Tfw you dumb down finance and economics so hard that any retard could understand it yet most people stil don't...

From the banks, they decided to make that part a Ludacris music video

>tfw you dumb down finance and economics so hard that any retard could understand it yet some /pol/ack will still call you a socialist

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>What I didn't understood is how where those crazy quirky investors making money of it.

The mortgage-backed-security itself? Or the short?

>What I didn't understood is how where those crazy quirky investors making money of it.
They were taking out insurance policies with financial organisations, in essence they were actually gambling.
Bale's character was the first one to come up with it. He saw these funds were actually built on shit by autistically digging through them all and then decided he wanted to bet against those collapsing.
Like an insurance policy he needed to pay premiums, which were sky high, but he would be paid out a huge sum in the event those funds collapsed. Until he sought to get a contract taken out they didn't exist. The banks literally wrote one up for him because they thought they would be getting free money. Remember, one woman even tells him, "this is Wall St, if you offer us free money we're going to take it."
After he took out numerous contracts with different financial organisations Ryan Gosling's character caught wind of it and thought he could get rich by finding someone to take out the same sort of contract with his organisation through him. That's why he started cold calling investors looking for people willing to take out contracts. Obviously because people thought the housing fund market was so solid they thought he was full of shit and wanted no bar of it. Steve Carrell's hedge fund worked a little differently, got curious and decided to get in on it, just like the two blokes who knew Brad Pitt did after they also learned about it.

>What I didn't understood is how where those crazy quirky investors making money of it.

I'm really good at dumbing things down, so let me have a track

1. Banks give mortgages, they're meant to make a profit
2. Sometimes they don't make a profit, so banks write a contract to sell a bundle of mortgages as bonds on the stock market or other markets. This reduces their risk incase people don't pay their mortgages, at least they got paid by selling the mortgage to someone else. It's their problem now.
3. Some smart guys realised you could bet against these bonds by creating a new security that paid out if these bonds didn't pay out, it's basically insurance.
4. The smart guys were basically acting as insurers, and when the bonds were worthless, they got paid - but instead of insuring the losers, they just collected all the winnings, cause they were smart

gg

>What I didn't understood is how where those crazy quirky investors making money of it.

Highly abstracted version is they sold the bad debt to someone else

They were able to do that because the bad debt was rated as good shit

The last part I don't know why no one talks about. The bond ratings agencies assigned a false worth to a house of cards. If things had the right price tag on them none of this would've happened

the protagonist being sad at the end is some serious bullshit

Oh I thought you meant the banks, disregard

They made money but short selling. Which is basically betting that the value of something will fall and profiting on oit.

>why didnt the free market price shit correctly

cmon man

Thanks, pals, one last question.
What does betting against mean? When you put money in the stock market I assume you're "helping out" that company. But betting against seems like some sort of gambling thing.

It's just so they can try and make a distinction between the "heroes" of the story and the villains. Same thing with Pitt's comments in Vegas.
We've been rooting for these guys for 110 minutes so they can't have us hating them for profiting of people's misfortune at the end.
I agree it's bullshit but it's just screenwriting 101 stuff.
If the movie was a little braver they wouldn't bother having it there and would leave it up to the viewer as to whether these guys were just like the banks and profiting from exploitation or were something else.

yeah you dont get into finance if youre a hugely sympathetic downie. you look for value, that means someone else is incorrectly valuing something. whether its their home or a stock, thats not for you to sit and cry over. you sit and be content you priced it correct.

are you asking how options/futures work?

Put option: I'll pay you a premium now so I'll have the right to sell asset X at a date Y for a price Z.
Call option: I'll pay a premium now so I'll have the right to buy asset X at a date Y for a price Z.

They negotiated a put option to be able to sell worthless assets at a really high price in the future. Of course those assets didn't seem worthless at the time that's why the banks accepted it.

>But betting against seems like some sort of gambling thing.
It basically is gambling.
They are paying the banks every month on the proviso that the banks will pay them out in the event the bank's funds collapse. That's why the banks keep up the ruse for so long and demand they keep paying the premiums and refuse to pay them out on the contracts despite it being obvious the funds are about to collapse. The banks just didn't want to add billions more to what they owed.

its gambling both ways, you're 'betting on' a stock, and you can 'bet against' a stock. you can make money if the stock goes up, and you can make money if the stock goes down.

investopedia.com/articles/trading/092613/difference-between-short-selling-and-put-options.asp

any other films about how money is an elaborate imaginary game everyone in the world plays?

It's kinda mind blowing to think about just how much bullshit is involved with fiat currency. It's all just make believe based on a system that allows people to pull money out of the air and is absolutely 100% destined to collapse.
I have no idea how we've let it run rampant like this, there is no way it ends well.

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It's all gambling, in a sense. Some things to consider:

1) After the initial public offering (IPO) when a company "goes public" and offers shares of stock in order to raise money, all of the buying and selling of stock is done on the secondary market. That's to say, the company itself isn't receiving the proceeds of the shares that you're buying and selling. This is most of the trading that happens in the stock market, and it doesn't really "help" the company in any tangible way.

2) The sort of financial instruments these guys were buying and selling exist in sort of a regulatory grey area. These short positions, the "bets" against a security that they were making are a type of derivative - a security that "derives" its value from something else. Usually, but not always, that "something else" is shares of a company, but in this case it was securities that were essentially bundled-together mortgages.

