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What Is The Big Short?

Understanding the big short.

• The Big Short's Stylistic Choices

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The bottom line, 'the big short' explained.

The Big Short is a 2015 Oscar-winning film adaptation of author Michael Lewis’s best-selling book of the same name. The movie, directed by Adam McKay, focuses on the lives of several American financial professionals who predicted and profited from the build-up and subsequent collapse of the housing bubble in 2007 and 2008.

Published in 2010, The Big Short : Inside the Doomsday Machine was a loose sequel to Lewis' best-selling  Liar's Poker , a chronicle of his work experiences at Solomon Brothers in the 1980s. Both non-fiction works offer a deep dive into the lives, workplaces, and psychology of several Wall Street professionals and the financial world.

Key Takeaways

• The Big Short is a 2015 film adaptation of author Michael Lewis’s best-selling book of the same name.
• Directed by Adam McKay, The Big Short chronicles the years leading up to the 2007-08 global economic crisis, focusing on several financial professionals (based on actual individuals) who predicted and profited from the collapse.
• The Big Short employs a novel stylistic approach: It frequently interrupts its narrative with cameo appearances by real-life authorities and celebrities, who explain complex financial instruments and practices with colloquial terms and examples.
• The Big Short won the Academy Award for Best Adapted Screenplay.
• Despite some criticism, The Big Short is generally acclaimed for its energetic, innovative, and even humorous depiction of Wall Street greed and the complicated events that led to The Great Recession.

The Big Short was not the first film adaptation of a successful non-fiction book covering the financial crisis. In 2011, HBO adapted Andrew Ross Sorkin’s crisis tell-all Too Big To Fail , which also had a star-studded cast. That story centered more on the few weeks leading up to the collapse of Lehman Brothers and the government's decision to bail out the nation’s largest banks and companies. 

The Big Short , however, is a character-driven piece that focuses not just on the events leading up to the subprime mortgage meltdown , but also the conflicted feelings of several men (either real or based on real people) who foresaw the crisis well in advance. The film stars Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt.

One of those men is Michael Burry (Christian Bale), the manager of hedge fund Scion Capital. The year is 2005, and Burry begins to suspect the booming U.S. housing market is virtually an asset bubble inflated by high-risk loans. Burry creates a new sort of financial instrument , called a credit default swap , which would allow him to short the housing market—that is, sell positions, on the assumption that housing prices will drop.

When banks and creditors argue that the housing market is stable—and prices in fact do keep on surging—his clients grow angry and fearful as Burry continues his short plays. When they demand their money back, he places a moratorium on withdrawals from the fund, angering his clients even more.

Meanwhile, Deutsche Bank executive Jared Vennett (Ryan Gosling) inadvertently discovers Burry’s credit default swap creation, and—agreeing with Burry's analysis of the market—decides to start selling them. One of his clients is hedge fund manager Mark Baum (Steve Carrell). Baum recognizes that poorly structured, high-risk packages of loan securities known as collateralized debt obligations (CDOs) have received AAA ratings from credit rating agencies—implying a degree of safety they don't deserve—and are furthermore being repackaged and resold in highly questionable ways. It's financial institutions' appetite for these securities that is fueling much of real estate's rise—out of all proportion to the industry's fundamentals.

Like Burry and Vennett, Baum concludes that the housing bubble will ultimately pop, and may in fact lead to the collapse of the U.S. economy. He begins shorting the financial sector. (Baum was based on real-life hedge fund manager Steve Eisman. Vennett was based on Greg Lippmann, a former bond salesman at Deutsche Bank.)

A third plot strand follows two young investors—Charlie Geller (John Magaro) and Jamie Shipley (Finn Wittrock)—who discover a paper written by Vennett about credit default swaps. They seek the investment advice of retired banker Ben Rickert (Brad Pitt). Shipley and Geller make a series of successful bets against mortgage-backed securities and the housing market when it finally does start to collapse, making a fortune on their trades.

But Rickert lambasts them for profiting off the misery the mortgage meltdown has caused Middle America. The duo is left highly dejected about the moral hazard surrounding CDOs, having discovered that investment banks and credit rating agencies conspired to conceal the risks and prop up prices of the investments. They later try unsuccessfully to sue the rating agencies for their misleading rankings of mortgage-backed securities and mortgages. (Geller was based on Cornwell Capital founder Charlie Ledley, while Jamie Shipley was based on Cornwell partner Jamie Mai; Rickert was based on Ben Hockett, a former trader at Deutsche Bank.)

Burry, meanwhile, ends up producing nearly 500% returns for investors who stay with him through the duration of the housing market's collapse.

The Big Short's Stylistic Choices

Financial terminology and the chronology of the financial crisis are highly difficult for a lay audience to comprehend in a two-hour movie. The Big Short employs vivid, colloquial, and even humorous ways to illustrate and define the complex financial instruments and tools, from collateralized debt obligations (CDOs) and tranches to credit-default swaps and mortgage-backed securities , that helped sink the global economy. 

For example, the film explains why the CDOs had such a ripple effect in a scene where actress Selena Gomez plays blackjack. Joined by economist Richard Thaler, she explains how increasingly larger side bets on Gomez’s hand of blackjack are great when she is winning, a metaphor for a rising housing market. However, when Gomez loses the hand—or housing prices begin to fall—those side bets set off a domino effect that creates larger losses at the table and the economy, respectively.

