EDITING : 2024.4.22 월 18:51
The Gachon Herald
How Long Will It Go Up?Big Short, the story of a bubble economy
kweagle  |  g.herald1984@gmail.com
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Updated : 2021.09.09  12:15:48
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 Throughout history economic crisis have existed. They start with a bubble and can have a significant adverse effect on society as a whole. For example, in 1929 a worldwide depression was the reason for World War which killed millions of people. Japan's bubble economy in the 1980s caused real estate and stocks to crash, putting the Japanese economy through hell. So, why does a bubble economy happen? A bubble is a phenomenon in which the real estate and stock markets are rapidly rising (overheating), creating a gap between the real market and the real economy. To simplify, it means that the price of real estate and stocks increases much faster than the price of goods and the minimum wage, all of which creates a gap. The inevitable reason for a bubble is economic growth combined with a rapid increase in market liquidity. Increasing liquidity means that the central bank issues a lot of money and distributes it in the market. In 2008, the US government implemented a policy to distribute lots of money in the market so that many people can get houses even though they were at a subprime level, with their lower economic state. As a result, there was a significant bubble in the U.S. housing market.

 Before describing the movie, I want to talk about some economic vocabulary that are essential to understand this film. First, the ‘Subprime’ level is a rating of credit delinquents who cannot afford to pay off their loans. Beginning of the movie the word ‘MBS’ (house mortgage securities) is mentioned. This is a collection of rights for banks that lend money to people as collateral for housing to receive money in a few years, and make it an investment product. In the meaning of the movie title, ‘Big Short’, ‘short’ means short selling. ‘Short position’ is betting on the drop of asset prices in the future and the "long position" is betting on a rise in future asset prices. So the title of the movie "Big Short" means to bet on a crash. It is convenient to understand that ‘CDS’ (credit default swap) is a kind of insurance that makes money when the price of "MBS" drops. In addition, investment banks have gathered and grouped ‘MBS’ products not selling well, and the product is ‘CDO’(debt-securities).
 When the protagonist of the movie Michael Burry analyzes the components of the ‘MBS’, he finds out the fact that banks are offering too many loans and the predicts the collapse of housing markets. Then Michael goes around many investment banks and buys a lot of CDS. Meanwhile, the banker Jared and the investment company CEO Mark Baum find that the portion of people who are not paying their loans is increasing, a shocking fact. The fact is that loans are available for people who lied about their jobs, even for pets. They predict a crash and go to buy some CDS. But even though time passed the price of MBS did not fall. Michael and Mark could not understand why this occured and they were exhausted in paying CDS premium (an insurance fee). They realize soon that this weird phenomenon is due to banks. Banks did not want to show the weakness of MBS, they set up the level of goods ‘AAA’. As time passed the number of people who could not pay their debts rapidly increased, causing the collapse of housing markets. Michael’s company’s value increased over 4 times and people who invested in CDS goods made a lot of money. But Mike was furious about the fact that banks did not provide proper information to people and forge the information for their gain. Mike feels disillusion in the game and soon he leaves the industry. In the latter part of the movie, there is a major scene. Mike criticizes bank workers during a calling, saying, “Are you getting a call now after all selling products like trash (MBS,CDO) to people and taking a short position?”. In this way, an immoral act and the greed of banks in the housing market collapse, and it bankrupts many companies. In 2008, eight million people became unemployed and 6 million people become homeless according to aggregated statics.
 A crash can come in a moment. Recently our country’s largest stock market named ‘KOSPI’ its achieved highest point ever. We need to consider whether it is a normal situation or not. Because ordinary people lack the ability to analyze objectively the market data. The asset is obviously a bubble whose prices rise without a clear reason. Therefore, it would be better to read various reports or newspapers to make reasonable decisions rather than being swept away by the atmosphere. Besides through this movie, I want to suggest people to reconsider about the banks morality that take numerous people's money under the name of "credit".
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