# The Big Short



## Tyler Durden (21 February 2016)

First of all, for those who have seen the movie, what did you think?

I had already seen Margin Call and The Company Men, so I must admit I was getting a little tired of the topic and not as eager to watch the movie as I should've been. However, I found that I really enjoyed it and had some laughs throughout, and keep trying to re-watch some of the scenes in youtube (haven't found much so far). My favourite scenes have to be where Mark Baum asks his blunt questions during the conference, and when he has dinner with Mr Chau in Vegas. Loved those two scenes lol.

Ok, now to some specific questions:

1. Michael Burry predicted the crash of the housing market by analysing some raw data. Is this type of data available for the public, and if so, where would we be able to find it? If not, is there something reliable and close to it?

2. How did Burry know that the adjustable rates would kick in from 2007 onwards?

3. Does the US still have private mortgage bonds that aren't guaranteed by the government? What about Australia?

4. From what I understand of the use of credit default swaps, were they just created to allow parties to bet on a particular thing? So for example (if I had the money), could I just approach a bank and bet on some outcome, and if they deemed it in their favour and thought I was an idiot, they'd draft an agreement for it? It doesn't actually add any value to anything does it, other than each party thinking they can make some money out of it?

Hope we can get some good discussion going about the movie and the related topics.


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## luutzu (21 February 2016)

Tyler Durden said:


> First of all, for those who have seen the movie, what did you think?
> 
> I had already seen Margin Call and The Company Men, so I must admit I was getting a little tired of the topic and not as eager to watch the movie as I should've been. However, I found that I really enjoyed it and had some laughs throughout, and keep trying to re-watch some of the scenes in youtube (haven't found much so far). My favourite scenes have to be where Mark Baum asks his blunt questions during the conference, and when he has dinner with Mr Chau in Vegas. Loved those two scenes lol.
> 
> ...




Should also read the book. More detail, more rounded characters, and Michael Lewis is a very talented story teller.

From the book and what I got out of it, I could be wrong but that never stops me before   So to your questions:

1. Data Burry analysed were publicly available. It's just the prospectuses of the loans consisting the portfolio that's been packaged.

2. It's written in the prospectus. I guess it's also widely available if you call around and see how the industry lend at the time. From what I gathered, the lenders offered sweetheart deal at low rates for first two years. After that variable rates will kick in... and when borrowers can't repay they can refinance their mortgage - as long as the property market goes up, and remortgaged at a higher rate. 

Good for lenders as they earn higher rates, good for borrowers as they can keep borrowing, i guess.

3. No idea.

4. You'd need a lot of money. Lewis' book was saying something in the region of hundreds of millions for those investment bank to talk to you. 

I thought I know what Burry and all the Short was about. Will need to look into it again.


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## DeepState (21 February 2016)

Tyler Durden said:


> My favourite scenes have to be where Mark Baum asks his blunt questions during the conference, and when he has dinner with Mr Chau in Vegas. Loved those two scenes lol.




Mr Chau was my favourite. Ahhh, the stretch limo paid for by Merrill in the mid 2000s.  Those really were the halcyon days.  Too good to last for sure.



Tyler Durden said:


> Ok, now to some specific questions:
> 
> 1. Michael Burry predicted the crash of the housing market by analysing some raw data. Is this type of data available for the public, and if so, where would we be able to find it? If not, is there something reliable and close to it?
> 
> ...




1. Fund managers get it from the Mr Chau equivalents for each of the structures. These are insto instruments for the most part.

2. Because the standard clauses were for resets after three years.  Any dinner table conversation during a property boom would have revealed such terms.  This chart shows the number of sub-prime ARMs on the books.  See the massive acceleration in 2004?  Put two and two together and you can see a disaster unfolding...with the benefit of hindsight.  This should have been somewhat obvioius, but it wasn't.  




3. Yes, there are ABS/RMBS issued without guarantee.

4. If there is profit in doing so, a bank will write you a swap.  If you want to bet on the snow depth in Central Park near the Zoo entrance, you can.  Arguably, it can be used to hedge risk...like crop farmers selling forward.  Sometimes it can be used for speculation.  


The film was alright.  Not as good as Margin Call, which was a very clever synthesis of the facts into a rolling fiction.  I was strongly reminded of what was happening at the time.  It was incredibly disorienting.  At every step of the way: origination, packaging, securitisation sales, acquisition of securities, pricing... there were issues.  Individually, no big problem.  No man in the volcano inside Goldman Sachs, pulling the strings.  It was the combination that was extremely toxic. 

Burry found something that now looks obvious.  The other guys got it by fluke, not having had any idea of the concept before getting lucky.  FirstPoint did not even understand the market when they got set with Deutsche.

Morgan Stanley, Merrill...all took enormous losses.  The traders of the Morgan Stanley book bet on the BBB tranches deteriorating but had to take a huge position in the top tranche to pay for it....and got it wrong.  These were the guys ultimately at the center of the slice and dice, arranging for ways to finance this stuff. Taking fees for securitisation. They did not have to take this risk on balance sheet as 'skin in the game' requirements were not present. The people in the middle did not know how bad it could become.  Neither did the regulators trying to bail it out.