In another scene, audiences receive a visual aid to understand a tranche. Ryan Gosling pulls blocks from a Jenga tower to display how tranches work in mortgage-backed securities (MBS) such as collateralized mortgage obligations (CMOs). By pulling out blocks in the lower part of the tower, Gosling explains that the top-rated securities at the top end of the tower cannot stand when the lower-rated securities fail and are removed from the base.

Other examples are deliberately irreverent, using everyday metaphors and terms. One cutaway features actress Margot Robbie in a bubble bath drinking champagne as she discusses the frail effervescence of mortgage-backed securities. TV food personality Anthony Bourdain explains how tossing a two-day-old fish into a stew is similar to the subprime mortgages tossed into CDOs to hide their risky nature from unsuspecting customers.

Is The Big Short Based on a True Story?

The Big Short, based on a non-fiction book by Michael Lewis, chronicles the real lives and actions of several financial-industry professionals in the mid-2000s—against the backdrop of the rise and then dramatic collapse of the real estate market. The film did change the names and other identifying details of some characters.

What Was the Big Short in the Movie?

The titular "big short" in The Big Short refers to the trading/investment practice of shorting, or selling short. When you short something—usually a financial security, like a stock—it means you borrow it and sell it on the open market, with the aim of buying it back later at a lower price and pocketing the difference as a profit. Traders and investors sell short when they think that a security will decline in value. It's a bet that prices will fall.

There are actually several big shorts in the film: Most of the leading characters take short positions in mortgage-backed securities, convinced that prices will fall when the current real estate boom collapses. They're proved to be right, and all make millions of dollars. It's a "big" short because of the sums involved, and because the housing industry plays such a large role in the economy.

What Caused the 2008 Financial Crisis?

The financial crisis of 2007-2008 was years in the making, and due to a complex interweaving of causes. Its seeds were sown early in the decade, with cheap credit and lax lending standards fueled a housing bubble—an upward spiral in home prices as borrowers took advantage of low mortgage rates. Many of these loans were subprime—that is, the borrowers really couldn't afford them, putting the loans at high risk of default.

Lenders then sold those loans on to Wall Street investment banks, which packaged them into mortgage-backed securities and collateralized debt obligations. Rescinded regulations freed up banks and other institutions to borrow heavily to invest in these securities, which they then repackaged and sold to other investors.

By mid-decade, interest rates started to rise and homeownership reached a saturation point. Real estate prices started to drop, and people began to default on their mortgages. When the bubble burst in 2007, financial institutions were left holding trillions of dollars worth of near-worthless investments in subprime mortgages.

The  interbank market  that keeps money circulating around the globe froze—no one knew how widespread the losses were or who owed what, so they stopped lending completely.

By the summer of 2008, the carnage was spreading across the financial sector. Many venerable firms, like Bear Stearns and Lehman Brothers, went under. Lehman's collapse spooked the stock market, which went into free fall starting in late September.

3.8 million

Number of Americans who lost their homes due to foreclosure as a result of the 2007–08 collapse in the housing market, according to the Federal Reserve Bank of Cleveland.  

The Big Short received several Academy Award nominations, including one for "Best Picture," and won for "Best Adapted Screenplay." Some critics, including Nobel Memorial Prize in Economics Laureate Paul Krugman , have said that the film fails to acknowledge that several people, outside of the characters profiled in the movie, also flagged the issues with subprime mortgages. Others noted that the film failed to fully note the role that the Federal Reserve played in allowing the crisis to flourish.

That said, The Big Short offers a highly engaging exploration into the years preceding the collapse of the housing market, which led to the Great Recession . In the end, it concludes, Wall Street greed sank the global economy for years.

Federal Reserve Bank of Cleveland. " Breaking the Housing Crisis Cycle ."

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Movie Reviews

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The pre-release buzz is true: This is not your father’s financial crisis movie. Nor, for that matter, is it “ The Wolf of Wall Street .” The money masters of the universe depicted in this film—and while their stories are interconnected, their lives are not, necessarily—barely drink a sufficient amount of red wine to get a good buzz on. Their buzz derives from an enhanced sense of smell. The closest to a “ Wolf ”-like character here is Ryan Gosling ’s Jared Vennett, the most standard-issue suit-and-tie banking bro of the bunch, and part of his schtick is to stand in a conference room sniffing ostentatiously because, yes, he smells money.

The money smelt, and earned, by the adventurers of this story of the real-life 2008 world economic meltdown is arguably tainted by bad karma. Based on a book by Michael Lewis , “The Big Short” is about how several traders and hedge fund managers made fortunes because they saw that the housing market’s decline would cause a collapse of bonds contrived from sub-prime mortgages. The terminology is both dry and dizzying, the machinations incredibly convoluted. The main thesis of the story, adapted for the screen by director Adam McKay and his co-screenwriter Charles Randolph , is that as banking became the top industry of the United States, bankers deliberately concocted Byzantine financial tools whose main function was to help the rich get richer and screw over the little guy. You can expect a lot of pushback against this film of the “where do these affluent Hollywood types get off criticizing income inequality” but that won’t mean the movie is wrong.

