The Truth Behind "The Big Short"
Start writing a post
Featured

The Truth Behind "The Big Short"

Did banks intentionally create the bubble? Or reacted to them in a way that made sense—a way that made the most money.

9118
The Truth Behind "The Big Short"
i.ytimg.com

If you have not seen “The Big Short” yet, you should. It is smart, funny and extremely well made. This movie is a portrayal of a few individuals that anticipated the 2008 financial crisis. The film has been well received because of the plausible and captivating story. The movie itself had elements of a documentary including real names and a well-defined point of view. However, this documentary-like portrayal of the 2008 financial crisis bolsters misconceptions about the cause of the event.

The view expressed in the movie is that the housing market crash was caused the greed of big banks and the falsification of mortgage quality by rating agencies. While this is true to an extent, the banks were much more concerned about the bottom lines that they were trying to keep for shareholders. Before the crisis occurred, the conditions of the markets changed in two important ways: the emergence of the housing bubble and the growing movement to make the path to homeownership easier. These changes created the conditions that lead to the crisis.

From 1996 to 2006, the housing prices rose an average of 5.6 percent each year. This price increase transformed all loans, including the bad ones, into good loans. Borrowers could usually refinance or sell the house if they couldn’t pay for them and make a profit due to rising housing prices. This created attractive opportunities to banks due to the continually rising house prices and the illusion that all investments were good ones.

Another view expressed in the film is that bankers targeted low income individuals in order to make a profit. While banks did indeed target low income groups, it was not with malicious intent. In the pre-crisis period, there was as growing movement to make it easier for disadvantaged and low-income groups to own a home. Because of this, big banks were legally mandated that a percentage of the loans they had were comprised of these low income groups. This federal underwriting ensured that banks accepted certain mortgage applications that would normally be turned down.

While “The Big Short” is a good movie, it should be watched with a grain of salt. It presents the banks as evil cooperate machines that were aware of their actions and the potential consequences. In reality, this is not the case: the conditions leading up to the financial crisis are extremely complex and cannot be reduced to corporate greed.

Report this Content
Featured

That Feeling of Opening Day

What it means and What Happened

238
That Feeling of Opening Day

Baseball's Opening Day has inspired countless writers, fans, and players throughout the years. Some notable quotes we remember about this special day are:

Keep Reading... Show less
Featured

To The 'Best Friend' I Decided I Couldn't Be Friends With Anymore

Most of all, thank you for being the person who finally pushed me to choose myself.

96904
The CW / YouTube

Dear Old Friend,

Keep Reading... Show less
Lifestyle

7 Tips For Traveling

Don't miss any of these ideas to make your trip complete!

2910
7 Tips For Traveling

Whether it's a day trip, an out-of-state journey, or an experience leaving the country, here are some tried and true traveling tips.

Before any trip, we all think about what to pack and what to bring. We may have a strict itinerary, or we may have looser guidelines for what to do when. But we should also consider the following - make them goals:

Keep Reading... Show less
Featured

Writer of the Month: Hunter Johnstone

As an aspiring author, Hunter knew writing for Odyssey would be a great fit for her.

2612
Writer of the Month: Hunter Johnstone

Response writers are what make the world go round at Odyssey! Using our response button feature, they carry on our mission of sparking positive, productive conversations in a polarized world.

Keep Reading... Show less
Allison Fishman

1. Why is Wilson Hall so complicated to navigate? Even as a senior, I still get lost in Wilson. As a freshman, I was warned about the unnecessary complexity of the building, was laughed at by upperclassman for my confused looks on the first day of school and walked and rewalked the whole hall before finding my classroom. #annoying.

Keep Reading... Show less

Subscribe to Our Newsletter

Facebook Comments