Selling for a fall. The secret springs of financial disaster Michael Lewis
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Title: Selling for a fall. The secret springs of financial disaster
About the book “Selling for a fall. The Secret Springs of Financial Crash Michael Lewis
On the root causes of the world financial crisis of 2007-2009, written in the genre of a documentary business thriller. A new and completely unexpected look at Wall Street through the eyes of eccentrics and outsiders who see the mortgage bubble inflating, bet against it and ultimately win.
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Quotes from the book “Selling for a fall. The Secret Springs of Financial Crash Michael Lewis
I couldn't write a decent documentary book without working closely with my characters. Steve Eisman, Michael Barry, Charlie Ledley, Jamie May, Vincent Daniel, Danny Moses, Porter Collins, and Ben Hockett revealed their private lives to me. Despite the huge risk to themselves, they shared their thoughts and feelings. And for this I am infinitely grateful to them.
According to Gutfreund, the cause of the financial crisis was simple: "The greed of the investors and the greed of the bankers." In my opinion, it was rooted much deeper. Greed has always been inseparable from Wall Street, becoming almost a mandatory feature of it. The problem was the incentive system designed to curb this greed. The line between speculation and investing is thin and arbitrary. Even the smartest investment carries the imprint of a bet in the game (you lose all your money hoping to make some money), and the craziest speculation has investment potential (you can get your money back with interest). Perhaps the best definition of “investing” is: “speculation with the odds in your favor”
This is the age-old problem of money: everything that is done with it has consequences, but they are so remote from action that the mind does not connect them with each other.
"Do you know what mezzanine CDOs are?" And I began to explain all these schemes. " How Wall Street investment banks tricked the rating agencies to bless mountains of bad loans; how ordinary Americans were able to borrow trillions of dollars; how ordinary Americans happily followed the rules and lied to get loans; how the mechanism for converting loans into supposedly risk-free securities turned out to be so confusing that investors stopped assessing risks; how the problem has taken on such an enormous scale that it has had serious social and political consequences.
Michael Lewis
Big sell short:
The secret springs of financial disaster
The most difficult things can be explained to the last dumbass if he has no idea about them yet; but even in the simplest of things, one cannot convince someone who is firmly convinced that he knows what is at stake.
Leo Tolstoy, 1897
Prologue
Poltergeist
It remains a mystery to me to this day that a Wall Street investment bank wanted me to pay me hundreds of thousands of dollars for my investment advice. At that time, I, 24, had no experience in forecasting the rise and fall of stocks and bonds. And there was no particular desire to do this either. The most important function of Wall Street was the distribution of capital, in other words, it was there who decided who would get the money and who would not. And believe me, I didn't know much about all this. No accounting education, no experience in managing a company - there was no personal savings that could be disposed of. In 1985, by pure chance, I ended up at Salomon Brothers, and in 1988 I quit as a much wealthier person. And although I wrote a whole book about my work at the company, everything that happened so far seems ridiculous to me - and this is one of the reasons why I so easily gave up money. My position seemed too precarious to me. Sooner or later someone would have brought me, as well as many others like me, to clean water. Sooner or later, the hour of great reckoning would come, Wall Street would wake up from sleep and drive out of the financial sector hundreds, if not thousands, of young people like me who had no right to risk other people's money or convince other people to risk it.
The story of my experience, called Liar’s Poker, was told from the perspective of a young man who had time to wash his hands. It was as if I had scribbled and sealed a note in a bottle for those who will follow in my footsteps in the distant future. If all these events are not recorded on paper by their direct participant, I thought, no one in the future will believe that something like this could ever happen.
Everything that has been written about Wall Street up to that point has been predominantly about the stock market. From the outset, Wall Street has focused on the stock market. My book dealt mainly with the bond market, as Wall Street was making much more money at the time by “bundling,” selling, and manipulating the growing US debt obligations. This situation, in my opinion, could not last forever. I thought I was writing about the affairs of bygone days, the 1980s, when the American people lost their financial sanity. I expected readers of the future to be horrified to learn how in 1986 Salomon Brothers CEO John Gutfreund, who received $ 3.1 million, almost ditched the company. I expected them to be struck by the story of Howie Rubin, a Salomon Brothers mortgage bond trader who moved to Merrill Lynch and immediately inflicted a $ 250 million loss on the company. vague idea of the colossal risk that their traders take.
This is the picture I drew; but the fact that after getting acquainted with my story and my recollections the readers would say: “How interesting” I could not even imagine. How naive of me! For a second, I could not admit that in the world of finance, the 1980s would drag on for another good two decades, or that the quantitative gap between Wall Street and the real economy would eventually grow into a qualitative one. That a trader can make $ 47 million a year and feel left out. That the mortgage-backed bond market, which began in the trading floor of Salomon Brothers and seemed like a great idea at the time, would turn into one of the greatest financial disasters in history. That exactly 20 years after Howie Rubin disgraced himself all over the country by squandering $ 250 million, another Morgan Stanley trader, also named Howie, will lose $ 9 billion on one deal. And at the same time, only a narrow circle of people in the company itself will know what he did and why.
Starting to work on the first book, I did not set myself global goals, but just wanted to tell the world an exciting, from my point of view, story. But if you gave me a glass or two and were curious about the effect this book should have on readers, I would say something like, “I hope it falls into the hands of college students who are struggling with their careers; they will read it, understand that it is not worth making money from fraud and deceit and give up the fiery or timid dream of becoming financiers. " I cherished the hope that some Ohio State University prodigy who dreamed of becoming an oceanographer would read my book, turn down Goldman Sachs' offer, and go sail the seas.