And it really is quite a movie: entertaining and engaging, but also mortifying; a good alternate title might be “American Horror Story.” The film intertwines three discrete storylines. The first focuses on Christian Bale ’s Michael Burry, a trained physician with very stunted social skills whose genius at analysis and numbers-crunching found him running a very successful West Coast hedge fund. After finding some terrifying data within the structures of a large number of mortgage bonds, he concocts a radical idea: to “short,” that is, bet against, the housing bond market, which the banks have puffed up as being unassailable. To do this he has to convince those banks to create a new financial tool, a kind of bond insurance policy. If Burry’s right and the market collapses, he and his hedge fund make stupid money. But for as long as the market stays stable, Burry and his fund are obliged to pay stupid money in premiums.

McKay is best known as the director of such comedic fare as “Anchorman,” and, for all the silly self-reflexive humor in those films, there’s a sly underlying intelligence animating them, and here that takes the form of celebrity cameos wherein attractive people such as Margot Robbie and Selena Gomez directly address the audience with cogent and colorful explanations of terms such as “sub-prime.” He also enlists “Anchorman” rep company member Steve Carell for one main role, as financial Prophet of Doom Mark Baum, whose own fund gets a whiff of what Gosling’s character is smelling and takes a piece of the action, in a partial fit of “screw the system” indignation. Carell’s self-torturing character is likely the closest thing this movie has to a directorial surrogate. Finn Wittrock and John Magaro play a couple of Jim Henson’s Hedge Fund Babies, mentored by Brad Pitt ’s Ben Rickert. Rickert’s character can be read as something of a slight sendup of Pitt’s own current do-gooder persona; he’s a former master trader who left the game out of disgust, and who preaches a hippie-ish quasi-survivalist gospel to his two young acolytes even as he helps them get pretty much super-rich.

I started off feeling skeptical about this movie: the hairstyles and clothes of the main characters were more ‘90s music-video than early 2000s, and the sometimes-color-desaturated flashbacks to some characters’ back stories were a little on the drearily commonplace side. But the narrative momentum, combined with the profane wit of much of the dialogue, and the committed acting going on beneath the hairpieces, all did their job. And they got across the angry, pessimistic conviction behind the movie, which is that the major banks all engaged in fraudulent, criminal activity, and that the U.S. government bailed them out at the expense of the little guy, and that there’s no indication that the banks aren’t going to do something like the exact same thing all over again. You are free to disagree. But this is a movie that uses both cinema art and irrefutable facts to make its case. It’s strong stuff. 

Glenn Kenny

Glenn Kenny was the chief film critic of Premiere magazine for almost half of its existence. He has written for a host of other publications and resides in Brooklyn. Read his answers to our Movie Love Questionnaire here .

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Film Credits

The Big Short (2015)

Rated R for pervasive language and some sexuality/nudity.

130 minutes

Christian Bale as Michael Burry

Brad Pitt as Ben Rickert

Ryan Gosling as Jared Vennett

Steve Carell as Mark Baum

Melissa Leo as Georgia Hale

Karen Gillan as Evie

Marisa Tomei as Cynthia Baum

Tracy Letts as Lawrence Fields

Finn Wittrock as Jamie Shipley

John Magaro as Charlie Geller

Rafe Spall as Danny Moses

Hamish Linklater as Porter Collins

Byron Mann as Mr. Chau

Al Sapienza as Dan Detone

Jeremy Strong as Vinny Daniel

• Michael Lewis
• Charles Randolph

Director of Photography

• Barry Ackroyd
• Brent White
• Nicholas Britell

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“The Big Short” Comedy Drama Film by Adam McKay Essay (Movie Review)

The Big Short is not only an entertaining movie with elements of comedy, drama, and thriller but also a documentary allowing learning more about the crisis of 2008. My top insights from this exciting film are as follows. First, the American mortgage system, with its almost full approval of loans, had long been acting as a financial pyramid and was on the verge of collapse. Second, if market participants massively invest in one asset, it does not mean it is reliable. We do not have to give in to the hype and carefully study the market tools. Third, the reason for the mortgage bonds’ default was in their security by subprime loans. In other words, as Margot Robbie explained talentedly, banks secured those bonds with risky loans to keep on getting superprofits.

Also noteworthy is the fact that the content and ideas of the film can be related to the International Political Economy class. This doctrine focuses the attention of its research agenda on the study of how the mutual influence of political structures (states, regions, intergovernmental organizations) and market institutions occurs in a global economy. The financial crisis of 2008 caused substantial shifts in international relations. Thus, the events depicted in the movie are subject to the studies of the mentioned school.

An interesting question within the scope of Political economy is how the crisis affected one of the main competitors of the USA – China. The global financial default has not influenced this country much due to another vector of development of the economic system.

Chinese banks are by no means mortgage, but mainly state-owned savings institutions. Therefore, the main danger of the global crisis for China was not in the sphere of finance, but in the real economy and foreign trade – in a slowdown of economic growth and a significant drop in exports. For China, with its immense export opportunities, reducing global imports is extremely disadvantageous. In this regard, an important area of economic development of the Chinese government is expanding the domestic market, developing a “knowledge economy,” and increasing household incomes. ​

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IvyPanda. (2021, July 7). "The Big Short" Comedy Drama Film by Adam McKay. https://ivypanda.com/essays/the-big-short-comedy-drama-film-by-adam-mckay/

""The Big Short" Comedy Drama Film by Adam McKay." IvyPanda , 7 July 2021, ivypanda.com/essays/the-big-short-comedy-drama-film-by-adam-mckay/.

IvyPanda . (2021) '"The Big Short" Comedy Drama Film by Adam McKay'. 7 July.

