'The Big Short' Explains the Global Financial Crisis

'The Big Short' Explains the Global Financial Crisis

In 2008, two big Wall Street firms, or companies that trade money and investments, collapsed². 

The U.S. economy plunged³ into “the Great Recession.” That meant the economy was weak and many people lost money. It was the worst financial downturn since the 1930s.

In the U.S. alone, 8 million people lost their jobs. Six million people lost their homes. And trillions of dollars in consumer wealth was lost.

The financial crisis spread globally. From 2008 to 2012, economies around the world slowed. Unemployment rose. Stock markets fell, and international trade declined.

But how did all this happen?

Michael Lewis, the best-selling author of several books about Wall Street, explains how the financial crisis came about in a book called “The Big Short.” The New York Times calls it “one of the best business books of the past two decades.”

In finance, “to short” an investment means to bet that it will go down in value. There is a person on the other side of the trade who bets that the investment will go up in value.

“The Big Short” tells the story of four outsiders in the world of high finance who predict the credit and housing bubble collapse¹ before anyone else does. They “short” the securities involved in the bubble and end up making a great fortune.

“The Big Short” has been made into a new movie by Adam McKay. It features outstanding performances by Academy Award-winning actors Christian⁴ Bale, Brad Pitt, Melissa Leo and Marisa Tomei.

The film points out that banking⁵ used to be a boring industry in the 1970s. But then in the early 1990s, Lewie Ranieri, a Wall Street banker, created what are called “mortgage-backed securities” (MBS).

Wall Street firms put thousands of home mortgages into one basket of securities and sold them to investors⁶ and banks.

These were considered safe investments, since homeowners historically had rarely failed to pay back their home loans. But the mortgage bankers lent money to people who weren’t financially sound enough to buy a house. So more and more risky⁷ mortgages were put in that basket of securities.

Yet the rating agencies — who are supposed to be objective and ethical⁸ -- gave top ratings to these securities. And the regulators at the U.S. Securities and Exchange Commission (SEC) seemed unaware⁹ of the impending¹⁰ crisis.

“The Big Short” reveals the fraud of Wall Street firms, such as Bear Stearns and Lehman Brothers. It also shows the greed of the mortgage bankers and real estate industry. They were quick to offer loans to people without making sure they could pay them back.

The movie is fast-paced and riveting¹². It explores what made the central characters act the way they did. For example, Dr. Michael Burry, a hedge fund manager in San Jose, California, was one of the first to see the housing bubble and credit collapse.

Burry had a glass eye, which made him socially awkward and isolated¹³ from others. But because he felt like an outsider, he was comfortable challenging Wall Street about mortgage-backed securities.   

Mark Baum, another central character in the film, lost his brother to suicide and was tortured by that loss. He also had a strong sense of moral outrage¹⁴. He wanted to expose the truth about mortgage-backed securities. 

The movie is brilliant at making complex concepts easy to understand. This is done with visual tools and by celebrities¹⁵ giving easy examples. For example, one scene shows Selena Gomez, the famous Latina singer and actress. She is shown gambling¹⁶ in Las Vegas with a crowd of fans surrounding her.

Gomez explains to the audience that some fans will bet that she will lose. Others will bet that she will win. The fans who bet correctly are like the people who successfully bet that mortgage-backed securities would fail. They made money when the securities collapsed.

In another scene, Anthony Bourdain, the well-known chef and television host, is shown cooking in the kitchen of a fancy restaurant. He takes three-day old fish, which has not sold, and throws it into a stew¹⁷ to sell to customers.

The customers do not know that they are getting fish that may be rotten. Bourdain says this is similar to what Wall Street did with risky mortgages as securities. They sold these securities to banks around the world, claiming they were fine products.

Vivid imagery makes the movie entertaining. But it also explains complex financial concepts. 

The film closes on a serious note. In the wake of the debacle, the bankers who created the crisis were not punished. Instead, they received a huge bailout from the U.S. taxpayers¹⁸. They used the money to pay themselves large bonuses. Only one of them went to jail.

And some Wall Street firms are still selling a product that is similar to a mortgage-backed security.

"The Big Short" tackles an important chapter in the history of global finance. 

Words in This Story

downturn – n. a situation in which something (such as business or economic activity) decreases or becomes worse — usually singular

outsider – n. a person who does not belong to or is not accepted as part of a particular group or organization

mortgage – n. a legal agreement in which a person borrows money to buy property (such as a house) and pays back the money over a period of years

security – n. a document showing that someone owns or has invested in a company, organization, etc.

objective – adj. based on facts rather than feelings or opinions

ethical – adj. following accepted rules of behavior : morally right and good

impending – adj. happening or likely to happen soon

fraud – n. the crime of using dishonest methods to take something valuable from another person

greed – n. a selfish desire to have more of something (especially money)

rivet¹¹ – v. to attract and hold all of someone's attention 

hedge fund – noun phrase a group of investors who take financial risks together in order to try to earn a lot of money

outrage – n. extreme anger : a strong feeling of unhappiness because of something bad, hurtful, or morally wrong

gamble – v. to play a game in which you can win or lose money or possessions : to bet money or other valuable things

debacle – n. a great disaster or complete failure

bailout – n. the act of saving or rescuing something (such as a business) from money problems

bonus – n. an extra amount of money that is given to an employee

tackle – v.  to deal with (something difficult)