Big Selling Short [Secret Springs of Financial Crash] Lewis Michael
Prologue Poltergeist
Prologue
Poltergeist
It remains a mystery to me to this day that a Wall Street investment bank wanted me to pay me hundreds of thousands of dollars for my investment advice. At that time, I, 24, had no experience in forecasting the rise and fall of stocks and bonds. And there was no particular desire to do this either. The most important function of Wall Street was the distribution of capital, in other words, it was there who decided who would get the money and who would not. And believe me, I didn't know much about all this. No accounting education, no experience in managing a company - there was no personal savings that could be disposed of. In 1985, by pure chance, I ended up at Salomon Brothers, and in 1988 I quit as a much wealthier person. And although I wrote a whole book about my work at the company, everything that happened so far seems ridiculous to me - and this is one of the reasons why I so easily gave up money. My position seemed too precarious to me. Sooner or later someone would have brought me, as well as many others like me, to clean water. Sooner or later, the hour of great reckoning would come, Wall Street would wake up from sleep and drive out of the financial sector hundreds, if not thousands, of young people like me who had no right to risk other people's money or convince other people to risk it.
The story of my experience, called Liar’s Poker, was told from the perspective of a young man who had time to wash his hands. It was as if I had scribbled and sealed a note in a bottle for those who will follow in my footsteps in the distant future. If all these events are not recorded on paper by their direct participant, I thought, no one in the future will believe that something like this could ever happen.
Everything that has been written about Wall Street up to that point has been predominantly about the stock market. From the outset, Wall Street has focused on the stock market. My book dealt mainly with the bond market, as Wall Street was making much more money at the time by “bundling,” selling, and manipulating the growing US debt obligations. This situation, in my opinion, could not last forever. I thought I was writing about the affairs of bygone days, the 1980s, when the American people lost their financial sanity. I expected readers of the future to be horrified to learn how in 1986 Salomon Brothers CEO John Gutfreund, who received $ 3.1 million, almost ditched the company. I expected them to be struck by the story of Howie Rubin, a Salomon Brothers mortgage bond trader who moved to Merrill Lynch and immediately inflicted a $ 250 million loss on the company. vague idea of the colossal risk that their traders take.
This is the picture I drew; but the fact that after getting acquainted with my story and my recollections the readers would say: “How interesting” I could not even imagine. How naive of me! For a second, I could not admit that in the world of finance, the 1980s would drag on for another good two decades, or that the quantitative gap between Wall Street and the real economy would eventually grow into a qualitative one. That a trader can make $ 47 million a year and feel left out. That the mortgage-backed bond market, which began in the trading floor of Salomon Brothers and seemed like a great idea at the time, would turn into one of the greatest financial disasters in history. That exactly 20 years after Howie Rubin disgraced himself all over the country by squandering $ 250 million, another Morgan Stanley trader, also named Howie, will lose $ 9 billion on one deal. And at the same time, only a narrow circle of people in the company itself will know what he did and why.
Starting to work on the first book, I did not set myself global goals, but just wanted to tell the world an exciting, from my point of view, story. But if you gave me a glass or two and were curious about the effect this book should have on readers, I would say something like, “I hope it falls into the hands of college students who are struggling with their careers; they will read it, understand that it is not worth making money from fraud and deceit and give up the fiery or timid dream of becoming financiers. " I cherished the hope that some Ohio State University prodigy who dreamed of becoming an oceanographer would read my book, turn down Goldman Sachs' offer, and go sail the seas.
However, my hopes did not come true. Six months after Liar's Poker was published, I was inundated with letters from Ohio State University students wanting to know if I had any other Wall Street secrets in store. My book became a guide to action for them.
Twenty years after leaving the company, I waited for the end of the Wall Street I knew to come. Bonuses that went beyond decency, an endless string of fraudulent traders, the scandal that drowned Drexel Burnham, the scandal that destroyed John Gutfreund and ended Salomon Brothers, the crisis that followed the collapse of Long-Term Capital Management, owned by my former boss, John Meriwether, soap bubble of Internet companies. The financial system has discredited itself again and again. Yet the big Wall Street banks, mired in scandals, continued to grow, as did the fees they paid 26-year-olds for socially unhelpful jobs. The American youth revolt against money culture never happened. Why overthrow your parents' world when you can buy and sell it piece by piece?
In the end, I despaired of waiting. No scandal or failure can destroy this system, I concluded.
And then Meredith Whitney appears on the stage with her statement. On October 31, 2007, Whitney, an unknown financial analyst from an unknown financial firm Oppenheimer & Co., became known to the whole world. On that day, she predicted that if Citigroup, whose business was in a very deplorable state, did not radically cut dividends, she would face imminent bankruptcy. Causal relationships in the stock market defy straightforward interpretation, but it was clear that the forecast made by Meredith Whitney on October 31 led to a collapse of the securities market. By the end of the trading day, exactly as predicted by a woman few knew existed, Citigroup shares were down 8% and the US stock market lost $ 390 billion. Citigroup CEO Chuck Prince left office four days later. Two weeks later, the bank cut its dividend.
From that moment on, Meredith Whitney became a figure whose authority could not be ignored. She said - they listened to her. And her advice was simple. Want to know the real value of Wall Street companies? Take a closer look at the dubious assets that were leveraged to buy, and imagine what they would get for them in the event of an urgent sale. All these crowds of highly paid workers are not worth, in her opinion, a penny. Throughout 2008, to the statements of bankers and brokers that they solved the difficulties with the help of write-offs and raising capital, she answered the same thing: “You are wrong! You still don’t understand how illiterate you are in managing your company. You still refuse to acknowledge billions of dollars in losses on substandard mortgage bonds. The value of your securities is as illusory as the qualifications of your people. " Whitney's opponents argued that she was greatly overestimated; bloggers said that she was just lucky. Yes, her predictions came true. But she really relied heavily on intuition. How could she know what was going to happen to Wall Street companies, or what losses they would incur in the subprime mortgage market, when even the CEOs didn’t know. Either that or they're all lying, Meredith said, but I don't think they really knew anything.