IvyPanda . 2021. ""The Big Short" Comedy Drama Film by Adam McKay." July 7, 2021. https://ivypanda.com/essays/the-big-short-comedy-drama-film-by-adam-mckay/.

1. IvyPanda . ""The Big Short" Comedy Drama Film by Adam McKay." July 7, 2021. https://ivypanda.com/essays/the-big-short-comedy-drama-film-by-adam-mckay/.

Bibliography

IvyPanda . ""The Big Short" Comedy Drama Film by Adam McKay." July 7, 2021. https://ivypanda.com/essays/the-big-short-comedy-drama-film-by-adam-mckay/.

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The Big Short

44 pages • 1 hour read

The Big Short: Inside the Doomsday Machine

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Chapter Summaries & Analyses

Prologue-Chapter 3

Chapters 4-7

Chapter 8-Afterword

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Summary and Study Guide

The Big Short: Inside the Doomsday Machine , published in 2010, examines the causes of the 2008 financial crisis, one of the greatest debacles in American economic history. Like many of financial journalist and author Michael Lewis’s other works, including Liar’s Poker and Moneyball , The Big Short is a bestseller. It becomes a sourcebook during Congressional hearings into the disaster.

The crash results from years of financial malfeasance and incompetence among the top salesmen and executives at the largest Wall Street banks. At the center of the storm are subprime mortgage bonds, securities that package lower-quality home loans as investments. These bonds become increasingly risky, but the danger is hidden from investors so cleverly that it fools even the banks that sell them. When the bonds fail, hundreds of billions of dollars in securities become worthless, toppling major investment banks and forcing the government to step in to save the economy from collapse. The Big Short chronicles this story and the efforts of a small number of investors who realize a catastrophe is brewing and try to profit from it.

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Chapters 1 through 3 introduce the independent investors who discover the flaw in the subprime mortgage bond market: Steve Eisman , who turns his anger at bond traders’ dishonesty into a crusade; Michael Burry , an autistic medical doctor with a penchant for financial research and original thinking; and Greg Lippman, a bond trader who learns of the danger from Burry and urges investors to get rid of their subprime bonds. It dawns on each of them that the much-touted bond market is likely to crash.

In Chapters 4 to 7, the independent investors dig deeper into the mysteries of subprime bonds and their hidden pitfalls. They learn that bad mortgages are being bundled into bonds that somehow receive the highest rating. It becomes clear that the banks that sell these bonds don’t fully understand what they’re pushing.

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The independents begin to make bets against subprime bonds. Chief among their tools is the credit default swap , a type of insurance that pays off only if the bond it protects goes bad. The investment teams expect that many of these bonds will become worthless. A new team of investors, Cornwall Capital, joins the hunt and searches for opportunities in the increasingly perilous market. They and the other independents are stunned to discover that virtually no one on Wall Street thinks there is any danger. Alone in their belief that the mortgage market is headed for a calamity, they press on.

The final chapters narrate events leading up to the financial meltdown and its aftermath. Major banks implode and the government spends more than $1 trillion to rescue them. The independent investors make spectacular profits, but for some the victory is shallow: How could the captains of finance have been so foolish? And what does it mean for America and the future of Wall Street?

The Big Short tells a tale of chicanery and foolishness at the highest levels of American finance, and of the few clever and persistent investors who outsmart the crooked banks but are unable to stop the headlong rush toward disaster. The book is written in an engaging and humorous style; it clearly explains a number of arcane financial mysteries that investment banks would prefer to keep obscure.

Included are an index and a new afterword for the paperback edition.

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The Big Short

By michael lewis, the big short essay questions.

Why did Michael Lewis choose to write about the 2007-2008 financial crisis?

Lewis was inspired, in part, by his personal experience on Wall Street in the 1980s. He had worked for Salomon Brothers in New York and in London, and became disillusioned with Wall Street as a whole because of his negative experiences with the company. He experienced the financial irresponsibility and crisis of the 1980s, and believed that, after this, Wall Street would get its act together. In fact, he wrote a book called Liar's Poker about his experiences on Wall Street in the 1980s, which he believed would warn people against repeating the mistakes he had observed. But when he realized that an even worse financial crisis had been set up for 2007-2008 by the irresponsibility he originally observed in the 1980s, he chose to write about this in The Big Short . He wanted to trace how this second crisis had come about, and why only a few people were able to predict it.

Who is Meredith Whitney and why is she important to the story?

Whitney is an analyst who correctly predicted that Citigroup had badly mismanaged its affairs, and caused a crash in the stock market. People began to listen to her warnings about how risky and unbalanced Wall Street had been in 2007, when she began to speak up. Lewis felt personally invested in Whitney’s takedown of Wall Street because he knew that he could have raised similar alarm bells; he had worked with many of the same people that she warned against. In March 2008, he reached out to her in order to find out more about how she had been able to make these predictions. It turned out that she had a background in literature, and ended up working at Oppenheimer and Co. thanks to a kind mentor named Steve Eisman who helped her to rise through the ranks. Whitney those provided Lewis with his connection to Eisman, who becomes an important character in the story.

What are mortgage bonds, and how are they involved in the lead-up to the financial crisis of 2007-2008?

