The Big Short

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The Big Short: Inside the Doomsday Machine
Big-short-inside-the-doomsday-machine.jpg
Hardcover edition
Author Michael Lewis
LanguageEnglish
Genre Financial thriller
Publisher W. W. Norton & Company
Publication date
March 15, 2010
Publication placeUnited States
Media typePrint (hardcover)
Pages320 pp.
ISBN 0-393-07223-1
OCLC 567188407
LC Class HC106.83 L5 2010
Preceded byHome Game 
Followed by Boomerang  

The Big Short: Inside the Doomsday Machine is a nonfiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s. It was released on March 15, 2010, by W. W. Norton & Company. It spent 28 weeks on The New York Times best-seller list, and was the basis for the 2015 film of the same name.

Contents

Summary

The Big Short describes several of the main players in the creation of the credit default swap market who sought to bet against the collateralized debt obligation (CDO) bubble and thus ended up profiting from the financial crisis of 2007–08. It also highlights the eccentric natures of people who bet against the market or otherwise "go against the grain."

The book follows people who believed the housing bubble was going to burst—including Meredith Whitney, who predicted the demise of Citigroup and Bear Stearns; Steve Eisman, an outspoken hedge fund manager; Greg Lippmann, a Deutsche Bank trader; Eugene Xu, a quantitative analyst who created the first CDO market by matching buyers and sellers; the founders of Cornwall Capital, who started a hedge fund in their garage with $110,000 and built it into $120 million when the market crashed; and Michael Burry, an ex-neurologist who created Scion Capital. [1]

It also highlights some of the people involved in the biggest losses in the market crash: Wing Chau, Merrill's $300 million mezzanine CDO manager; Howie Hubler, known as the person who lost $9 billion in one trade, the fifth-largest single loss in history; [2] and Joseph Cassano's AIG Financial Products, which suffered more than $99 billion in losses. [3]

Reception

The Big Short was shortlisted for the 2010 Financial Times and Goldman Sachs Business Book of the Year Award. It spent 28 weeks on The New York Times ' non-fiction bestseller list. [4] It also received the 2011 Robert F. Kennedy Center for Justice and Human Rights Book Award. [5]

Film

Paramount acquired the rights to The Big Short: Inside the Doomsday Machine in 2013. On March 24, 2014, it was announced that Adam McKay would direct the adaptation. [6] On January 13, 2015, Variety reported that Brad Pitt, Christian Bale and Ryan Gosling were set to star in the film, and that Pitt would produce it with McKay and Dede Gardner. Steve Carell then joined. [7] Plan B Entertainment financed the film with Paramount handling the distribution rights.

Production started March 23, 2015 [8] in New Orleans, LA. [9] The film was released on December 11, 2015, and was met with critical acclaim, winning the Academy Award for Best Adapted Screenplay, and receiving a nomination for the Academy Award for Best Picture.

See also

Related Research Articles

In finance, a credit derivative refers to any one of "various instruments and techniques designed to separate and then transfer the credit risk" or the risk of an event of default of a corporate or sovereign borrower, transferring it to an entity other than the lender or debtholder.

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The Goldman Sachs Group, Inc. is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many international financial centers. Goldman Sachs is the second largest investment bank in the world by revenue and is ranked 55th on the Fortune 500 list of the largest United States corporations by total revenue. In Forbes Global 2000 2023, Goldman Sachs ranked 34th. It is considered a systemically important financial institution by the Financial Stability Board.

A collateralized debt obligation (CDO) is a type of structured asset-backed security (ABS). Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing mortgage-backed securities (MBS). Like other private label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns. Distinctively, CDO credit risk is typically assessed based on a probability of default (PD) derived from ratings on those bonds or assets.

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A synthetic CDO is a variation of a CDO that generally uses credit default swaps and other derivatives to obtain its investment goals. As such, it is a complex derivative financial security sometimes described as a bet on the performance of other mortgage products, rather than a real mortgage security. The value and payment stream of a synthetic CDO is derived not from cash assets, like mortgages or credit card payments – as in the case of a regular or "cash" CDO—but from premiums paying for credit default swap "insurance" on the possibility of default of some defined set of "reference" securities—based on cash assets. The insurance-buying "counterparties" may own the "reference" securities and be managing the risk of their default, or may be speculators who've calculated that the securities will default.

