The big short

padington

It's a great film, saw it last night. Possibly a bit of a game changer. I would imagine more heads will have to roll now.

Generali

http://www.pragcap.com/shorting-the-big-short/

The Big Short is getting rave reviews from both critics and audiences. While I enjoyed the movie I did feel as though it played up to two very powerful biases that overshadowed the quality of the film making. Specifically, the movie played up survivorship and political bias. As a result I came away from the film thinking that it gave the viewer what the viewer thinks they want to hear as opposed to the truth about the financial crisis.


Survivorship bias is the tendency to focus excessively on the participants of a catastrophic event who survived the event and conclude that these survivors were necessarily smarter than those who didn’t survive the event. This is probably the most common bias found in active fund management and usually the most destructive. I think there’s no doubt that the people who predicted the crisis were highly intelligent and skilled investors. But the movie also shows how close many of these fund managers came to failing because their timing was early. That is, while their macro thesis was dead right, the timing of the trade was precariously close to being wrong. This has played out time and time again in the financial markets over the course of history where a fund manager has a thesis that is very smart, but the timing is very wrong.

I've not seen it yet I confess.

Generali

Cheers.

I'm very interested to watch it from a professional POV to see how the fiction matches up to the reality.

I've not worked on the fixed income side much as I prefer equities: fixed income guys get stressed at a loss of a few basis points (10,000ths) whereas equity is a bit ballsier than that.

It's why the MBS/CDO thing was so mad. There should have been no way at all that fixed income losses should have been able to be so big.

Electrum

Your welcome Gen,

(Text removed by MSE Forum Team)

Generali, what do you think about the debt and derivative bubbles in the world, do you think they are larger or smaller than in 2008?

michaels

Was MBS a bubble as in 'miss-priced risk' or a fraud as in misrepresented risk?

antrobus

michaels wrote: »

Was MBS a bubble as in 'miss-priced risk' or a fraud as in misrepresented risk?

Both.

If a lot of people are 'accidentally' miss-pricing risk, then it provides the opportunity for some people to deliberately do so.

Thrugelmir

padington wrote: »

It's a great film, saw it last night. Possibly a bit of a game changer. I would imagine more heads will have to roll now.

All the information has been in the public domain for years. Loads of books published on the topic. Film was good in that it explained a complex topic in very simple laymans terms. I.E. made a complex topic into a Ladybird book.

What really came across to me was the arrogance and self interest of the Investment Banking community. More ammunition to the argument that such activity provides no real social or economic benefit to the world.

michaels

Thrugelmir wrote: »

All the information has been in the public domain for years. Loads of books published on the topic. Film was good in that it explained a complex topic in very simple laymans terms. I.E. made a complex topic into a Ladybird book.

What really came across to me was the arrogance and self interest of the Investment Banking community. More ammunition to the argument that such activity provides no real social or economic benefit to the world.

Surely it is like iPhones, no one is forced to buy these products....

purch

michaels wrote: »

Surely it is like iPhones, no one is forced to buy these products....

Not exactly.

You buy and i-phone to make a statement, or because you are easily led.

The products peddled by the Banks are bought to make yourself a load of money.

padington

michaels wrote: »

Surely it is like iPhones, no one is forced to buy these products....

What products, the mortgages sold with no due diligence, the bonds that hid the truth or the virtual bets that virtually hid the truth ?


... Or the people that bought into the idea the rating agencies weren't bent.


... Or the trust that merrol lynch and co weren't insuring their bets with the idea that the public would pay for their idiocy.


...or the trust that regulators weren't in bed, literally with the banks they were regulating ?

mwpt

Haven't seen the movie, read the book last year. Michael Lewis is popular but he does make money selling books, so bear that in mind. Much of his stuff is blatantly personal view rather than just fact reporting. For example, in another book, he pretty much condemns all Greeks as lazy good for nothings, without actually saying it in so many words. But I don't think there is too much you could disagree with fact wise in The Big Short.

Maybe my favourite book around this sort of subject that I really do recommend is _Too Big To Fail_ by Andrew Sorkin. Not so much for the insight it gives (it does) but how well it's actually written. The reader feels as though they're part of the action at times, very tense. Well researched and well written.