Mortgage bonds are different from normal corporate and government bonds; they are not one giant loan for an explicit fixed term, as these other two types tend to be. Instead, a mortgage bond is based on cash that comes from a pool of thousands of individual home mortgages. Investors don’t know how long their investment in home loans would last, but do know that they will get their money back only when interest rates fall and mortgage borrowers can refinance more cheaply. This is the worst time for investors to get their investment back, since they end up with cash that they can invest only at lower interest rates. Salomon Brothers originally came up with the mortgage bond market, and they also came up with a solution to this problem: they took big pools of home loans and divided the payments made by homeowners into different pieces called “tranches.” The buyer of the first tranche would get hit with the first wave of mortgage prepayments, but would also get a higher interest rate in exchange. The owner of the second tranche took the next wave and the next highest interest rate, and so on. The investor in the last tranche had a low interest rate but also a very high assurance that his investment wouldn’t end before he was ready. Standards for these mortgage bonds would be set by government agencies like Freddie Mac and Fannie Mae, which guaranteed that if homeowners defaulted—or, in other words, failed to pay back their loans at all—the government would pay off their debts. Eventually, mortgage bonds did fail, spectacularly—leading to the 2007-2008 crisis.

How is the subprime lending industry like a Ponzi scheme?

A Ponzi Scheme is an investment scam where the returns for older investors are gotten through revenue paid by new investors, rather than from actual profits. The subprime lending industry can be compared to a Ponzi scheme because the people running the industry borrowed more and more capital to create more and more subprime loans that were not actually going to be profitable for their lenders. In effect, there was no actual profit being generated; rather, those who ran the subprime lending industry simply got more and more investors to contribute to the industry, to give the impression that they were being profitable.

What was the role of insurance companies such as the American International Group Financial Products in the subprime mortgage market?

AIG FP was created to stand in the middle of swaps and long-term options, and other risk-spawning innovations that began in the late 1980s. It was well-suited for this role because it had a high credit rating, was not a bank (and thus not subject to bank regulations or the need to reserve capital against risky assets) and was able to bury exotic risks on its balance sheet. Basically, it became a reservoir for the risks being generated by the financial system. In the beginning, it was paid to insure events that were very unlikely to occur. But, over time, it began to cover riskier events; its existence allowed these new risks to be created in the first place by giving them a place to hide. For its first fifteen years, it was amazingly profitable with no sign of running huge risks. In the early 2000s, however, the financial markets changed: the banks that used AIG FP to insure piles of loans started to insure much messier piles that included credit card debt, student loans, auto loans, prime mortgages, etc. They believed these loans were sufficiently diverse that they couldn’t possibly all go bad at once. This prediction turned out to be tragically false.

How did banks benefit from the sale of credit default swaps?

Credit default swaps were beneficial to banks because they enabled them to create another bond identical in every way except one: it did not involve any actual home loans or home buyers, and only the gains and losses from the side bets on this bond were real. This was because the banks could package the triple-B bonds bought by people like Burry into a synthetic CDO, which was then rated by an agency that re-rated them as triple-A. Both those buying and those selling credit default swaps benefitted from them. This new market for synthetic CDOs meant there was no limit on the size of risk associated with subprime mortgage lending. In other words, to make a billion-dollar bet you did not need to accumulate a billion dollars’ worth of actual mortgage loans; you just had to find someone else in the market willing to take on the other side of the bet.

What did Eisman and Daniel unearth in their investigation of mortgage loans?

Eisman and Daniel realized that the bonds backed by mortgages most likely to default tended to be located in “sand states." This referred to states like California, Florida, Nevada and Arizona, where housing prices had risen fastest during the boom and so would likely crash fastest in a bust. They also found that loans in these states were made by the more dubious mortgage lenders. These states also had a higher-than-average number of loans that were likely to be fraudulent. Eisman and Daniel recognized patterns in the states, such as lending huge sums to poor immigrants, that signaled just how bad the quality of these loans really was.

What "blind spot" did Eisman discover in the rating agencies' models, regarding lending to immigrants?

Eisman discovered that the rating agencies didn’t understand the difference between a “thin file” and a “thick file” score for the creditworthiness of individual borrowers (known as a FICO score). A thin file meant a short credit history, which should have indicated that, even if the credit history was good, this could simply be because the borrower in question had never borrowed money before and thus had had no chance to bring their credit score down. For example, this was the case with many poor immigrants. Thus, rating agencies lumped such immigrants in with people who had borrowed and successfully lots of money in the past, giving them effectively the same ratings despite their actually very different profiles. In actuality, poor immigrants only had a thin file because they had not borrowed much in the past, and they actually had very little ability to repay a huge loan. But to the rating agencies, their ability to repay loans seemed to be the same as that of people with a thick file, who had borrowed lots and returned lots in the past.

How did Charlie Ledley and Jamie Mai approach the subprime lending industry differently from Eisman and Burry?

Ledley and Mai realized it might make most sense to bet against the upper floors, or double-A-tranches, of the CDOs. No one had done this yet, since even investors like Eisman and Burry had picked the triple-B-minus tranche, knowing it was most likely to fail spectacularly. The Ledley, Mai and Hockett strategy ended up being more profitable. This was thanks in part to the advantage they gained from joining the process so late, but also thanks to their strategy of looking mainly for long shots. In this case, the long shot was to bet against the upper floors, which would take longer to collapse. But they did eventually collapse as well, in a spectacular fashion that left Ledley and Mai with very significant profits.

How did the people who had predicted the disaster, and bet against the industry, respond when they were proven right?

