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The Greatest Irony in The Big Short
Explaining credit default swaps and investigating the realities of the mortgage crisis
“We are going to wait, and we are going to wait, and we are going to wait, until they start to feel the pain — until they start to bleed” — Mark Baum
Everybody knows this scene in The Big Short. It’s the part where Mark’s team is trying to convince him to sell something called ‘swaps’ when the market opens. They are afraid that if the banks will go under, they will lose their position because the market to sell these securities won’t exist.
So, let’s go over exactly what the hell they are talking about, and, why they seem to be arguing with each other toward the end of this scene.
You need a succinct introduction to something called naked credit swaps.
But, to introduce you to that, you need to understand that a credit default swap itself is just an insurance policy. Let’s say some bank owns your loan on your home. The bank feels weird about your ability to pay the loan back in…