Of course, it wasn't Meredith Whitney who ruined Wall Street. She only clearly and loudly expressed her point of view, which in the end turned out to be much more disastrous for the situation in society than the numerous campaigns against corruption on Wall Street, conducted by prosecutors in New York. If an ordinary scandal could destroy the investment banks of Wall Street, they would have ceased to exist long ago. This woman did not say a word about the corruption of the bankers. She reproached them for stupidity. As it turned out, people whose direct responsibilities included managing other people's capital could not really dispose of even their own funds.
I confess that the thought never leaves me that, had I not fired from the company, the blame for this disaster could well have fallen on my shoulders. My former colleagues from Salomon Brothers were involved in the collapse of Citigroup; I attended corporate training courses with some of them. In March 2008, I called Meredith Whitney. Our conversation took place shortly before the bankruptcy of the investment bank Bear Stearns, when his fate hung in the balance. If she is right, I thought then, then the end of the financial world as it has existed since the 1980s is already close. I wanted not only to understand how meaningful her predictions were, but also to learn more about the woman whose every word was a nail in the coffin of the stock market.
The Brown University graduate began her work on Wall Street in 1994. “When I came to New York, I had no idea about the existence of such a field as analytical research,” she recalls. At first, she was lucky enough to get a job at Oppenheimer & Co., and then a rare success awaited her: training under the guidance of a person who participated not only in her career, but also in the formation of her worldview. His name was Steve Eisman. “The best thing that happened to me after speaking with the leadership of Citigroup was a call from Steve, who said he was proud of me.” Since I had never heard of Steve Eisman before, her words did not make much of an impression on me.
And then I learned from the news that a little-known hedge fund manager named John Paulson made about $ 20 billion for investors and put almost $ 4 billion in his pocket. Before that, no one else on Wall Street had been able to make that kind of money so quickly. Moreover, he got them in a game against the same low-quality mortgage bonds, on which Citigroup and many other large Wall Street investment banks were pierced. These investment banks are like Las Vegas casinos: they determine the likelihood. A client who tries to play a zero-sum game against them wins only from time to time, but not systematically, and of course, his winnings will keep casino owners out of the world. Nevertheless, John Paulson was a Wall Street client. And we got an example of the same incompetence that Meredith Whitney made a name for herself in denouncing. The casino miscalculated in determining its own odds, and this was not hidden from the eyes of at least one person. I called Whitney hoping to find out if she knew of anyone who had foreseen a cataclysm in the subprime mortgage industry and managed to get a decent warmth on it. Who, before the casino realized, had time to realize that the roulette wheel began to spin with a predictable result? Who else on the sidelines of the modern financial system has discerned the broken cogs of its mechanism?
This took place at the end of 2008. Then many experts claimed that they foresaw the coming crisis, but there were far fewer real visionaries. And there are even fewer of those who have the courage to bet on their prediction. It’s too hard to resist mass hysteria — not letting financial news fool you, admitting that powerful financiers are either lying or wrong — and not going crazy. Whitney named half a dozen names, mostly investors, whom she could personally vouch for. John Paulson was mentioned on the list. And in the first place was Steve Eisman.
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Regency Enterprises
Paramount pictures
The plot of the film focuses on how several financial analysts and employees of hedge funds on Wall Street were able to predict the course of events of the crisis and played to lower the rate of mortgage bonds, making a fortune. The picture received high marks from critics for the depth of the disclosure of the topic and the skillful balance of artistic merits with a fairly plausible presentation of the market and economic mechanisms that underpinned the economic collapse.
Plot
The action of the picture begins in 2005. Freaky financial genius, hedge fund manager Michael Burry, Scion Capital, senses that the US mortgage market may soon burst. In this regard, he insures about a billion dollars of his clients through a credit default swap. Bury's clients are worried because the loan market seemed to be very stable, but it is firmly on its way. Wall Street notices this strange activity, and soon several financiers realize that Burry's fears are well founded. Moreover, you can make good money by playing short.
The theme is being developed independently by Front Point and young investors Charlie Geller and Jamie Shipley. Front Point chief Mark Baum, prompted by Deutsche Bank trader Jared Vennett, is trying to understand the nature of the problem. Vennett draws attention to CDO. These tranches of bonds have long fallen short of the ratings they have been given without due diligence. A common practice in the market is to mix A and B junk and assign a top rating to the entire bond portfolio. Baum and his people personally travel to the suburbs of Miami to check on the ground that the mortgage market is indeed overheated and that default is possible in the near future. After talking with locals and realtors, Baum realizes that the situation is truly threatening. Massive loan defaults are only a matter of time. Geller and Shipley also come up with the idea of swaps and contact retired broker Ben Rickert. Through it, they go to Deutsche Bank and enter into swap deals. Meanwhile, Baum learns about synthetic CDO (), which is a financial pyramid, the existence of which is closed by the regulatory authorities.
Front Point, Geller and Shipley are acquiring large-value swaps, with the expectation that when mortgage bonds fall in value, they will short their trades and more than return their investments. The year 2007 comes and the predictions begin to come true. A wave of mortgage defaults is rising across the country, however, bonds that underpin debt obligations have not yet fallen in price. Trying to sort out this paradox, Baum visits Standard & Poor's office. Why does the rating agency persist in assigning AAA ratings to dubious portfolios? An agency employee explains that they are forced to do this, otherwise the banks will go to competitors and still get the required rating there. The collapse of the stock price begins only when Bear Stearns and Lehman Brothers go bankrupt in the wake of the crisis. One by one, the heroes of the picture begin to get rid of their swaps with great profit. Mark Baum begins to doubt at the last moment, because the funds that he will receive are the money of ordinary people, due to which they eliminate the consequences of the crisis. However, he closes the deal.
