Monetary & Banking systems worldwide are primarily based on “trust”. As ordinary people and even businesses implicitly trust the banks and expect our governments to be monitoring them for upholding this trust at all times. When that “trust” is shaken even a bit then the entire system comes crashing down.
The US-led financial meltdown in 2007/2008 had a ripple effect worldwide to cause untold misery to millions. It is well known that it all started with a crisis of payments on the subprime loans. Sub Prime are loans made to people who have no/low credit score and are believed to lack the ability to service their loan commitments. Common sense dictates loans to these people should be provided after due consideration and lenders (banks) should limit their exposure to these “poor” quality loan books. Instead in the USA, indiscriminate lending to this category was made by banks, who created complex packaging of financial instruments that did a great job of hiding the quality of underlying assets and risks associated. The increase in the quantity of these loans threatened to collapse the entire banking system.
Anyone who reads about this crisis wonders how the regulatory authorities in the USA could’ve allowed something as risky as this to happen for years. The Big Short (2015) is a film that tries to shed some light on this. Through the eyes of 3 brilliant individuals who during the years prior to the crisis were able to clearly see what was coming but unfortunately no one wanted to believe them. The huge loan books of banks in the USA were based on the premise that the underlying assets of mortgage loans which were based on real estate were inherently “safe”. The crisis proved that nothing was far from the truth. When the entire system is used by everyone involved from real estate promoters, agents, banks to customers for their selfish gains, what happens is the indiscriminate building of projects and a property bubble. The film does a good job of exposing that the underlying instability and risks were not that invisible as many believe it to be.
As a film, ‘The Big Short’ could have been made more engaging by the Director Adam McKay, in few places, it feels like a documentary; yet we can discount it given the complexity and importance of the underlying message the film does a great job of communicating.