In my series Movies and Money, I will review movies which both entertain, but also give insights into the world of finance. You will find however, the movie world prefers to look at the underbelly of finance, because they are in the entertainment business. However, most of these movies are based on facts and will give you some understanding of what can go wrong when unscrupulous people get control of ‘other people’s money’.
The Big Short was one of this year’s (2016) success movies. It won an Academy Award for ‘Best Writing Adapted Screenplay and was nominated for ‘Best Picture’. Leading actors are Christian Bale, Ryan Gosling, and Brad Pitt.
The movie is a true story, based on a book of the same name. It tells of how a single Wall Street guru, Michael Bury recognised that a large number of sub-prime loans were in danger of defaulting. The movie takes you through the process of how this man was able to set up some derivative trading betting that the housing market would collapse. No one believed house price could ever fall and were happy to set up these trades.
You will find lots of people always predicting an imminent financial market crash of some kind. They may make the same predictions for years and eventually they are proved right. The problem is in the timing. While waiting for the ‘crash’, you may have lost lots of opportunities to make good money. So you need to be careful of the ‘doomsayers’.
Eventually, Michael Bury was proved right, and he made billions of dollars. However, he almost sent his managed funds bankrupt in the process, but he held onto his belief. The interesting thing about the movie is how, some people providing respected financial advice to the financial industry, refused to change the ratings at the appropriate time. As a result, the predicted downfall of the market was delayed, resulting in even more devastation to the housing market and institutions supporting that industry.
This is a great movie, but more importantly a great lesson in the world of finance.
Glenis Phillips SF Fin – Good Financial Reads