Listen, open the darn Fed window. He has no idea how bad it is out there, he has no idea!
Listen, open the darn Fed window. He has no idea how bad it is out there, he has no idea!

He has no idea!
He has no idea!

-Cramer...
-Cramer...

I have talked to the heads of almost every single one of these firms in the last 72 hours and he has no idea
I have talked to the heads of almost every single one of these firms in the last 72 hours and he has no idea

what it's like out there, none!
what it's like out there, none!

And Bill Poole has no idea what it's like out there!
And Bill Poole has no idea what it's like out there!

My people have been in this game for 25 years! And they are losing their jobs and these firms are gonna go out of business
My people have been in this game for 25 years! And they are losing their jobs and these firms are gonna go out of business

And he's nuts, they're nuts! They know nothing!
And he's nuts, they're nuts! They know nothing!

You may be old enough to remember exactly how bad fiscal year 2008 was for America.
You may be old enough to remember exactly how bad fiscal year 2008 was for America.

If so, you were probably one of eight million people that lost their jobs as a result.
If so, you were probably one of eight million people that lost their jobs as a result.

But if you're like me and you were too young at the time to understand what was going on,
But if you're like me and you were too young at the time to understand what was going on,

allow me to explain exactly what happened and why.
allow me to explain exactly what happened and why.

A little finance 101 to get us started. When an organization needs to raise money, one of the ways it does so is by issuing bonds to investors.
A little finance 101 to get us started. When an organization needs to raise money, one of the ways it does so is by issuing bonds to investors.

Bonds are a lot like their title infers,
Bonds are a lot like their title infers,

they are a contract to pay a lump sum at a predetermined date, along with any and all
they are a contract to pay a lump sum at a predetermined date, along with any and all

recurring interest or coupon payments over the life of the bond.
recurring interest or coupon payments over the life of the bond.

Unlike stocks, the value of your bond does not decrease based on the value of the company.
Unlike stocks, the value of your bond does not decrease based on the value of the company.

The bond is exactly that - a bond between two parties. Because of this, bonds are
The bond is exactly that - a bond between two parties. Because of this, bonds are

generally seen as safer investments. So in the late nineteen seventies, Lewis Ranieri
generally seen as safer investments. So in the late nineteen seventies, Lewis Ranieri

came up with the idea of a mortgage-backed security.
came up with the idea of a mortgage-backed security.

But what is a mortgage-backed security? Well, let's dissect this quick. So the bank issues
But what is a mortgage-backed security? Well, let's dissect this quick. So the bank issues

mortgages but these mortgages have a perceived risk of the customers
mortgages but these mortgages have a perceived risk of the customers

defaulting on the payments. The bank doesn't want to take on the risk
defaulting on the payments. The bank doesn't want to take on the risk

involved in these mortgages, so it gathers up hundreds of mortgages and sells them to
involved in these mortgages, so it gathers up hundreds of mortgages and sells them to

a trenche. A tranche is essentially a pool of like-investments. So this tranche takes
a trenche. A tranche is essentially a pool of like-investments. So this tranche takes

in all of these mortgage loan payments and is in business. The tranche in turn issues bonds
in all of these mortgage loan payments and is in business. The tranche in turn issues bonds

leveraged against the income provided by the mortgage payments. So you and I and even
leveraged against the income provided by the mortgage payments. So you and I and even

the banks can buy these bonds that are sold by the trenche. In fact, a lot of
the banks can buy these bonds that are sold by the trenche. In fact, a lot of

pensions bought into these bonds because they have a high return with relatively low risk
pensions bought into these bonds because they have a high return with relatively low risk

because it's.. a mortgage.. who the hell doesn't pay their mortgage? However, the banks
because it's.. a mortgage.. who the hell doesn't pay their mortgage? However, the banks

doubled down on these bonds because they received a commission for not only
doubled down on these bonds because they received a commission for not only

selling the mortgages to the trances, but they also received the benefit of buying
selling the mortgages to the trances, but they also received the benefit of buying

the bonds leveraged off of these same mortgages.
the bonds leveraged off of these same mortgages.

The banks won big time and took on none of the risk because if some of the mortgages
The banks won big time and took on none of the risk because if some of the mortgages

didn't get paid - the bond still got paid. But if the bond still gets paid, how did
didn't get paid - the bond still got paid. But if the bond still gets paid, how did

these mortgage-backed securities cause the economy to go into a deep recession?
these mortgage-backed securities cause the economy to go into a deep recession?