1 collapse   

vi.累倒；昏倒；倒塌；塌陷

参考例句：

• The country's economy is on the verge of collapse.国家的经济已到了崩溃的边缘。
• The engineer made a complete diagnosis of the bridge's collapse.工程师对桥的倒塌做了一次彻底的调查分析。

2 collapsed   

adj.倒塌的

参考例句：

• Jack collapsed in agony on the floor. 杰克十分痛苦地瘫倒在地板上。
• The roof collapsed under the weight of snow. 房顶在雪的重压下突然坍塌下来。

3 plunged   

v.颠簸( plunge的过去式和过去分词 )；暴跌；骤降；突降

参考例句：

• The train derailed and plunged into the river. 火车脱轨栽进了河里。
• She lost her balance and plunged 100 feet to her death. 她没有站稳，从100英尺的高处跌下摔死了。

4 Christian   

adj.基督教徒的；n.基督教徒

参考例句：

• They always addressed each other by their Christian name.他们总是以教名互相称呼。
• His mother is a sincere Christian.他母亲是个虔诚的基督教徒。

5 banking   

n.银行业，银行学，金融业

参考例句：

• John is launching his son on a career in banking.约翰打算让儿子在银行界谋一个新职位。
• He possesses an extensive knowledge of banking.他具有广博的银行业务知识。

6 investors   

n.投资者，出资者( investor的名词复数 )

参考例句：

• a con man who bilked investors out of millions of dollars 诈取投资者几百万元的骗子
• a cash bonanza for investors 投资者的赚钱机会

7 risky   

adj.有风险的，冒险的

参考例句：

• It may be risky but we will chance it anyhow.这可能有危险，但我们无论如何要冒一冒险。
• He is well aware how risky this investment is.他心里对这项投资的风险十分清楚。

8 ethical   

adj.伦理的，道德的，合乎道德的

参考例句：

• It is necessary to get the youth to have a high ethical concept.必须使青年具有高度的道德观念。
• It was a debate which aroused fervent ethical arguments.那是一场引发强烈的伦理道德争论的辩论。

9 unaware   

a.不知道的，未意识到的

参考例句：

• They were unaware that war was near. 他们不知道战争即将爆发。
• I was unaware of the man's presence. 我没有察觉到那人在场。

10 impending   

a.imminent, about to come or happen

参考例句：

• Against a background of impending famine, heavy fighting took place. 即将发生饥荒之时，严重的战乱爆发了。
• The king convoke parliament to cope with the impending danger. 国王召开国会以应付迫近眉睫的危险。

11 rivet   

n.铆钉；vt.铆接，铆牢；集中(目光或注意力)

参考例句：

• They were taught how to bore rivet holes in the sides of ships.有人教他们如何在船的舷侧钻铆孔。
• The rivet heads are in good condition and without abrasion.铆钉钉头状况良好，并无过度磨损。

12 riveting   

adj.动听的，令人着迷的，完全吸引某人注意力的；n.铆接（法）

参考例句：

• I find snooker riveting though I don't play myself.虽然我自己不打斯诺克，但是我觉得它挺令人着迷。
• To my amazement,I found it riveting.但令我惊讶的是，我发现它的吸引人处。

13 isolated   

adj.与世隔绝的

参考例句：

• His bad behaviour was just an isolated incident. 他的不良行为只是个别事件。
• Patients with the disease should be isolated. 这种病的患者应予以隔离。

14 outrage   

n.暴行，侮辱，愤怒；vt.凌辱，激怒

参考例句：

• When he heard the news he reacted with a sense of outrage.他得悉此事时义愤填膺。
• We should never forget the outrage committed by the Japanese invaders.我们永远都不应该忘记日本侵略者犯下的暴行。

15 celebrities   

n.（尤指娱乐界的）名人( celebrity的名词复数 )；名流；名声；名誉

参考例句：

• He only invited A-list celebrities to his parties. 他只邀请头等名流参加他的聚会。
• a TV chat show full of B-list celebrities 由众多二流人物参加的电视访谈节目

16 gambling   

n.赌博；投机

参考例句：

• They have won a lot of money through gambling.他们赌博赢了很多钱。
• The men have been gambling away all night.那些人赌了整整一夜。

17 stew   

n.炖汤，焖，烦恼；v.炖汤，焖，忧虑

参考例句：

• The stew must be boiled up before serving.炖肉必须煮熟才能上桌。
• There's no need to get in a stew.没有必要烦恼。

18 taxpayers   

纳税人，纳税的机构( taxpayer的名词复数 )

参考例句：

• Finance for education comes from taxpayers. 教育经费来自纳税人。
• She was declaiming against the waste of the taxpayers' money. 她慷慨陈词猛烈抨击对纳税人金钱的浪费。