People like Eisman, Burry, Ledley, and Mai recognized just how big of a disaster was possible if the housing market collapsed: when banking stops, credit stops, and when credit stops, trade stops, and when trade stops...important goods like medications, core food staples, water supplies, etc. are endangered. People like Ben Hockett and Charlie Ledley had been able to predict this disaster and bet against it precisely because they were hyper-aware of the risks. But now, their hyper-awareness of risk only made them more deeply anxious about what would end up happening, whereas other people may have been simply happy that they had personally made so much money. Michael Burry, as well, was disillusioned by his success. As he said, “Making money was nothing like I thought it would be." And Eisman responded by recognizing that he had been proven right, and no longer had to struggle to be heard. In response, he became a more accommodating and pleasant person overall.

The Big Short Questions and Answers

The Question and Answer section for The Big Short is a great resource to ask questions, find answers, and discuss the novel.

When Michael wanted to buy new financial swap from big banks, managers in the banks regarded him insane. Many key investors of Scion funds which Michael was running requested their money back when the revenues dropped significantly. At that point, who is

Chapter please?

Write a short note on map projection

Sorry, this is a literature site.

) Explain in your own words why the economy collapsed and the role CDOs sold by Investment Banks played in it

Study Guide for The Big Short

The Big Short study guide contains a biography of Michael Lewis, literature essays, quiz questions, major themes, characters, and a full summary and analysis.

• About The Big Short
• The Big Short Summary
• Character List

Essays for The Big Short

The Big Short essays are academic essays for citation. These papers were written primarily by students and provide critical analysis of The Big Short by Michael Lewis.

• The Big Short: The Moral Dilemma

Wikipedia Entries for The Big Short

• Introduction

The Big Short

Michael lewis, ask litcharts ai: the answer to your questions.

Michael Lewis remembers what it was like to be a 24-year-old trader at the Wall Street investment bank Salomon Brothers. He thought that the culture there was ridiculous and unsustainable, so he set out to capture it in his first book, Liar’s Poker . To his surprise, Wall Street continues to evolve so that the fast times in the 80s now seem quaint. Shortly after the subprime mortgage bond bubble bursts in 2007, Lewis has a conversation with the financial analyst Meredith Whitney , who gives Lewis a list of people who successfully predicted the crash and who were able to profit off of it by taking short positions. This is where Lewis first hears of Steve Eisman .

From the beginning of his financial career, Eisman was a rebel. He starts as a financial analyst, where he resists pressure to assign optimistic ratings to companies that don’t deserve them. His style attracts admirers, who eventually join him at his new investment firm FrontPoint Partners. Two of his most important team members are Vincent Daniel (a cynical trader from Queens who becomes FrontPoint’s head research guy) and Daniel Moses (a coworker of Eisman’s at his previous job who becomes FrontPoint’s lead trader).

Meanwhile, Michael Burry is a neurosurgeon who writes a financial blog in his free time that attracts a surprising amount of attention. He eventually starts his own firm, Scion Capital, and manages to attract so much money that he has to turn investors away. After making some risky bets that pay off, he becomes interested in credit default swaps as a way to bet against the subprime mortgage market.

A Deutsche Bank trader named Gregg Lippman has a similar idea to Burry, and he goes around trying to sell the idea to various traders, including Eisman’s team at FrontPoint. After a lot of initial skepticism, Eisman agrees to deal with Lippman.

While this is happening, Jamie Mai and Charlie Ledley are building their own “garage band” hedge fund by taking a relatively small initial investment of $110,000 and growing it into a substantial fortune. They use a process called event-driven investing , which often involves betting on unlikely events where analysts have overlooked the risk. In order to give their small firm more legitimacy, they partner with former Deutsche Bank trader Ben Hockett , who brings his experience, as well as his apocalyptic worldview to their team.

Through research, the future Big Short traders all learn that something is wrong in the subprime mortgage bond market. Banks are using complex practices that obscure (even from themselves) the fact that these bonds are based on mortgages that have a very high chance of defaulting (which, after enough people default, will make the bonds worthless). Even supposedly safe bonds are built on shaky foundations, largely because the ratings agencies are not accurately assessing the make-up of the bonds.

Eventually, Eisman, Vinny, Danny, Lippman, Ben, and Charlie all end up in Las Vegas for a major convention of subprime mortgage buyers and sellers. They all come away with the impression that the traders going long on subprime mortgage bonds are deluding themselves and that they need to increase their own short positions.

Initially, the Big Short traders lose money on their short positions. Burry in particular faces resistance from his investors. After his son is diagnosed with autism, he realizes that his own struggle to communicate with investors may be linked to autism. Major banks like Goldman Sachs refuse to mark positions in favor of short traders, at least at first.

As more time passes, however, a crash is inevitable. Eisman is literally on stage giving a talk about problems in the market when the news breaks that the stock for Bear Stearns (a major Wall Street firm) is plummeting rapidly. This is the first sign of a wider problem. All the Big Short traders scramble to make sure they aren’t financially exposed to the crisis. When the dust settles, they have all made enormous amounts of money and been vindicated for their predictions. While some traders like Eisman make dire predictions about the end of Wall Street, eventually the U.S. government steps in to bail out many major banks and prevent them from going under.