This article provides background information regarding the subprime mortgage crisis. It discusses subprime lending, foreclosures, risk types, and mechanisms through which various entities involved were affected by the crisis.

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Maiden Lane Transactions refers to three limited liability companies created by the Federal Reserve Bank of New York in 2008 as financial vehicles to facilitate transactions involving three entities: the former Bear Stearns company as the first entity, the lending division of the former American International Group (AIG) as the second, and the former AIG's credit default swap division as the third. The name Maiden Lane was taken from the street on the north side of the Federal Reserve Bank's Manhattan location.

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<span class="mw-page-title-main">2007–2008 financial crisis</span> Worldwide economic crisis

The 2007–2008 financial crisis, or the global financial crisis (GFC), was the most severe worldwide economic crisis since the Great Depression. Predatory lending in the form of subprime mortgages targeting low-income homebuyers, excessive risk-taking by global financial institutions, a continuous buildup of toxic assets within banks, and the bursting of the United States housing bubble culminated in a "perfect storm", which led to the Great Recession.

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<i>The Big Short</i> (film) 2015 American biographical drama film directed by Adam McKay

The Big Short is a 2015 American biographical crime comedy-drama film directed and co-written by Adam McKay. Co-written by Charles Randolph, it is based on the 2010 book The Big Short: Inside the Doomsday Machine by Michael Lewis showing how the 2007–2008 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.

Howard Hubler III, known as Howie Hubler, is an American former Morgan Stanley bond trader who is best known for his role in the fifth largest trading loss in history. He made a successful short trade in risky subprime mortgages in the U.S., but to fund his trade he sold insurance on AAA-rated mortgage-backed collateralized debt obligations that market analysts considered less risky, but also turned out to be worthless, resulting in a massive net loss on his trades. His actions while handling credit default swaps (CDS) directly resulted in the loss of roughly US$9 billion during the 2007–08 financial crisis—the largest single trading loss in Wall Street history when adjusted for inflation, and the largest at the time. The only bigger single losses in nominal terms came in 2012 with Bruno Iksil and in 2021 when Bill Hwang lost around $10 billion on total return swaps.

<span class="mw-page-title-main">Goldman Sachs controversies</span>

Goldman Sachs, an investment bank, has been the subject of controversies. The company has been criticized for lack of ethical standards, working with dictatorial regimes, close relationships with the U.S. federal government via a "revolving door" of former employees, and driving up prices of commodities through futures speculation. It has also been criticized by its employees for 100-hour work weeks, high levels of employee dissatisfaction among first-year analysts, abusive treatment by superiors, a lack of mental health resources, and extremely high levels of stress in the workplace leading to physical discomfort.

References

  1. Lewis, Michael, Betting on the Blind Side", Vanity Fair , April 2010
  2. "Stories on Howie Hubler" Archived August 23, 2010, at the Wayback Machine , The New York Observer
  3. "U.S. offers more funds to help fraught AIG: $30 billion more in loans; $61.7 billion lost in the fourth quarter", NBC News, March 2, 2009.
  4. "The New York Times Bestseller List" (PDF). The New York Times. October 10, 2010. Retrieved January 19, 2016.
  5. "RFK Center Book Awards".
  6. Dave McNary (March 24, 2014). "'Anchorman's' Adam McKay Boards Financial Drama". Variety . Retrieved January 14, 2015.
  7. Borys Kit (January 14, 2015). "Steve Carell in Talks to Join Christian Bale, Ryan Gosling in 'The Big Short'". The Hollywood Reporter . Retrieved January 14, 2015.
  8. Justin Kroll (January 13, 2015). "Brad Pitt, Christian Bale and Ryan Gosling to Star in Financial Drama 'The Big Short' (EXCLUSIVE)". Variety . Retrieved January 14, 2015.
  9. "Brad Pitt Film "The Big Short" Casting Call in LA". Auditions Free. March 5, 2015. Retrieved March 6, 2015.