In 2007-08, theworld experienced an economic recession that led to a financial crisis affectingmany countries, people’s lives, and created a vast scarcity of jobs availableto the public.
The financial crisis was the worst economic recession since theGreat Depression of 1929. The financial crisis simply means that when liquidityimmediately disappears due to the fact that accessible cash is withdrawn frombanks, forcing banks either to sell different investments to compensate for thedeficit or to collapse. This report will be talking about a movie called “TheBig Short” based on a true story which talks about how a group of people workingin a hedge fund in the United States who foresaw the disastrous mortgages setby banks, were soon to collapse and found a way to buy out insurance againstthe possibility that the housing market will collapse. The movie beginswith a hedge fund manager, Michael Burry who realizes the US housing market setby highly inflated risk loans was soon to collapse. He then invests in creditdefault swaps that basically meant he was able to buy out insurance on thehousing market to collapse and bet on it by paying a monthly fee. At this pointof stage he was going to many investment banks that were handing out mortgagesto almost everyone including people with bad credit scores. This meant thatmajority of individuals in The United States were able to buy not one but many homesby 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 ableto understand Burry’s strategy and reaches out to another hedge fund managerMark Baum, and convinces him to join Burry strategy in investing in thesecredit default swap. Mark Baum had his confusions at first because it was knownto be that the housing market in The United States was very stable and no oneexpected it to fall out. After questioning the innovation and finding out thatthe market was run by massive risks, Baum was convinced to join Burry and betbig stating that the housing bubble will eventually collapse. Finally two investors, Charlie Geller and JamieShipley, accidentally discover a paper written by Jared Vennett about the soonto collapse housing bubble and immediately became curious and started toresearch more about the situation and reached out to a retired banker Ben Rickert,to seek investment advice.