Cast
Scenario
Michael Lewis noted in an interview that he never understood the reasons for the attention to his books in Hollywood. Recognition to him as an author worthy of the adaptation came after the box office success of The Blind Side: Evolution of a Game (). In 2010, Lewis's documentary research, The Big Selling Short, was published. The Secret Springs of Financial Disaster ”, which soon became a bestseller. The book was read by Adam McKay and recommended that Paramount Pictures consider a film adaptation. McKay, better known for his comedy-oriented audience with undemanding taste, unexpectedly chose a serious topic as a kind of challenge to himself. McKay especially liked the final plot twist, when the heroes realize that they have made a bet against the foundations of the entire economy, the basis of existence, in a sense, against themselves.
In 2013, Paramount acquired the rights to the book and handed over production to Brad Pitt and his studio Plan B Entertainment. Brad already had a positive experience of filming Lewis's works in the analytical film "The Man Who Changed Everything" and he immediately agreed. In March 2014, Adam McKay was officially involved in the project as a director. Charles Randolph became his co-scriptwriter for a future project.
The script took about 6 months to complete. Randolph's characters were inspired by the mood of Milos Forman's early comedies and The Tail Wagging the Dog. The plot of the book was significantly redesigned, a part with the events in Florida appeared (which was not in the book). The financial component has been simplified, but not too much. Such a scene, where Jared Venett explains to his colleagues with the help of the Jenga tower the mechanism of the ISB pyramid, as the scriptwriter noted, there can be only one in the film. The main characters of the tape are professionals who are already familiar with the functioning of the securities market. The explanation is made for the viewer, but it is undesirable to abuse such lectures in a feature film. Having found a lot of footnotes-explanations for terms in Lewis's book, McKay decided to add an inset digression performed by guest stars to the canvas.
Creation
Casting went quickly - in just three weeks, confirmation was received from everyone. The film featured four Academy Award winners (Bale, Melissa Leo, Tomei, Pitt) and two nominees (Gosling and Carell). In January 2015, the studio officially announced that the selection of actors and locations for nature was completed, and confirmed the possibility of filming the film in a month. Filming began on March 18, 2015, in about 50 days, mostly in New Orleans. Selected episodes were captured in New York and Las Vegas. The interior of the Lehman Brothers office was recreated in the lobby of the New York State Financial Services Authority building in Manhattan.
Cinematographer Barry Aykroyd noted that he wanted to shoot it "not too beautiful and not too pretentious," adhering to the director's documentary approach and the tone of black comedy. The picture was shot on film in Super-35 format on Panavision equipment, with an Angenieux () 24-290mm lens with spherical lenses (in some episodes 17-80mm and 15-40mm), a frame with an aspect ratio of 2.35: 1. For the shots and handheld effects that Aykroyd loves so much, a specially designed Panavision camera was used, which was first used for the painting "The Last Face".
McKay, noticing that his entire cast of ensemble looks too good, stated that in this film they will not be movie stars. Most of the director's efforts were demanded by the image of Michael Bury. This character is the only one who has retained the name of his real prototype, and according to the plot he is in a kind of vacuum, not communicating with other protagonists. With Christian Bale, the director worked on the image for about 10 days. Shortly before filming, Bale severely injured his knee and could barely move. In one of the first scenes, he needed to play one of the Pantera compositions on a drum kit, demonstrating the eccentric hobbies of a financial genius. The actor handled a difficult scene. Michael Bury, who consulted the creators, sent Christian Bale his clothes to make him look authentic in the frame. At the request of the director, Steve Carell put on about 20 pounds (8 kg). Ryan Gosling put in dark contact lenses and messed up his hair. The stylists also had to work on Brad Pitt's hairstyle, which was complemented by a beard.
The film's financial consultant was journalist Adam Davidson (). McKay, fearing that the picture would remain too complex for the average viewer to understand, agreed with the studio for more test screenings with focus groups than is usually the case. There were six of them. The first cut was 150 minutes long. After working with focus groups, the duration was reduced to 130 minutes.
The premiere and limited viewing took place as part of the film festival on September 22, 2015. The picture was released on December 11.
Criticism
As Variety's Andrew Barker pointed out, it's hard to imagine that the same director has directed Cops in Deep Stock, The TV Presenter, and The Selling Game. However, keeping in mind the previous works of the director, most experts attributed it to the genre of comedy, reflecting the general trend of Hollywood with a humorous approach to serious and even tragic topics. Peter Travers (Rolling Stone) even called it a disaster comedy.
The picture was highly appreciated by most critics, taking its rightful place in the new generation of films about the history of the 2007-2008 financial crisis, released after 2010. It is not as "cheeky" as "The Wolf of Wall Street", although not as analytical as the strictly documentary "Insiders", maintaining a balance with an entertaining opening. James Berardinelli emphasized the "surgical precision" with which the creators reveal the internal mechanisms that led to the disaster. A serious, analytical analysis of the crisis ends with an open ending, which is unusual for modern feature films. The main characters won their bets, but they won at the expense of ordinary people. Those who can be conditionally classified as "villains" remained unpunished.
But the Big Game's achievement is that Mr. McKay doesn't just emphasize the moral of the story with dialogues. The ending of the picture with its abrupt change in tone from a sigh of relief to a sigh of disappointment and an unexpected change in the mood of the music to gloomy ... all together creates a wave of almost unbearable disgust
Original text (eng.)
but the achievement of “The Big Short” is that Mr. McKay doesn’t only underline the moral of the story in dialogue. The film's final images, its abrupt shift in tone from exhilaration to exhaustion, its suddenly downbeat music ... all combine to trigger a climactic wave of almost unbearable disgust.
