Why is Big Short a financial movie worth watching N times?

In the global financial crisis in 2008, several discerning investment geniuses on Wall Street saw through the bubble illusion before the American credit storm in 2007, and made a fortune by shorting subprime CDS, becoming one of the few investment heroes who made a fortune in the financial disaster. Jared Vinett (Ryan Gosling) will become an agent of Deutsche Bank, and he can turn a $4 billion list into $3.7 billion in revenue. Michael Brea (Christian Bale) will become a one-eyed fund manager, Mark Baum (steve carell) will become a Wall Street family, and Ben Hockto (Brad Pitt) will become a retired banker of Cornwall Capital.

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The movie The Big Short, based on michael lewis's novel of the same name, is one of the most famous bestsellers after the financial crisis.

When I mentioned this film, the first sentence of Professor Sun, director of Fudan University Financial Center, was "I watched it twice". He admits that the first time he mainly looked at the plot, and the second time he understood some of the director's intentions from a professional perspective. The film's analysis of financial problems is very commendable, and the reflection caused by it is also multi-dimensional.

In the plot of the film, several groups of protagonists predicted that there would be problems with MBS (mortgage-backed securities) sooner or later before the collapse of the US real estate market, and gained returns by shorting.

In traditional thinking, bears are regarded as evildoers, and they lead to the chaos and even collapse of the market. But the film believes that the crisis is not caused by the bear, but the problem itself is there, and the bear just found the unsolved problem.

Sun said that in economics classes, teachers often tell students that speculation is a necessary mechanism for asset price discovery. Without speculation, prices will either rise unilaterally or fall unilaterally, and it is precisely because of speculation that assets can maintain their due value in the market.

From this perspective, the bear is not only an evil, but also an element that makes the financial system run healthily. As the saying goes, "flies don't bite seamless eggs", only bears with problems will "make trouble". This is related to the stock market crash of A shares last year. When the market plunged, many people pointed the finger at shorting, and short-selling tools such as stock index futures were forced to "break their hands and feet", but then people found that the market was still falling without shorting, which fully explained the problem.

Looking back, people have understood that the real reason for the stock market crash in 20 15 was to remove the high leverage of over-the-counter fund-raising, and it was the deleveraging of the real estate market that led to the US subprime mortgage crisis in 2008. In Sun's view, it was the US government and loose monetary policy that created the asset bubble game, but it made the real estate bubble blow bigger and bigger.

Yu Shao, chief economist of orient securities, said that due to the global economic and financial imbalance, all countries' funds are invested in the US bond market, which also supports the ultra-loose monetary policy of the United States to a certain extent, and the risk source is so much money gathered by the United States itself and other markets.

Innovation should spread risks, not hide them.

Of course, Wall Street is also responsible. They made finance extremely complicated and took various detours, and the primary market and the secondary market were even seriously out of touch.

Usually, the price adjustment of basic products will affect the price of derivatives, but in reality, such transmission is distorted. You must be impressed by such a plot in the film: when the American property market began to adjust, the default rate of mortgage loans kept rising, but the CDO (mortgage debt certificate), a financial product derived from mortgage loans, was not linked with the primary market, that is, the price did not fall, but rose, which made the bears who had always insisted on their own judgment doubt themselves and whether they were really wrong. This is also the cruelty of the financial market. Sometimes even if you have a clear direction, you won't win in one day.

The real "evil" of Wall Street is that when peddling high-risk financial products, the risks are not fully revealed, and investors don't know what is "packaged" in the financial products they buy, or even the losses they will suffer if problems occur. "People only look at the evaluation of rating agencies to invest, which is one of the important reasons for the disconnection between the primary and secondary markets." Sun said that it is a moral evil to "pass on" the risks that should be borne by financial institutions to unsuspecting investors, and the returns they can get from investors are still very low.

