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WHSName:Mrs. ButlerEconomicsThe Big ShortSynopsis: The big financial meltdown is finally getting its star turn on the big screen with the release of The Big Short. Based on Michael Lewis’s New York Times bestseller by the same title, the film tells the story of six contrarian traders who sniffed out the housing crash before virtually anyone else. Their foresight helped them make gobs of money while Wall Street institutions crumbled. Michael Burry, who is portrayed by Christian Bale in the movie, made $750 million in 2007 alone because of the bets he made.Vocabulary:Mortgage A loan that the borrower uses to buy real estate.Sub-prime mortgage - A risky mortgage loan made to someone with a relatively low credit score and insufficient income to get a conventional mortgage. Sub-prime borrowers are more likely to default (or be unable to make payments on) their mortgages.Mortgage-backed security (or MBS) - A bundle of mortgages that’s sold and traded like a bond. When you bundle a lot of mortgages, even sub-prime ones, it’s unlikely that all of them will default at the same time, so the risk associated with the bundle is thought to be relatively low. The relative risk of these bundles gets graded by ratings agencies like Standard and Poor’s and Moody’s.Collateralized debt obligation (CDO) - A bundle of mortgage-backed securities. Yes, a bundle of bundles of mortgages. There was also “CDO Squared,” which were bundles of bundles of bundles of mortgages. As you would imagine, these got so complicated that nobody really understood what the underlying value of these were. Yet in many cases they were still rated as very safe investments. Oops.Credit default swap - An insurance policy that pays off if a CDO defaults. This is how The Big Short guys bet against the real estate market.Synthetic CDO - An even more ridiculously complicated kind of CDO made up of insurance payments from a credit default swap on CDOs made up of MBSs. Got that? Unfortunately, neither did most of the people buying and selling them.1. After viewing - The Big Short:do you have a clearer understanding of the Wall Street collapse of 2008? ___________Does the movie do a good job, or a poor one, of explaining the arcane (hidden) financial devices and the ins and outs of the bond markets? _________Did you find it interesting? Or were you bored to tears?___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________2. How much did you know about financial crisis before viewing The Big Short? _______________________________________________________________________________________________________________________________________________________________3. What have you learned since that confirmed, or deviated from, your prior understanding of the events of 2008? __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________3. Where, or on whom, does the movie place blame for the events leading up to the crash? _________________________________________________________________________________________________________________________________________________________________4. What role did the rating agencies play—Moody's, Standard & Poor's, and Fitch? Were they at fault, or was the system such that they were forced to become unwilling partners? ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________5. Talk about the mortgage initiators. What role did they play? ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________6. Discuss the array of mortgages offered and how they destabilized the system. __________________________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________7. Steve Eisman, Mike Burry, and the men who ran the "garage band hedge fund" made huge fortunes off the downfall of others. Do you see them as prophetic heroes, greedy opportunists...or something else? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________8. Why did a handful of outsiders foresee what would happen with the sub primes while neither the heads of the large financial firms nor government regulators saw what was coming? Do you think it was genuine ignorance (the derivatives were simply too obscure to understand) or wilful ignorance (no one really wanted to turn off the money spigot)? ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________9. What about the risk managers for the Wall Street firms—where were they in all of this? ____________________________________________________________________________________ __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________10. Is the ending a surprise or predictable? Is the ending satisfying, or would you prefer a different ending? ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ ................
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