The Big Short (film)

The Big Short is a 2015 American biographical comedy drama film directed by Adam McKay from a screenplay by McKay and Charles Randolph. Based on the 2010 book of the same name by Michael Lewis, it depicts how the 2008 financial crisis was triggered by the United States housing bubble. The film stars Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt, with John Magaro, Finn Wittrock, Hamish Linklater, Rafe Spall, Jeremy Strong, and Marisa Tomei in supporting roles.

The Big Short began a limited release in the United States on December 11, 2015, followed by a wide release on December 23 by Paramount Pictures. A critical and commercial success, the film grossed $133 million on a $50 million budget and received acclaim for the performances of the cast (particularly those of Bale and Carell), McKay's direction, editing, and the screenplay. The film won the Academy Award for Best Adapted Screenplay in addition to nominations for Best Picture, Best Director, Best Supporting Actor (Bale), and Best Film Editing.

The film consists of three separate but concurrent stories, loosely connected by their actions in the years leading up to the 2008 financial crisis.

In 2005, eccentric hedge fund manager Michael Burry discovers that the United States housing market, based on high-risk subprime loans, is extremely unstable. Anticipating the market's collapse in the second quarter of 2007, as interest rates would rise from adjustable-rate mortgages, he proposes to create a credit default swap (CDS) market for mortgage-backed securities (MBSs), allowing him to bet against, or short, MBSs for profit.

His long-term bet, exceeding $1 billion, is accepted by major investment and commercial banks but requires paying substantial monthly premiums. This sparks his main client, Lawrence Fields, to accuse him of "wasting" capital while many clients demand that he reverse and sell, but Burry refuses. Under pressure, he eventually restricts withdrawals, angering investors, and Fields sues Burry. Eventually, the 2008 financial crisis began and his fund's value increases by 489% with an overall profit (even allowing for the massive premiums) of over $2.69 billion, with Fields alone receiving $489 million.

Jared Vennett (based on Greg Lippmann), the executive in charge of global asset-backed securities trading at Deutsche Bank, is one of the first bankers to understand Burry's analysis, learning from one of the bankers who sold Burry an early CDS. Using his quant to verify that Burry is most likely correct, he decides to enter the market and purchase CDSs himself. However, his large monthly premiums result in him looking to reduce the size of his position by selling CDSs. A misplaced phone call alerts FrontPoint Partners hedge fund manager Mark Baum (based on Steve Eisman), who is motivated to buy swaps from Vennett due to his low regard for banks' ethics and business models. Vennett explains that the packaging of subprime loans into collateralized debt obligations (CDOs) rated AAA will guarantee their eventual collapse.

Conducting a field investigation in South Florida, the FrontPoint team discovers that mortgage brokers are profiting by selling their mortgage deals to Wall Street banks, which pay higher margins for the riskier mortgages, creating the bubble. This knowledge prompts the FrontPoint team to buy CDSs from Vennett.

In early 2007, as these loans begin to default, CDO prices somehow rise and ratings agencies refuse to downgrade the bond ratings. Baum discovers conflicts of interest and dishonesty amongst the credit rating agencies from an acquaintance at Standard & Poor's. Vennett invites the team to the American Securitization Forum in Las Vegas, where Baum learns from a CDO manager that the market for insuring mortgage bonds, including "synthetic CDOs" which are bets in favor of the faulty mortgage bonds, is significantly larger than the market for the mortgage loans themselves, leading a horrified Baum to realize the entire world economy is set to collapse.