The Big Short traders contemplate what to do next now that they’re no longer outsiders and underdogs, with many of them experiencing intense anxiety about the state of the world. Some, like the Cornwall Capital traders, look into transferring their money into less risky investments to preserve it, while others, like Burry, take the opportunity to get out of finance entirely.

Around the same time, Lewis invites his old boss at Salomon Brothers, John Gutfreund , out to lunch with him. Gutfreund was once dubbed “The King of Wall Street,” and he paved the way for many of the risky practices that directly led to the financial crisis. Still, despite all the reasons they have to be enemies, Gutfreund is polite to Lewis and Lewis can’t help but be fascinated by his tough-talking former boss.

Sharing views on good care

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Reflections on movie The big short

Wall Street collapses in The Big Short. The 2008 financial crisis left millions in the United States unemployed and without homes. It expanded into a worldwide financial and economic crisis. Not surprisingly in America, Hollywood revisits the economic ‘bubble’ created by mortgage dealers and reckless -too big to fail- banks.

The big short is a comedy-drama film directed and co-written by Adam McKay. The film was released in December 2015. It is based on the non-fiction book of Michael Lewis; The Big Short: Inside the Doomsday Machine (2010). Lewis writes about the financial crisis of 2008, a crisis triggered by the build-up of the housing market and the credit bubble. His book, like the film adaptation, spans the years leading up to the 2008 crash. Lewis is following those few who believed the bubble would burst, and who figured out how to profit from it. Their roles are played by Christian Bale, Ryan Gosling, Steve Carell and Brad Pitt. Their flamboyant performances are what make The Big Short watchable. All of the male characters are clearly defined by bizarre traits that serve to show the types of impudent personalities that thrive in such a chaotic environment.

Three storylines are developed in this film. The autistic portrayed hedge fund manager Michael Burry (Christian Bale) discovers in 2005 that the U.S. housing market is extremely unstable. It is based on ‘subprime’ loans of high risk and providing fewer and fewer returns. He predicts the market to collapse in around 2007 and decides to profit from this situation. He develops a short-selling investment strategy and that is what catches the attention of stockbroker Jared Vennett (Ryan Gosling) and traumatized hedge fund manager Mark Baum (Steve Carell). With the last two persons a second storyline develops. In the third storyline two eager young investors decide to become involved in the credit default swaps and they are successfully mentored by retired banker Ben Rickert (Brad Pitt). The three narratives are linked by the shrewd Vennett who ‘informs’ the viewers of the film and confuses them intentionally.

Adam McKay wants to enlighten and infuriate the public with his portrait of those who profited from the 2008 financial collapse. Becoming aware of an upcoming catastrophe, the only decent human thing to do is raising the alarm. But decent humans are scarce in a world of competition, profits, fraud and greed. Ultimately all of them profit immensely. Almost nobody involved in the creation of the Collateralized Debt Obligation (CDO) bubble is arrested, and ‘Bespoke CDOs’ or ‘Single-tranche CDOs’ are soon sold again.

Joris Luyendijk, a Dutch anthropologist and journalist, investigated London’s financial center: The City. From September 2011 until October 2013 he wrote about his findings for the Guardian and in 2015 his book Swimming with Sharks was published . He concludes that nothing has changed since 2008.

Care ethicist Fiona Robinson interprets the worldwide ongoing financial and economic crisis as the failure of liberal internationalism (After liberalism in world politics? Towards an international political theory; 2010). She considers what might replace liberalism when it ends. She proposes a political theory of care that emphasizes an ontology of relationality and interdependence. A global political economy, based on international theory of care, can in her view challenge the liberal global justice industry that has shown to be unreliable. In 2013 Joan Tronto analyses the changing meaning of ‘home’. Home is no longer thought as a grounded and concrete way to start thinking about human life. In the last decades the meaning of home has shifted from a safe private place to live to an important and profitable investment. She refers to former president George W. Bush who advocated ‘an ownership society’. People were encouraged to calculate, get easy money and live in their homes ‘as places for speculation’ (Caring democracy; 2013). The crisis of 2008 increased the number of homeless citizens, caused poverty, and a rise of unemployment. This crisis and its severe effects is one of the arguments of Tronto that shows the need for a democratic care revolution. The Big Short contributes to a deeper understanding of the complexity of the financial world and aims, the dispositions of people involved, their ‘victims’ and political and economical entanglement.

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How Similar Is The Big Short to the Real Life Story It’s Based On?

• The Big Short explores the flawed and corrupt U.S. mortgage market through a group of investors in 2006-2007.
• Christian Bale's character is the only main character whose name stays unchanged in the movie, based on the book by Michael Lewis.
• Differences between the movie and the book include name changes, events leading to the crash, and a more pessimistic ending tone.

The 2015 Academy Award Best Picture nominee The Big Short is a financial cautionary tale — which also happens to be didactically hilarious —based on true-life events. Adam McKay and Charles Randolph adapted (with McKay also directing) the book The Big Short: Inside the Doomsday Machine by financial journalist Michael Lewis , chronicling the events that led to the late 2000s financial crisis. Condensing a narrative that focuses on three investment firms as key players, it boasts a stellar cast that includes Steve Carell , Christian Bale , and Ryan Gosling . Surprisingly, The Big Short is a very faithful recounting of what happened before the housing crisis downfall but, as with every big screen adaptation, there are bound to be differences that depart from what really happened — or, at least, from what’s said in the book.

The Big Short

In 2006-2007 a group of investors bet against the United States mortgage market. In their research, they discover how flawed and corrupt the market is.

