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The Big Short

Jonathan Hinshaw - Sunday, January 03, 2016

So we saw a movie we lived thru, The Big Short, starring Steve Carell (The Office, 40 Year Old Virgin), Brad Pitt (Fight Club, Moneybag), Ryan Gosling (Drive, Place Beyond the Pines), Christian Bale (Dark Knight, American Psycho), and Marisa Tomei (Lincoln Lawyer, The Wrestler).  It is actually three separate stories that converge with the collapse of the economy in 2008. 

Christian Bale is a doctor in Florida who has turned into a financial guy with a large portfolio he manages.  He is somewhat eccentric, listens to hard rock all day, shorts and no shoes, he has absolute authority over what he buys and sells.  He figures out we are headed for an opportunity with mortgage backed portfolios, around 2007.  So he visits banks betting against the housing market, they are happy to take his money.  he starts with 50 million, buy the time he has hit several he is all in, about 1.2 Billion at risk.  At the same time, Ryan Gosling is betting the same way, except he is using Deutschebank money to bet short.  He misdials a call to a fund manager, ends up with Steve Carell's fund on the phone, pitches them, they start to see something is going on.  Steve is a good sized fund manager who has lost his brother a while back, he has never gotten over it.  Goes to counseling, but never really gets engaged.  Marisa Tomei is his wife, she wants him to get better, but cannot help him if he won't take the help.  

Steve sends a couple of guys down to Florida to see if there really is a bubble, walk thru a subdivision of nice homes, turns out many are for sale, and several homeowners have just walked away.  He also interviews a couple of loan salesmen, who are young, inexperienced, and making lots of money selling loans to people who don't read the documents.  They don't care if the applicant can afford the loan, in fact, they don't think about anything more than selling that loan.  Steve talks to one of their customers, a stripper who just happens to have several loans on several properties.  He asks her if she is aware that in 2007 the adjustable rate mortgages she has will adjust to higher percentages.  She is clueless.   

Steve sees that we really are in for a bloodbath, he starts a champaign to buy short on the housing financing market.  A couple of small fund managers are in the lobby of Chase Bank, trying to get an appointment to sell/buy big funds.  Turns out they don't have a needed credential to do that, but in the lobby they pick up a copy of Christian Bale's prospectus he pitched to the bank.  They get the fever, still need the certification, remember a neighbor they had met in Boulder, CO.  Brad Pitt was a top trader, retired, but still has connections.  They call him up, make a quick pitch, he agrees to help.     

Around 2007 the default rate on mortgages begins to go south, but the bonds don't drop in value, in fact, many increase in value.  Which makes for sleepless nights and lots of phone calls for our short players.  Seems like it will never turn, but you know it does.  One of the surprising things the film does, it is sort of a documentary.  Every now and then one of the main players will look at the camera, share the next steps to the audience.  So it is unusual, to say the least.  We liked the movie, give it 3 Bond issues.  



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