Anthony Scott
The film is woven from controversy that begins with the original title of the film, containing an oxymoron. The main events are developing at a high pace and temperament. Difficult to understand actions of the heroes, playing on the stock exchange, references to financial instruments are interspersed with episodes from the personal lives of the heroes, inserts of a kind of "white noise" of modern pop music, cuts of clips. Critic Anthony Scott (NY Times) compared the plot of the picture to a psychedelic trip. The creators find - stops in a tattered narrative, when the heroes suddenly stop and, through the “fourth wall”, address the audience: “but in fact, everything was not quite like that”. The cameraman takes an unusual approach, stylized as an amateur, albeit without the fancy camera shake. The focus in the mise-en-scène is constantly shifting from one character to another, suddenly a run over occurs, as if the operator had not decided what to show him.
The main difficulty faced by the creators is the need to convey complex economic concepts, without which it is impossible to understand the intrigue of the picture, to an unprepared viewer. "Bonds are not particularly photogenic," but the creators of the picture did their best. They had to look for a non-standard approach so that the "Selling Game" did not turn into a boring lecture on economics. Guest stars explain the mechanism of secondary financial instruments using simple analogies: a bubble bath (financial bubble), a second ear (portfolio of securities with different ratings) and a casino game (bets on CDOs) (Margot Robie, Selena Gomez, Anthony Bourdain, Richard Thaler). Excessive moralizing in the comments deserved separate negative reviews, as well as excessive pathos in the ending, in which the authors present the moral of the picture without any allegory.
The central characters can formally be classified as positive heroes, but the viewer does not feel sympathy for them - they are just cold-blooded businessmen. In the picture, a happy ending, all the leading characters remained in profit, but the viewer experiences contradictory feelings. According to the NY Daily News critic, the main characters are representatives of a rare class of cute villains. The ensemble has earned, in general, high marks. All the actors of the central characters managed to create memorable characters. Critics have highlighted the play of Steve Carell, who created a deep image of Mark Baum, feeling moral responsibility for everything that happens.
Awards
| Prize | Category | Nominees | Result |
|---|---|---|---|
| Oscar | Best movie | Dede Gardner, Jeremy Kleiner, Brad Pitt | Nomination |
| Best Director | Adam McKay | Nomination | |
| Best Supporting Actor | Christian Bale | Nomination | |
| Best Adapted Screenplay | Adam McKay and Charles Randolph | Victory | |
| Best Editing | Hank Corwin | Nomination | |
| American Editors Association Award | Best Editing of a Feature-Length Comedy or Music Film | Hank Corwin | Victory |
| 10 best films of the year | The big short | Victory | |
| Society Casting Award | Big Budget - Comedy | Francine Maisler and Meagan Lewis | Victory |
| BAFTA | Best movie | Dede Gardner, Jeremy Kleiner, Brad Pitt | Nomination |
| Best Director | Adam McKay | Nomination | |
| Best Adapted Screenplay | Victory | ||
| Best Supporting Actor | Christian Bale | Nomination | |
| Best Editing | Hank Corwin | Nomination | |
| Critics "Choice Movie Awards | Best movie | The big short | Nomination |
| Best Comedy | The big short | Victory | |
| Best Editing | Hank Corwin | Nomination | |
| Best Comedic Actor | Christian Bale | Victory | |
| Steve Carell | Nomination | ||
| Adam McKay and Charles Randolph | Victory | ||
| Best Acting Ensemble | Christian Bale, Steve Carell, Ryan Gosling, Melissa Leo, Hamish Linklater, John Magaro, Brad Pitt, Rafe Spall, Jeremy Strong, Marisa Tomei, Finn Wittrock | Nomination | |
| Directors Guild of America Award | Best Director | Adam McKay | Nomination |
| Empire | Best Screenplay | Adam McKay and Charles Randolph | Victory |
| Golden globe | Best Film - Musical or Comedy | The big short | Nomination |
| Best Actor - Musical or Comedy | Christian Bale | Nomination | |
| Steve Carell | Nomination | ||
| Best Screenplay | Adam McKay and Charles Randolph | Nomination | |
| Hollywood Film Awards | Breakthrough director | Adam McKay | Victory |
| Houston Film Critics Society Awards | Best movie | The big short | Nomination |
| Indiana Film Journalists Association Awards | Best movie | The big short | Nomination |
| Best Director | Adam McKay | Nomination | |
| Best Adapted Screenplay | Adam McKay and Charles Randolph | Runner-up | |
| Christian Bale | Nomination | ||
| Steve Carell | Nomination | ||
| Los Angeles Film Critics Association | Best Editing | Hank Corwin | Victory |
| MTV Movie Awards | A film based on a true story | The big short | Nomination |
| National Council of Film Critics Award | Best Cast | Victory | |
| Producers Guild of the USA | Best Theatrical Motion Picture | Dede Gardner, Jeremy Kleiner, and Brad Pitt | Victory |
| San francisco film critics circle | Best Film Editing | Hank Corwin | Nomination |
| Satellite | Best movie | The big short | Nomination |
| Best Supporting Actor | Christian Bale | Victory | |
| Screen Actors Guild Awards | Outstanding Performance by a Male Actor in a Supporting Role | Christian Bale | Nomination |
| Outstanding Performance by a Cast in a Motion Picture | Christian Bale, Steve Carell, Ryan Gosling, Melissa Leo, Hamish Linklater, John Magaro, Brad Pitt, Rafe Spall, Jeremy Strong, Marisa Tomei, and Finn Wittrock | Nomination | |
| USC Scripter Award | Best Adapted Screenplay | Adam McKay and Charles Randolph | Victory |
| Washington D.C. Area Film Critics Association | Best Cast | Christian Bale, Steve Carell, Ryan Gosling, Melissa Leo, Hamish Linklater, John Magaro, Brad Pitt, Rafe Spall, Jeremy Strong, Marisa Tomei, and Finn Wittrock | Victory |
| Writers Guild Award | Best Adapted Screenplay | Adam McKay and Charles Randolph | Victory |
The essence of the deal
The main intrigue is built around the fact that the main character builds a fairly accurate forecast for the MBS price, since the financial pyramid built on these securities will collapse sooner or later. He is betting against securities that were considered the foundations of the market. The practice of issuing subprime loans () with a floating rate () without proper credit checks has become widespread. Consolidation of risky securities into tranches of CDO, the rating of which does not pass due diligence. Watching the appearance on the market of even more risky, so-called synthetic CDOs, the heroes are only convinced that they are right.