Well, because the company can go out of business and default on its creditors,
Well, because the company can go out of business and default on its creditors,

there is some risk involved. To measure the degree of risk involved in the
there is some risk involved. To measure the degree of risk involved in the

purchase of a certain bond, there are rating agencies such as the Standard and Poor's and
purchase of a certain bond, there are rating agencies such as the Standard and Poor's and

Moody's. Each of these agencies rate the amount of risk involved in each
Moody's. Each of these agencies rate the amount of risk involved in each

investment based on an alphabetical system, where a AAA-rated bond is a
investment based on an alphabetical system, where a AAA-rated bond is a

significantly safer investment than a C-rated bond - which is commonly known as a
significantly safer investment than a C-rated bond - which is commonly known as a

junk bond. So, because these huge banks were incentivized issue more mortgages
junk bond. So, because these huge banks were incentivized issue more mortgages

to in turn sell to trenches and buy securities off of, they started unscrupulously
to in turn sell to trenches and buy securities off of, they started unscrupulously

issuing more mortgages - mortgages that were issued in great numbers to
issuing more mortgages - mortgages that were issued in great numbers to

people with shitty to no credit scores. Mortgages that were unlikely to be paid.
people with shitty to no credit scores. Mortgages that were unlikely to be paid.

At this point, anyone could get a mortgage. Even the high school dropout living off
At this point, anyone could get a mortgage. Even the high school dropout living off

of welfare. This availability caused housing prices to go up because the
of welfare. This availability caused housing prices to go up because the

house was virtually certain to be paid for by the bank issuing the mortgage.
house was virtually certain to be paid for by the bank issuing the mortgage.

And you might be thinking, "well, so what? Wouldn't the S&P or other rating agencies still give
And you might be thinking, "well, so what? Wouldn't the S&P or other rating agencies still give

those tranches a 'C' rating?" In a perfect world that's exactly how it would work.
those tranches a 'C' rating?" In a perfect world that's exactly how it would work.

But not in the world of investment banking. Initially, the bonds would be ascribed a
But not in the world of investment banking. Initially, the bonds would be ascribed a

'C' rating and wouldn't sell. So what do the banks do? They take the bonds that don't sell and they
'C' rating and wouldn't sell. So what do the banks do? They take the bonds that don't sell and they

pile them up in a portfolio that rating agencies deemed to be diversified
pile them up in a portfolio that rating agencies deemed to be diversified

enough to receive a AAA-rated rating. See where the problem lied? In 2007 alone,
enough to receive a AAA-rated rating. See where the problem lied? In 2007 alone,

$500b in housing bonds were sold. As these mortgages
$500b in housing bonds were sold. As these mortgages

continued being issued to people who were unable to afford the premiums, the
continued being issued to people who were unable to afford the premiums, the

default rates increased. In 2006, the default rate was 1%. In 2007, it
default rates increased. In 2006, the default rate was 1%. In 2007, it

was 4%. The default rate only had to reach 8% for the entire housing
was 4%. The default rate only had to reach 8% for the entire housing

market in the United States to collapse in a chain reaction. And in 2008, that's
market in the United States to collapse in a chain reaction. And in 2008, that's

exactly what happened.
exactly what happened.

So what did our protagonists do? They shorted the bonds. A short position, or
So what did our protagonists do? They shorted the bonds. A short position, or

short, is a sale of a borrowed security, commodity, or currency, with the
short, is a sale of a borrowed security, commodity, or currency, with the

expectation of the asset falling in value. In the Big Short, Michael Burry does
expectation of the asset falling in value. In the Big Short, Michael Burry does

this with mortgage-backed securities. Michael goes into a series of banks and
this with mortgage-backed securities. Michael goes into a series of banks and

ask to borrow a billion dollars in mortgage bonds with a short position,
ask to borrow a billion dollars in mortgage bonds with a short position,

asserting that he believes that the bond is going to decline in value - meaning that
asserting that he believes that the bond is going to decline in value - meaning that

the housing market is going to stumble or collapse.
the housing market is going to stumble or collapse.

How a short position works, is that party a borrows a billion dollars worth of bonds
How a short position works, is that party a borrows a billion dollars worth of bonds

from party B and sells them immediately on the market. In the future,
from party B and sells them immediately on the market. In the future,

Michael is expected to return the borrowed bonds by repurchasing them at the future
Michael is expected to return the borrowed bonds by repurchasing them at the future

value which is expected to be lower. When this happens, Michael keeps the
value which is expected to be lower. When this happens, Michael keeps the

difference. The common consensus is that the housing market has been the
difference. The common consensus is that the housing market has been the

strongest investment for the past 30 years, and it is beyond foolish to bet
strongest investment for the past 30 years, and it is beyond foolish to bet

against. However, Wall St is greedy and will take advantage of "foolishness"
against. However, Wall St is greedy and will take advantage of "foolishness"

when given the chance. To sweeten the deal, Michael requests a contract in
when given the chance. To sweeten the deal, Michael requests a contract in

payment in the form of a credit default swap. A credit default swap is a
payment in the form of a credit default swap. A credit default swap is a

financial tool available for those who want to purchase insurance on an investment.
financial tool available for those who want to purchase insurance on an investment.

