The 2008 international banking crisis, often referred to as the subprime mortgage crisis, was a significant financial disaster that stemmed from a combination of factors leading to a collapse in the housing market and subsequent bank failures. The film "The Big Short," directed by Adam McKay, provides a dramatized account of the events leading up to the crisis, focusing on a few astute investors who saw the impending collapse and bet against the housing market. Here are the key elements of the crisis as depicted in the movie:
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Subprime Mortgages: The movie highlights how banks began issuing a large number of high-risk mortgages to borrowers with poor credit histories. These subprime mortgages were often adjustable-rate loans that had low initial payments, which later increased significantly, making it difficult for borrowers to keep up with their payments.
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Securitization: Financial institutions began bundling these mortgages into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). The film illustrates how these financial products were sold to investors, often with ratings from credit agencies that underestimated their risk. This process spread the risk throughout the financial system, masking the true dangers involved.
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Financial Deregulation: The film also touches on the lack of regulatory oversight in the financial industry. Deregulation allowed banks to engage in risky lending and trading practices without sufficient scrutiny, setting the stage for the crisis.
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Derivatives and Short Selling: The protagonists in "The Big Short," including investors like Michael Burry and Mark Baum, recognized that the housing market was unsustainable. They used credit default swaps (CDS) to bet against the sinking housing market, profiting from the eventual collapse of mortgage-backed securities.
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Rating Agencies: The film underscores the role of credit rating agencies, which gave high ratings to risky CDOs, leading investors to believe they were safe. When these securities failed, it exacerbated the crisis, as many institutions were left holding worthless assets.
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Market Collapse: As borrowers began defaulting en masse on their subprime mortgages, the housing market collapsed. The film shows how this led to significant losses for banks and investors, resulting in a liquidity crisis. Major financial institutions like Lehman Brothers went bankrupt, while others required government bailouts to survive.
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Global Impact: The crisis had a ripple effect, leading to economic downturns globally. Many countries faced severe recession, and the fallout affected millions of people, causing widespread unemployment and loss of homes.
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Lack of Accountability: "The Big Short" also highlights the lack of accountability among major financial institutions and regulatory bodies, illustrating how many of the individuals responsible for the crisis evaded responsibility while ordinary citizens faced the consequences.
Overall, the movie effectively captures the complexity of the 2008 banking crisis and explains the greedy, reckless behavior and systemic failures that led to one of the worst economic downturns in modern history.
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