Michael Bury and other traders in the film, as in a casino or a bookmaker's office, bet on falling prices, that is, “falling”, playing on the stock exchange on the side of the “bears”. The mechanism used when playing a short ("short") is the opposite of the usual speculative resale of securities. A trader who knows that the price will fall, borrows securities from a broker, sells in the market and waits for the price to fall. When the price finally falls, he buys them and keeps the difference for himself (closes the trade). It is beneficial for a trader to do this when the price falls to the lowest level.
Bury could have directly purchased the shares (and the transaction he carried out not with his own money, but with the funds of his fund's clients), but he used a credit default swap (CDS) mechanism. This derivative insures the transaction. In this case, the buyer (Bury) does not pay the entire amount of the purchased securities, but only the increase in the price of the subject of the transaction, if it occurs (the so-called premiums). The bank that provided the CDS is confident that the price of the securities will not fall, and agrees (in reality, CDS in relation to mortgage-backed securities did not exist on the market and arose only after Bury showed interest in them). The risk is that if the price of securities rises instead of falling, then under the terms of the contract he will constantly have to cover the difference and he will not have enough cash. This is what Michael Bury's hedge fund clients are worried about. As a result, all the costs of Bury and other players on the downgrade turn out to be justified. Bury returned the investment with a profit of 489%. It is also noteworthy that Bury turned to Deutsche Bank and Goldman Sachs for the CDS deal. He took into account the fact that many financial institutions will suffer from the crisis and will not be able to pay off with it - the banks he chose were not so closely connected with the mortgage securities market and, most likely, would have stayed afloat.
Credibility and value
Michael Lewis believed that the emergence of a film based on such a difficult-to-read book was an opportunity to convey to a wider audience important lessons that everyone should learn from the recent crisis.
It is not enough to explain complex concepts to the reader; the reader must want to understand them. If the concepts are very complex, it should be vital for the reader to understand them.
Original text (eng.)
It's never enough to explain complicated things to a reader; the reader needs first to want to know about them. If the thing is seriously complicated, the reader must very badly want to know about it
Michael Bury noted that the film only told about a small part of the global problem. Financial columnist Holman Jenkins deeply criticized the picture, noting that large banks had so-called “toxic” mortgage assets, only about 2% of the total portfolio, and these assets alone were not enough to deal such a blow to the system. The myopia depicted in the picture of the media, which, having entered into an agreement with banks, did not notice the impending disaster, does not correspond to reality. The Wall Street Journal and others have been reporting on the inflating bubble since 2004. Forbes columnist Steve Danning, arguing with colleagues, noted the high reliability of the film, well-placed accents. Films like these raise vigilance and draw attention to what used to be overshadowed.
Notes (edit)
- Anne Thompson. REVIEW: "The Big Short" Is Smart Expose of Financial Meltdown(English). Indiewire... Penske Business Media, LLC.11 December 2015. Date of treatment November 9, 2016.
- The Big Short (2015)(English). Box Office Mojo... IMDb. Date of treatment January 30, 2016.
Even if you have watched the film of the same name, I strongly advise you to read this book. How did a handful of outsider visionaries capitalize on a mortgage crisis that no one believed in? If you are interested in the answer to the question, for what reasons, in fact, there was the most destructive financial crisis in the United States, then it is before you. In his book, financial journalist Michael Lewis talks about how the relentless pursuit of enrichment led to a trap, and successful financiers, brokers and analysts did not even notice how they fell into it. Only a small number of professionals have been able to figure out what is happening and take advantage of the situation to their personal advantage. It is curious that all these visionaries were distinguished by a complex character, and their career path did not develop in a straightforward manner. Cynicism in them was strangely combined with sincerity; they did not take the opinions of recognized experts on faith and constantly asked uncomfortable questions. The portraits of these “outsiders”, the description of their decisions and actions, constitute the outline of the book. The author does not adhere to chronology, making excursions into history and explaining the work of financial instruments. Michael Lewis is a financial journalist and author of several bestselling books including Moneyball, Liar's Poker and The Flash Boys. In the late 1980s, he worked as a trader at Salomon Brothers. I recommend this fascinating and in-depth study for those readers whose professional activities are related to finance, and those who are simply interested in knowing how money is made in the stock market.
An intractable analyst. Steve Eisman is one of the very few people who not only foresaw the onset of the 2008 financial crisis, but also managed to capitalize on it. Eisman grew up in New York and graduated with honors from the University of Pennsylvania and Harvard Law School. Quickly disillusioned with a career as a lawyer, he joined Oppenheimer as a financial analyst in the early 1990s. At the time, no one on Wall Street really listened to analysts. One thing was expected of them - conclusions that would suit everyone. But Eisman believed that he had the right to say what he thought. Very soon, the fame of an analyst was entrenched for him, whose conclusions necessarily lead to turmoil in the market. He knew how to make a fuss and go against other people's opinions, was distinguished by his arrogance, rudeness and cockiness.