In either case, if you're buying normal shares of stock, or taking a "long" position, you're basically betting on the success of the company. You're making a bet that the value of the company will increase. Steve Carrell's character was taking a "short" position (which I can describe in greater detail how that works, if you'd like) which is essentially a bet that a company won't succeed. It's all betting. If you mean to say that short positions are unsporting or "mean" in some sense, then I'd agree.

youtube.com/watch?v=ZMx4HkhxY3M

Has anyone else seen this? It's fantastic

>it doesn't really "help" the company in any tangible way.
easier to obtain credit the higher the company is valued on the market.

>which I can describe in greater detail how that works, if you'd like)
Sure man, I like to hear/read from people that like to teach.

>read this whole thread and still don't understand shit
what are some movies for brainlets?

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Fair enough.

(1/2)

There's lots of different ways these kinds of derivatives can work. The film is called "The Big Short," but I don't think the film really portrays short positions, they're describing "swaps" (someone please correct me if I'm wrong.)

A short position is basically borrowed stock. Let's say you have a share of Microsoft stock worth $100, and I think that the value of Microsoft is going to go down. I'll make an agreement with you: Let me borrow the stock from you and sell it in the market. It's still technically yours, and I'll have to give it back. But remember, I think the price will go down. So I borrow that share, sell it on the market for $100. A month later, suppose the price is down to $80/share. I may decide to "cash in my chips" at this point, so I'll buy a share of Microsoft on the open market for $80 and give it back to you. This nets me a profit of $20 (less a nominal fee that we negotiate beforehand for the hassle of the exchange.) That's one model of how you can "bet against" a company by taking a "short position.

The credit default swaps that Dr. Burry and others were using are a little more tricky. But hopefully some of the tension and dialogue will make more sense once I explain it. Swap contracts usually revolve around what's called a "notional" value. It's mostly an arbitrary number, but we're creating a security out of thin air, and were consenting adults, so we can trade whatever nonsense we want, right? So, let's say I buy credit default swaps at a "notional" value of $1 billion. The terms of the contract, put simply, are that if the value of these securities that were "betting" on goes above $1 billion, I owe you money. If the value of the securities goes below $1 billion, then the bank owes ME money. The value fluctuates back and forth usually, so in a sense we're "swapping" money, thus the name.

>tfw every god damn movie has a built in excuse for why people won't like it

>what are some movies for brainlets?
Zack Snyder movies are incoherent enough and full of enough uppity symbolism that they trick dipshits into thinking incompetence is secretly genius.

Anything by Marvel™, dumbass.

>barely brushes past the politicians and policies that set everything else up to fail
>It's all the bank's fault the politicians aren't responsible at all they were just trying to make things better!

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Dr. Burry's bosses and clients were getting pissed because he bought these contracts WAY before people knew that mortgages were going to default in a big way, so the value of the securities kept going up and up, and he had to regularly cut these banks a check. (I think the movie describes these as "premiums," which are analogous to an insurance contract. It's a helpful analogy, but not technically what was happening. These payments were technically the margin or "collateral.")

The major scandal, and IMO the most telling part of the saga, is when all of the mortgages started to default, but the price of the securities didn't move. Which made no sense. Remember, these are securities that "derive" their value from something. In this case, they derived their value from the underlying mortgages. If the mortgages were worthless, then the value of the securities should've nosedived. But they didn't. They stayed put.

While this was happening, the banks were unloading all of their toxic assets, so that they wouldn't have to pay out on all of these contracts. And that's the scandal. The banks were collaborating with the ratings agencies. It was a gigantic fix. They were all lying to us, and they all knew it. And everyday Americans got screwed. And no one went to jail for any of that shit.

"The Big Short"

The problem is instead of just explaining things or having regular exposition, they pretend it’s super complicated and then have literally the worst fucking analogies that don’t actually give you an idea of what’s going on, so you feel like you don’t understand it. It’s a bad movie. The concept was dumb, and at he end they blamed suits and bankers when in reality it was a fucking bubble that popped

The whole movie is about short selling, which in its simplest form, is taking a loan out on assets, selling them immediately, then paying those assets back at a future date.

Let’s say you get a loan of 100 google stock at $100 a share. You sell it immediately and have $10,000 on loan. Google crashes to $25, but you already sold your shares, so you can repay the loan by buying 100 shares at $25 for $2,500. You just made a $7,500 profit.

That’s what Christian Bale and everyone in this movie was trying to do. Short the housing market, which crashed when no one thought it would

And instead of breaking things down into simple terms, the movie decides to have selena gomez gambling and say "It's gambling bro, too complicated for you to actually understand what it is, though"

Look up mortgage backed securities and or collateral debt obligations. It’s pretty complicated honestly but to try and generalize it:
>bank owns your homes mortgage
>bank can sell your mortgage off to other investment agencies who securitize them
>CDOs/MBS are these securities and can be purchased by investors
>they offer continuos cash flows because so do the assets they’re based on, think mortgage payments and they are also packeged into tiers that offer varying levels of risk and return

Where things get fucky is that the banks and credit rating agencies were working together, with the rating agencies giving these securities AAA ratings even though they weren’t safe, tricking investors as well as the banks giving out mortgages to people who would obviously default eventually. The interest rate was also super low around this time so everything was leveraged like crazy

But if you’re talking how the guys in the movie made money then that’s different and the user who explained shorting covered it

can someone explain what a "mortgage" is?

its a bag of sand

salty milk and coins