What is seriously scary is that it is a reminder of how little we really understand things like markets.  They are wild.  Many steps have been taken to reduce the risk of a repeat.  It has possibly helped, but really strange things have also happened which increase risk (gates on money market funds, function of the repo market...).

I caught up with a guy from Morgan Stanley last week.  We got talking about the film. He told me that FirstPoint did not exactly have a great time after that and was aggressively spun out of Morgan Stanley in subsequent years.

Burry closed the firm and did something else.  Despite making a big win, he hated the experience.  He survived by relying on a tricky clause and locking up the fund.  Otherwise he would have been liquidated before being proved right.  Even he was seriously lucky to profit.


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## ggkfc (18 May 2016)

Been thinking about how one gets about conducting similar profitable strategies in Australia

1. Shorting Banks and Insurers (it's hard because you need to time)
2. Buying low priced stocks/assets post crash (need great skill at when to catch the falling knife)
3. Buying inverse ETFs???


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## notting (18 May 2016)

If rate rises, US election and Brexit all get back to normal, some may try to front run a fall in gold price and stocks usually go about far far harder.
It seems everyone's long it.
And when everyone is on it, there is no one left to get on.
In a situation like that, it usually doesn't hurt to give them a big feed when they're really getting exited!


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## So_Cynical (19 May 2016)

Tyler Durden said:


> First of all, for those who have seen the movie, what did you think?




15 minutes into the movie i wanted to read the book because it was obvious that they were dumbing everything down for a middle of the road American audience...the book is brilliant.



Tyler Durden said:


> 2. How did Burry know that the adjustable rates would kick in from 2007 onwards?.




He looked, read the prospectus or the PDS, can't remember...READ THE BOOK...he spent weeks pouring over the paperwork, 200 page documents that no one was reading.

-----------------------------------

The biggest take away for me was the fact that if you looked with open eyes the blow up was incredibly obvious, the housing bonds were clearly bad if you bothered to look, looking inside the bonds was simply not done by many.

Strikes me that incredible opportunities abound if you look where no one else is looking, even the micro cap end of the aussie market abounds with incredible and obvious potential if one looks, HZR at IPO stage for example, looked like an absolute certainty for me.

I can only assume that not to many got in at IPO because few bothered to look.


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## Tyler Durden (19 May 2016)

Here's my favourite scene


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## So_Cynical (20 May 2016)

Tyler Durden said:


> Here's my favourite scene





Dumb scene, dumb movie..Selena Gomez FFS.


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## notting (20 May 2016)

This is my favorite scene from the live show just before the GFC ~


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## Junior (20 May 2016)

notting said:


> This is my favorite scene from the live show just before the GFC ~





Yes!  I watch this regularly, brings me back to those dark days.  

Switching sky business on first thing every morning to see how much further the DOW had fallen overnight.


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## CanOz (14 June 2016)

The whole movie is on YouTube now....


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## Joules MM1 (22 June 2016)

> Leading off it, an aquarium-cum-smoking room was added,
> where guests puffed on their
> cigars and admired the passing carp.






everyone likes a tasty story

"A Bitter Pill To Swallow" 
	

		
			
		

		
	











> This Underwater Ballroom Is A Legacy Of The Victorian Era Bernie Madoff




....................
	

		
			
		

		
	






> Whitaker Wright was the Victorian equivalent of Bernie Madoff. Throughout his life,
> Wright swindled gullible investors out millions of dollars that he dumped into losing ventures.
> Eventually, Wright was caught and prosecuted for his crimes, but not before he built one of
> the most stunning estates in the whole of England at the time.
> Witley Park, a 32-room mansion built by Wright with his ill gotten gains in 1896.









> A giant, domed, ballroom located 40 feet beneath the surface of the lake. The ballroom was
> originally used a smoking room by Wright and his guests.
> The dome is made from glass and steel, and has stood the test of time.






> To create this underwater ballroom, Wright hired 600 workmen to clear to dig out
> the four artificial lakes on his property. The workmen also leveled and cleared away
> any hills that were thought to "obscure" the view from the mansion.





> Sadly, the underwater ballroom is all that's left of Witley Park.
> The mansion itself burned down in 1952.









> As for Whitaker Wright, his financial schemes eventually caught up with him.
> He was arrested and found guilty of massive fraud in 1904. The court sentenced him
> to seven years of penal servitude. However, instead of paying his debt to society,
> Wright ingested a cyanide capsule shortly after the verdict and died within minutes.




http://www.justfor-fun.com/post/this-underwater-ballroom-is-a-legacy-of-the-victorian-era.html
http://www.dailymail.co.uk/news/art...y-Whitaker-Wright-Britains-bizarre-folly.html


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## basilio (8 December 2020)

Where are the big shopping Malls  going in the US ? Do they have a future ? Are they viable ? 

*Could you make a killing by betting against the survival of shopping malls ?*
What would happen if you tried this stunt ?

*The $2 Billion Mall Rats*

The inside story of a black sheep hedge fund, their massive bet that shopping malls would crash, and how they proved Wall Street wrong. 





						The $2 Billion Mall Rats
					

The inside story of a black sheep hedge fund, a massive bet that shopping malls would crash, and how they proved Wall Street wrong.




					www.esquire.com


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