In 2002, when Eisman worked as an analyst at the large hedge fund Chilton Investment, he came across the statements of the Household Finance Corporation. This company specialized in mortgage refinancing. Eisman found out that she was cheating on borrowers. Household offered to take out a mortgage loan for 15 years at 7%, but in reality the interest rate was about 12.5%. Eisman tried to disseminate this information as widely as possible through the media, public organizations and officials. As a result, Household had to resort to an out-of-court settlement of the conflict, paying a $ 484 million fine. About a year later, the company was sold to the British bank HSBC for $ 15.5 billion. The head of Household made $ 100 million on the deal. This story changed Eisman's worldview. From a republican, he began to gradually turn into a democrat, and in the work of the banking system - to see the desire of bankers to cash in on ordinary citizens. In 2004, Eisman resigned and founded a hedge fund at Morgan Stanley "For a share of the remuneration, Morgan Stanley provided him with an office, furniture and assistants, that is, everything except money."
“Who, before the casino caught himself, managed to realize that the roulette wheel began to spin with a predictable result. Who else on the sidelines of the modern financial system saw the broken cogs of its mechanism”
Give out and sell
By 2005, the subprime mortgage industry was booming. The volume of bonds secured by such loans has increased this year to half a trillion dollars. This complex financial business was supported by poor borrowers. Many of them had no real opportunity to pay off their debts. But Wall Street financiers believed it would have little impact. Even if some of the borrowers turn out to be insolvent, lenders do not bear significant risks, since real estate, against which loans are issued, grows in value.
“From a social point of view, the slow and possibly unfair collapse of the multibillion-dollar bond market was a disaster. From a hedge fund perspective, it was a once-in-a-lifetime opportunity. ”
Chasing the number of loans issued, financiers cast aside doubts about their quality. Instead of giving loans only to solvent borrowers, they adopted another principle “You can lend, just don't keep loans on your balance sheet”. That is, with the help of investment banks, these loans were immediately converted into bonds, which were then purchased by investors. Long Beach Savings Bank was the first to introduce such a model. She quickly gained popularity. A special company, B&C mortgage, was even created, whose activities were limited to the issuance and subsequent sale of loans. This company was subsequently acquired by Lehman Brothers.
To understand what happened, you need to remember that since the 1980s, it was not stocks at all, but bonds, that is, debt securities, that brought the lion's share of income to Wall Street bankers. Bonds have proven to be a more efficient and less regulated financial instrument. Most people do not understand this business, but when mortgage bonds began to bring in real money, the complexity of this business only added to its attractiveness.
“Even in the summer of 2006, when house prices began to fall, very few people saw the unsightly facts, reacted to them and, one might say, saw an old witch in the features of a young beautiful girl.”
Debt Towers
Trading in bonds backed by low-quality mortgage loans was virtually inaccessible, not only for ordinary citizens, but also for regulators. Greed, incompetence and fear made her possible. And this structure was assembled, or, as Steve Eisman later called it, a hellish machine, was from various ingenious financial instruments. These included, for example, CDO - securities backed by debt obligations. In essence, they masked the risk posed by low-quality loans.
“The market for“ synthetic ”securities has removed all restrictions on the amount of risk associated with the issuance of low-quality mortgage loans. To bet on a billion, you no longer needed real mortgages worth a billion dollars. All that was required was the one who wanted to take the opposite position in the deal ”.
The creation of CDO looked like this. Imagine that a mortgage bond is a tower of many mortgages. The higher the floor, the less risk, but less profitability. From a hundred of these towers you take one floor, and from these hundred floors (mostly the lowest, that is, low-quality, with a BBB rating), build another tower. Investment bank Goldman Sachs has invented a great way to reduce perceived risks and presented this new tower of the lowest quality bonds as a “diversified portfolio of assets”. And the rating agencies, which Goldman Sachs and other banks paid well for the grade they wanted, defied common sense to assign 80% of this new modular tower an AAA rating. Goldman Sachs went further - created an even more confusing tool that neither investors nor synthetic CDO rating agencies could understand. Behind these securities "there was nothing but default swaps."
One-eyed in the "land of the blind"
Another investor who noticed the disaster was approaching was Michael Barry. He worked as a doctor, but at some point he became interested in studying the mechanisms of the stock market. Barry created Scion Capital, which quickly became a very successful financial company.
"The mechanism that turned pure lead into an alloy of 80% gold and 20% lead took the remaining lead and also turned it 80% gold."
Barry was incredibly attentive and creative in working with information. He was looking for what others did not notice. He paid special attention to stocks, which he called “ugh-investments”. For example, the mention of Avant! Corporation Barry stumbled across the Internet while looking for litigation that might suggest an investment idea to him. Avant! was engaged in software development, and she was accused of stealing someone else's program code. The director of the company, having pleaded guilty, ended up behind bars. Avant! had to pay huge fines, and its share price fell from $ 12 to $ 2. Barry has bought a large stake in Avant! at a low price, and then demanded reforms in the company. As a result, when its share price exceeded $ 22, he made good money. Barry's acquaintances considered the story with Avant! a classic example of a typical transaction for him.
“During a dark and strange period from early February to June 2007, the subprime mortgage market was like a giant balloon held off the ground by a dozen large Wall Street firms.”
But Barry's greatest triumph was his short-run on low-quality mortgages. In 2004, he began to study them closely. Soon the imperfection of the system for issuing such loans became obvious to Barry. He realized that a crisis in the real estate market was inevitable, and at the moment when it came, there would be an opportunity to make good money. Barry began buying credit default swaps on subprime mortgage bonds.