How it works is that party A buys a bond issued by party B. Party A, feeling
How it works is that party A buys a bond issued by party B. Party A, feeling

uncertain about whether party B will default on the payment of the bond or not,
uncertain about whether party B will default on the payment of the bond or not,

can offer to buy a credit default swap from an insurance company, party C.
can offer to buy a credit default swap from an insurance company, party C.

So Michael takes all of the investment pool he owns and puts it into purchasing
So Michael takes all of the investment pool he owns and puts it into purchasing

mortgage-backed securities and corresponding credit default swaps.
mortgage-backed securities and corresponding credit default swaps.

From 2006 to 2008, when millions upon millions of Americans defaulted on their
From 2006 to 2008, when millions upon millions of Americans defaulted on their

mortgages, this caused the tranches to subsequently default on their payments
mortgages, this caused the tranches to subsequently default on their payments

of the bonds. As you remember from earlier, these were awesome investments
of the bonds. As you remember from earlier, these were awesome investments

at the time. And trillions of dollars, trillions, went into the purchase of
at the time. And trillions of dollars, trillions, went into the purchase of

these bonds and their derivatives. So in 2008, when the roof caved in,
these bonds and their derivatives. So in 2008, when the roof caved in,

Michael Burry walked away with a personal profit of $100m.
Michael Burry walked away with a personal profit of $100m.

Well everyone, I hope you enjoyed this explanation of The Big Short and I hope
Well everyone, I hope you enjoyed this explanation of The Big Short and I hope

it makes a little bit more sense to you now. In closing, I'd like to share with
it makes a little bit more sense to you now. In closing, I'd like to share with

you one of my favorite scenes from the movie, which I think really hits home.
you one of my favorite scenes from the movie, which I think really hits home.

For the opposing view, Mr. Baum.
For the opposing view, Mr. Baum.

I gotta stand for this.
I gotta stand for this.

Okay, hi. My firm's thesis is pretty simple, Wall St. took a good idea, Lewis Renierie's
Okay, hi. My firm's thesis is pretty simple, Wall St. took a good idea, Lewis Renierie's

mortgage bond, and turned it into an atomic bomb
mortgage bond, and turned it into an atomic bomb

of fraud and stupidity that is on his way to decimating the world economy.
of fraud and stupidity that is on his way to decimating the world economy.

- How do you really feel? - I'm glad you still have a sense of humor. I wouldn't if I were you.
- How do you really feel? - I'm glad you still have a sense of humor. I wouldn't if I were you.

Now, anyone who knows me knows that I have no problem telling someone they're wrong.
Now, anyone who knows me knows that I have no problem telling someone they're wrong.

But for the first time in my life, it's not so enjoyable.
But for the first time in my life, it's not so enjoyable.

We live in an era of fraud in America.
We live in an era of fraud in America.

Not just in banking, but in government, education, religion, food, even baseball.
Not just in banking, but in government, education, religion, food, even baseball.

What bothers me isn't that fraud is not nice
What bothers me isn't that fraud is not nice

or that fraud is mean. It's that, for
or that fraud is mean. It's that, for

fifteen thousand years, fraud and short-sighting thinking have never ever worked.
fifteen thousand years, fraud and short-sighting thinking have never ever worked.

Not once.
Not once.

Eventually, people get caught. Things go south. When the hell did we forget all of that?
Eventually, people get caught. Things go south. When the hell did we forget all of that?

I thought we were better than this, I really did. And the fact that we're not doesn't make me feel alright and
I thought we were better than this, I really did. And the fact that we're not doesn't make me feel alright and

superior. It makes me feel sad.
superior. It makes me feel sad.

And as fun as it is to watch pompus, dumb Wall Streeters be wildly wrong - and you are wrong, sir - I just know that at the end of the day,
And as fun as it is to watch pompus, dumb Wall Streeters be wildly wrong - and you are wrong, sir - I just know that at the end of the day,

average people are going to be the ones that are gonna have to pay for all of this.
average people are going to be the ones that are gonna have to pay for all of this.

Because they always, always do. That's my two cents. Thank-you.
Because they always, always do. That's my two cents. Thank-you.

Does our bull have a response?
Does our bull have a response?

Only that in the entire history of Wall St, no investment bank has ever failed unless caught in criminal activities.
Only that in the entire history of Wall St, no investment bank has ever failed unless caught in criminal activities.

So, yes, I stand by my Bear Stearns optimism.
So, yes, I stand by my Bear Stearns optimism.

- Mr. Miller, I'm sorry, quick question. From the time you guys started talking, Bear Stearns' stock has fallen
- Mr. Miller, I'm sorry, quick question. From the time you guys started talking, Bear Stearns' stock has fallen

more than 38%. Would you still buy more?
more than 38%. Would you still buy more?

(Nervously) Yeah, sure, of course I'd buy more, why not?
(Nervously) Yeah, sure, of course I'd buy more, why not?

- Boom.
- Boom.