collapse.  Finally two investors, Charlie Geller and Jamie
Shipley, accidentally discover a paper written by Jared Vennett about the soon
to collapse housing bubble and immediately became curious and started to
research more about the situation and reached out to a retired banker Ben Rickert,
to seek investment advice.