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BOOK YOUR FREE STRATEGY SESSION NOW >>The movie "The Big Short" deals with a topic of enormous interest to those of us who are involved in trading and anyone who wants to learn more about the great financial crisis of 2008.
This movie is instrumental in understanding the origins of the great real estate bubble and the failure of Lehman Brothers.
Watch the video now to discover:
-How the biggest real estate bubble in history was born
-Why banks granted mortgages even to those who couldn't repay them
-What are CDOs, and the role they played in the crisis
In short, a video not to be missed!! 🍿 🍿
P.S. Scenes from "The Big Short," (©2015, directed by Adam McKay, starring Steve Carell and Christian Bale, and distributed by Paramount Pictures) are only shown here for educational purposes. Unger Academy doesn’t intend to violate the copyright law.
Introduzione
Hey everyone, one of the coaches at the Unger Academy here, and today in the wake of our video about the movie "Trading Places," which was a really good success, we are going to comment together on some of the scenes that most concern us as traders in the movie "The Big Short."
This movie is about the housing crisis of 2008, which was mainly caused by the greed of the big American investment banks, including Lehman Brothers and Bear Stearns, to name just two, which were then not bailed out by the U.S. government, like other banks, but went bankrupt and left an entire generation stranded.
The outsiders who found out the bubble
March.
Bear Stearns was in a death spiral
and the Fed brokered its sale.
It's been called the
worst financial crisis in modern times.
Certainly the largest financial disaster
in decades in this country,
and perhaps the end of an era
in American business.
Our financial institutions are strong.
But there were some who saw it coming.
While the whole world
was having a big old party,
a few outsiders and weirdos
saw what no one else could.
These outsiders saw the giant lie
at the heart of the economy.
And they saw it by doing something
the rest of the suckers
never thought to do.
They looked.
Among these outsiders who were watching was Michael Burri, a fund manager in California, Scium Capital, so not exactly an outsider, who discovered that most of the holders of these mortgages were defaulting and not paying the installments. So the banks themselves had non-performing loans that were difficult to recover.
95...
That's 30 days late... Sixty days late...
hey pay on time...
These FICO scores...
Michael, how are you, guy?
Lawrence, I found
something really interesting.
Great, Michael. Whenever you
find something interesting,
we all tend to make money.
What stock are you valuing?
No, no, no, no. No stocks.
I want to short the housing market.
Really?
But most of these outsiders were not listened to. Many preferred to continue not to believe the warnings of Michael and others in those years. And we all know how that turned out later in 2008.
Even Mark Baum, whose real name is Steve Eisman, the fund manager at the time, and his team, in talking to some investment bank brokers, realized that the biggest real estate bubble in history was underway.
How many loans do you write each month?
About 60.
Yeah.
What was it four years ago?
Ten...
Maybe 15.
Yeah, I was a bartender. Now I own a boat.
You own a...
So how many of these are
adjustable-rate mortgages?
Well, most.
Oh, yeah.
Yeah, I'd say about 90%.
The bonuses on those
skyrocketed a few years ago.
Do people have any idea
what they are buying?
I focus on
the immigrants, you know.
Once they find out they're getting a home,
they sign where you tell them to sign.
Don't ask questions.
Don't understand the rates.
Here in this scene, it’s also clear how the banks, out of greed, because their fees for these mortgages were so high, were selling more and more mortgages, even to those who unfortunately couldn't afford it but were still willing to go into debt.
This securitization, which is the conversion of multiple bonds or mortgages in general into a single product, led to the creation of new financial instruments, such as CDOs, which were nothing more than unsold mortgages that were repackaged, given a triple A, the highest rating, by the rating agencies, and then sold on the secondary market.
The CDOs
A collateralized debt obligation.
It's important to understand
because it's what allowed
a housing crisis to become
a nationwide economic disaster.
Here's world-famous chef
Anthony Bourdain to explain.
Okay, I'm a chef on a Sunday afternoon
setting the menu at a big restaurant.
I ordered my fish on Friday,
which is the mortgage bond
that Michael Burry shorted.
But some of the fresh fish doesn't sell.
I don't know why. Maybe it just came out
halibut has the intelligence of a dolphin.
So, what am I going to do?
Throw all this unsold fish,
which is the BBB level of the bond,
in the garbage and take the loss?
No way.
Being the crafty
and morally onerous chef that I am,
whatever crappy levels
of the bond I don't sell,
I throw into a seafood stew.
See, it's not old fish.
It's a whole new thing!
And the best part is
they're eating 3-day-old halibut.
That is a CDO.
The beginning of the crisis
When it became known that the big investment banks were involved in this mortgage run and that they held many of these CDOs, it triggered a general panic reaction in the markets that drove these banks into a severe liquidity crisis or, in the case of Bear Stearns and Lehman Brothers, even bankruptcy.
Every time I hit
"refresh" it's dropping, man.
Only that, in the entire history
of Wall Street,
no investment bank has ever failed
unless caught in criminal activities.
So, yes, I stand by
my Bear Stearns optimism.
Mr. Miller, I'm sorry.
Quick question.
From the time you guys started talking,
Bear Stearns stock has
fallen more than 38%.
Would you still buy more?
Yeah, sure, of course
I'd buy more. Why not?
Boom.
Conclusion
And finally, unfortunately, the outsiders in our film weren’t wrong about the impending crisis. The U.S. government intervened, but unfortunately, only after the damage was already enormous.
Banks that were considered safe, low-risk investments before 2008 turned out to be fraudulent, and that changed the way that we all think about investment banking today.
I hope you enjoyed the video. If anyone among you is interested in the world of systematic trading, I recommend you please go and click on the link provided in the description of this video.
From there, you can watch a free presentation by Andrea Unger, or get our best-selling book by just covering the shipping costs, or even book a free call with a member of our team.
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Thank you so much for watching and will see you next time! Bye-bye!
We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.
BOOK YOUR FREE STRATEGY SESSION NOW >>Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.
I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems.
In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.
Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.
Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.