Sun believes that the most important thing to reflect on in the 2008 financial crisis is the moral aspect. "The financial crisis in 2008 was not a traditional financial crisis, but a moral hazard crisis. Wall Street is well aware of the danger, but for them, as long as they sell it, it has nothing to do with themselves. And the more you sell, the more likely it is to lead to systemic risks, which will force the central bank to rescue the market. "

So, what's wrong with all kinds of financial innovations and increasingly complex financial derivatives themselves? Sun believes that the starting point of financial innovation is good, and most financial derivatives are products that spread risks and are neutral in themselves. The key lies in how to supervise and regulate.

Theoretically speaking, risks can only be dispersed and cannot be completely avoided. Financial innovations such as asset securitization are means to spread risks. In order to enlarge the denominator, each molecule needs to bear less risks. A good financial system design can reduce the risk to near zero. At present, China is vigorously promoting financial innovation and developing various financial derivatives, which is operated according to the idea of diversifying risks, but remember, it is to diversify risks rather than hide them.

Will a lot of liquidity brew a bigger short position?

At the end of the film, it is mentioned that financial derivatives that caused great turmoil in the 2008 financial crisis are resurgent. Why is this happening? Do we need to worry about the market repeating the same mistakes?

Sun believes that the biggest problem in the current global economy is that we will only stimulate the economy by responding to the traditional economic recession and put in a lot of liquidity, but it will not get results. On the contrary, it will cause ups and downs in the financial market. Under the liquidity, various financial instruments are running, but only idling in the financial market and not serving the real economy. This is the problem, but it can't be said that it is the fault of financial instruments. These liquidity "frenzy" may indeed be brewing more dangerous big shorts.

"At present, we are facing an unprecedented state. The liquidity we put in involves the financial system, not the real economy we should go to. The question of how finance serves the real economy deserves serious consideration. " Sun said that this vicious circle must find a solution, because the real economy needs finance, especially the high-risk business such as innovation and entrepreneurship needs financial support.

Yu Shao also believes that when excess liquidity becomes the norm and the real economy can't keep pace with the virtual economy, the risk will gradually increase. "Financial innovation must return to the origin of supporting the real economy".

Will the "subprime mortgage crisis" be staged in China?

Looking around after watching the movie, it seems that the property market reappeared crazily the night before the "big bear" detonated, so many people will ask, will the "subprime mortgage crisis" be staged?

"The form is different, but the essence is the same." Sun pointed out that we don't have to worry too much about complicated financial products, because China's financial derivatives are far less developed than those in the United States, and products such as CDS (credit default clause) and CDO in movies are not available in China, but we need to be alert to the essence of the problem, that is, loose monetary policy injects liquidity and funds eventually flow to the real estate market. Funds pile up prices, and the price effect will attract more funds to enter the market.

Yu Shao believes that there is a bubble in the real estate market in China, but the problem is not so serious. On the one hand, China's real estate market is not so leveraged. At present, the overall leverage of 30% down payment is reasonable, while the United States has already achieved 5% or even zero down payment. On the other hand, China's financial derivatives are not so complicated and huge, while the United States has built hundreds of times the derivatives market on mortgage loans, forming an extremely unstable "inverted pyramid". Asset securitization in China is still the most basic form, and there are not so many conduction chains that do harm to the financial system.

However, Sun also said that although Zhou Xiaochuan, governor of the central bank, mentioned that the proportion of mortgage loans to bank loans was not high, mortgage loans were only the primary market, and funds and trusts also entered the mortgage field through shadow banking, which was not reflected in the bank's statement. Its leverage is obviously higher. When can you buy a fund and share the real estate bubble? That's the problem.

Therefore, from this perspective, perhaps the biggest inspiration from watching "The Bear" at the moment is that it is necessary for us to keep the greatest vigilance against the real estate market. Just as Mark Twain's golden sentence is quoted at the beginning of the film, it's not what you don't know, but what you are sure of, but it's not the case.