In essence, default swaps were an insurance policy. Suppose you buy a $ 100 million default swap in a large company’s bonds. Its term is 10 years, and each year you have to pay insurance premiums in the amount of, say, $ 200,000. If this company defaults on its bond obligations within 10 years, then you earn 100 million. They will be paid to you by the seller of the default swap. If the company nevertheless fulfills its obligations on its bonds, then you lose $ 2 million - the amount of insurance premiums for all 10 years.
"We prepared for Armageddon," says Eisman, "but deep down we feared what if Armageddon never came."
Barry counted on the fact that the worst borrowers, who are at the bottom of the pyramid, will not be able to pay off their debts. This ultimately happened, providing him with a huge jackpot. Barry fit perfectly into the small circle of people who understood the work of the hellish machine. He was a loner, avoiding people, including because in childhood due to illness, he lost an eye. The absence of an eye, Barry believed, both narrowed his field of vision and allowed him to look at the problem more broadly. His main oddities were an acute sensitivity to injustice and a habit of always being extremely frank.
“The most influential and highest paid financiers have been completely discredited; without government intervention, they would all lose their jobs. Nevertheless, these same financiers used the government for their own enrichment ”.
The infernal machine picks up speed
In January 2007, Steve Eisman attended the annual Low-Grade Securities Conference in Las Vegas. The conference allowed him to understand many important things. At one of the dinners, Eisman met Vin Chau, an active player in the CDO market. Chau made a fortune buying AAA-rated CDOs backed by BBB-rated mortgage bonds. Why did he, who undoubtedly knew the true value of these securities, bought them? Just Chau earned on the volumes. Moreover, he hoped that the number of “junk” CDOs on the market would increase all the time, which would allow him to earn even more.
Eisman's other discovery concerned rating agencies such as Moody’s and S&P. At the conference, Eisman and his partners noticed for the first time how incompetent people who work for rating agencies are. They had neither the talent nor the information. Many of the employees of the rating agencies had no idea about the risks that they had to manage. They were distinguished by an amazing naivety, a complete lack of interest and a desire to spend as little time at work as possible. They didn’t even know about the catastrophe that was about to break out.
"How to make people feel wealthier with low wages. Give them cheap loans."
After the conference, Eisman was finally convinced that Wall Street, and especially the bond market, was in a much worse state than he had imagined. Greed and extraneous interests have completely taken over the market. He was out of control and was now doomed.
"Success in an investment is determined by the correct price paid for the risk."
Star trader
In addition to pessimists like Eisman or Barry, there were other people in the market who realized that you could make very good money buying insurance for low-quality mortgages. One of them was Howie Hubler, a star trader at Morgan Stanley. Hubler was not well-mannered. If someone began to reasonably challenge his decisions, then he could easily send such an opponent to hell. In 2004, his department brought the bank 400 million in profit, and by mid-2006 - almost a billion.
Fearing the departure of Hubler, who was no longer satisfied with the job of a simple trader, Morgan Stanley management suggested that he create and lead his own trading group. If it succeeded, it could turn into a separate investment firm, half of which would belong to Habler. Among other things, his group had to deal with CDO with low-quality collateral. By January 2007, Hubler had acquired more than $ 16 billion worth of CDOs. These securities seemed to him of high quality, although they, of course, were not. When the crisis hit, about 40% of Habler's securities were completely devalued.
“Bond sellers can say and do whatever they want without reporting to any regulator. Bond traders can use inside information without fear of being grabbed by the hand. ”
Hubler knew that sooner or later he would find himself in a crisis situation, but he underestimated the possible scale of the losses. Ironically, Morgan Stanley deceived itself. It was this investment bank that convinced the rating agencies to treat consumer loans in the same way as corporate loans. Rating agencies began giving top marks to mortgage-backed bonds issued to insolvent borrowers. And Hubler and his colleagues believed in these assessments. As one Morgan Stanley risk manager commented, “It's one thing to bet on red or black, knowing you are betting on red or black. And it’s quite another to bet on some kind of red and not understand it. ” Nevertheless, no one was tormented by remorse about this.
It's nobody's fault
The catastrophe was approaching gradually. Mortgage bonds took a long time to depreciate. First, the borrower was required to pay an unbearable amount, then the bankruptcy procedure began, after which the property of the insolvent borrower was put up for sale. All this took several months. The condition of mortgage bonds was like a slow but dangerous disease. Therefore, the financial crisis that forced Bear Stearns out of the market and forced the government to come to the aid of insurance company AIG was just the beginning.
Eisman, Barry and a small number of investors emerged victorious from the situation. Vin Chau's CDO management business went downhill, but he himself managed to make millions. Hubler broke all Wall Street records in losses incurred by his employer, but he increased his personal fortune by millions of dollars. Like the directors of financial institutions deemed “too big to fail,” neither Chau nor Hubler bore any personal responsibility for their actions. Hence, many novice leaders could conclude that they do not punish anyone for incompetent decisions.
“There are more assholes than crooks, but the latter are in a higher position” (Vincent [Vinnie] Daniel, accountant on Stephen Eisman's team).
After the crisis subsided, theories arose that banks were simply faced with a crisis of confidence, but in fact they did not need government support. More realistic researchers have linked the 2008 crisis to practices that emerged in the 1980s after the creation of the first CDOs. Another reason for this was the tendency on Wall Street to transform the form of ownership, financial partnership firms went public. The consequences of any erroneous decisions were thus shifted from a small group of partners to the shoulders of shareholders. In a broader sense, the cause of the crisis was greed, not only of bankers, but also of investors.