Release Date December 11, 2015

Director Adam McKay

Cast Steve Carell, Brad Pitt, Christian Bale, Ryan Gosling

Runtime 130 minutes

Genres Biography, Drama, Comedy, Crime

Which Names Were Changed in ‘The Big Short’?

Christian Bale’s Michael Burry is the only main character whose name goes unchanged. The faithfulness of his portrayal goes all the way to hearing hard rock at high volume and using an actual T-shirt and cargo shorts that belonged to Burry . Still, there are some differences in his character, for he didn’t disclose his life details to the person he’s interviewing at the beginning of the film, rather than to some friends through an email. The names of the rest of the main cast members were changed for personal reasons. McKay states he made some concessions on this topic, and that's how The Big Short ends by renaming Gosling’s Greg Lippmann to Jared Vennett, with the last names of Brad Pitt ’s, John Magaro ’s, and Finn Wittrock ’s characters also changing. That’s how Ben Hockett, Charlie Ledley, and James Mai were changed to Ben Rickert, Charlie Geller, and Jamie Shipley. The latter two’s investment venture, Cornwall Capital, was also changed to Brownfield Fund.

Breaking the Fourth Wall: Directly Addressing the Topic

The Big Short largely focuses on the moral dilemma of Carell’s character, Mark Baum, on whether or not to take advantage and make a profit from the impending financial downfall. Baum is an alias for businessman and investor Steve Eisman. Given the focus both the book and the movie place on Eisman, he’s the one with more backstory. The book details the painful loss of Eisman’s son due to an accident. The family specifically requested to have this omitted from the film, for the agony of reliving this incident would be too much. Instead, to be able to tell his story in a faithful but respectful way, Baum's loss is reinterpreted through having a brother who committed suicide – hence the name change from Eisman to Baum. Still, Carell was characterized as Eisman and even was visited by him on set once filming began. L ewis, the book’s author, recalls being shocked by how well the actors got into their characters , saying everyone performed exactly like their counterparts. Even their hairdos and clothes were pretty much what he remembers each individual wearing, so kudos to the costume and hair and makeup departments as well.

'The Big Short' Changed Events Leading to the Crash

Comparing what the movie shows to what the book says, some understandable creative differences can be spotted here and there for the sake of storytelling. For instance, the movie shows Wittrock’s Jamie and Magaro’s Charlie, the heads of Brownfield Fund, having encountered Vennett’s housing bubble pitch in the lobby of a bank they wanted to get into business with. In reality, a friend sent it to them instead. This even allows for a meta moment when they explain what really happened while breaking the fourth wall . The whole Miami visit has both real and made-up moments. While Eisman’s team did travel to Miami to see what the situation was over there, Eisman himself didn’t go to Florida’s second most populated city. And a bit added for dramatic (and hilarious) effect is the crocodile that Porter ( Hamish Linklater ) and Danny ( Rafe Spall ) find inside the pool of an abandoned house. To condense the team’s conversations and encounters with several mortgage brokers, the characters of Max Greenfield and Billy Magnussen are included, exposing how they were incentivized to keep placing a high volume of high-rate loans – regardless if people were qualified to pay them.

In the book, it’s Vinny ( Jeremy Strong in the film) and not Baum/Eisman, who meets and interviews the stripper with six loans with low down payments. Also, the book mentions the stripper had five loans. But the book does indeed mention a person who has six loans on her properties: Eisman’s baby nurse. Some years earlier, she bought a townhouse in Queens along with her sister. With the prices of their neighborhood rising, their lender advised them to refinance. This allowed them to buy another home, then another, and so on, up to the point that they now owned six townhouses and were unable to pay their mortgages. In the movies, long, drawn-out processes are usually sped-up. When Jamie and Charlie pick up Ben to go sign a swap agreement, it’s a pretty simple deal, going in to sign and then going out. The book explains how this process took ten days in reality, but dragging it out didn't serve the quick-paced narrative. There’s also a scene involving Jamie and a fictional character called Evie ( Karen Gillan ), his brother’s ex-girlfriend – who also happens to be an SEC employee who gives further information about the lack of oversight on mortgages. In reality, this bit of information was dug up by Eisman through several analysts from different agencies. Another fictional character is Adepero Oduye’s Kathy Tao , who isn’t mentioned in the book, but thankfully represents a strong female figure in a movie filled with dudes getting their way .

Name changes and altered events are the summary of the differences between the movie and the book. One obvious additional variance is what makes the movie so great: in real life, we don’t have stars like Margot Robbie (telling us to eff off with her Australian accent!), Selena Gomez , or Anthony Bourdain pop up to explain the complicated financial terms in for-dummies language. But perhaps the greatest difference in The Big Short relies on the film’s ending tone . Warning about how this will happen again and the people at the top will continue amassing and increasing their fortunes is a bit pessimistic and gloomy (but very real nonetheless). Still, some of the real people involved in the book’s events, like Greg Lippmann , argue that might not be the case , as the government is currently enforcing policies that help the working class, particularly in fighting inflation. Truth is, the wrongdoing of a few went on to affect the American and global economy as a whole. Though not enough punishment was given to those responsible, hope remains for nothing like this to ever happen again.

The Big Short is now available to watch on Amazon Prime in the U.S.

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Analysis of Marketing Strategies in The Film The Big Short

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Published: May 14, 2021

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