ipl-logo

The Big Short Essay

1008 Words5 Pages

The 2007-2008 financial crisis was the culmination of events that lead to the demise of the US economy. In the film The Big Short, Michael Burry an investor from Scion Capital, notices that the housing market is very unstable and could crash atany time. He plans to short the housing market by purchasing credit default swaps. Credit default swaps were designed as safety net for banks, because of the mortgages they sold. When a homeowner gets a mortgage, the bank posses some risk that the homeowner might not pay their mortgage, so the banks looks to an insurance company to sell them a credit default swap. That way bank will get their money even if the homeowner defaults on their payments, inreturn the insurance company only take a little bit …show more content…

The average price of a house skyrocketed 124% between 1996 and 2006 (CSI). This lead homeowners to believe that if they bought a house it’s value would only go up, therefore making them money. This unfortunately didn’t happen because to many people defaulted on their mortgage. In 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006 (CSI). This upward trend shows the trust being gained from the american people in the housing\ market. People felt confident that they could afford an expensive house because they were lured in with low adjustable interest rates, that then increased to an outrages rate in a few years. As more and more subprime mortgage owners defaulted on the payments it trapped those in adjustable mortgage rates. With interest rates rising it caused many to default on their payments or take out a second mortgage with they couldn’t afford. By August 2008, 9.2% of all US mortgages outstanding were either delinquent or in foreclosure, by September 2009, this had risen to 14.4% (CSI). This lead to a huge number of house for sale and nobody able to buy them. As a result prices fell leaving people paying more than what there house was worth. This caused even more people to walk away from their mortgage because it was a waste of their

Show More
Related

  • Catcher In The Rye Persuasive Essay

    303 Words  | 2 Pages

    In chapter five of The Catcher in the Rye, by J.D. Salinger, the reader learns about the death of Allie, Holden’s younger brother. Holden and Allie were very close, and his death left a mark on Holden both mentally, and emotionally. It is inferred that Holden feels Allie did not deserve to die. “You’d have liked him. He was two years younger than I was, but he was about fifty times as intelligent.”

    Read More

  • Great Depression Dbq

    468 Words  | 2 Pages

    This being the cause of prices concerning stocks and shares to increase, to the point that it was nearly impossible to invest in the market. This being a factor in causing companies to terminate their employees swiftly, and if an individual remained employed, their wage decreased dramatically below the minimum wage. Many counterparts had invested in the stocks with loans or borrowed money, and when the market crashed, their share had been utterly wiped out, leaving them with absolutely no money. Individuals who had their money in banks, became skeptical of the banks and started to withdraw their money, to preserve their remaining savings. This, causing the banks to have to take out loans from bigger banks so that they could pay the individuals their money.

    Read More

  • Was The 1920s Good Or Bad Essay

    546 Words  | 3 Pages

    ”(Holley).Many workers lost their jobs. The stock market also crashed so that made it worse.

    Read More

  • Jp Morgan Chase Bank Fraud Essay

    709 Words  | 3 Pages

    This lost many people money because they were unable to pay their growing debts. This did not only effected the people involved, but it rocked the whole country’s economy. It was losses on mortgage securities like those involved in this case that triggered a loss of confidence in the U.S. banking and financial system (Irwin, N. (n.d.). Everything you need to

    Read More

  • Biggie Smalls Argumentative Essay

    598 Words  | 3 Pages

    On this day 20 years ago, hip-hop lost one of the greatest rappers to ever pick up a mic. A pioneer, a trailblazer, a legend, Biggie Smalls changed rap forever with his rhymes, and unique flow that so many try to replicate today. A lot of people including myself wonder what hip-hop would be like if Biggie was still alive till this day. Regardless of what you think, the impact that he made in such a short time still allows a person to make a valid argument that he's the greatest of all time. Christopher Wallace was murdered March 9th, 1997 in Los Angeles, California at the age of 24.

    Read More

  • Henry Paulson Great Depression Summary

    438 Words  | 2 Pages

    "Great depression?" they gasped. Consumer confidence plummeted, as did consumer spending (which accounts for a stunning 2/3 of US GDP). Corporations, in a mass panic, swiftly switched into a mode of panicked layoffs and cost cutting. The banks, already spooked, continued to tighten their lending not just to consumers but to corporations and other banks as well. And ditto for the rest of the world.

    Read More

  • Income Inequality In The 1920s Essay

    657 Words  | 3 Pages

    In 1929, the stock market crashed and billions of people lost their money, even the rich men and women. The

    Read More

  • The Lamp At Noon Short Story

    1170 Words  | 5 Pages

    On one of the most devastating days in economic history, the stock market crashed with the value of the dollar being useless. Many families were left without any warning, losing any of their savings placed in stocks. People started to worry, rushing to the banks to withdraw quickly whatever money they had left to make sure they didn 't lose anything else. Banks were closing faster than people could get to them, leaving people with nothing. The people who did grasp their money spent less on items that they needed because prices skyrocketed, which in return got people getting laid off from their jobs, worsening the economy and losing even more money.

    Read More

  • Apush 2003 Dbq

    141 Words  | 1 Pages

    In Addition to maldistribution stood the credit structure of the economy, some farmers were in deep land mortgage debt, so they lowered their crop prices in order to regain credit, and because the farmers were no longer accountable for what they owed banks. Across the nation the banking system found themselves in constant trouble. In America both small and large bankers were concerned for their survival, so they began investing recklessly in stock markets and granting unwise loans. These unconscious decisions would lead a large consequence, such as families losing their life savings and their deposits became uninsured. “ More than 9,000 American banks either went bankrupt or closed their doors to avoid bankruptcy between 1930 and 1933.”Although

    Read More

  • The Effect Of The New Deal On Native Americans

    1007 Words  | 5 Pages

    People were forced to sell their homes to deal with the rising mortgage rates and no jobs to pay it off. People have become homeless, in debt and have no source of money. People were dying from hunger and no affordable health care. The country has dipped into its

    Read More

  • What Caused The Great Depression Research Paper

    780 Words  | 4 Pages

    There began to be a gradual decline in prices and the stock market ruptured. On October 24, 1929, the infamous “Black Thursday” took place, where stock holders went on a panic selling spree. Things then went from bad to worse, stock prices went down 33 percent. People stopped purchasing goods and business investments decreased after the crash. In the fall of 1930, the first of four major waves

    Read More

  • DBQ Great Recession

    624 Words  | 3 Pages

    The lack of responsibility in the government and banks led to the downturn in the economy now known as the great recession. (document I) Starting in 2007 there was a noticeable increase in mortgage

    Read More

  • Great Depression Dbq

    740 Words  | 3 Pages

    Tatyana Yurova US Hist 2 Honors Mr. Alvarez What Caused the Great Depression? The Great Depression, was a time of suppression. Beginning in 1929 and spreading all throughout the 1930’s, America experienced the largest economic roller coaster that the whole world has ever seen. Soon enough, this economic roller coaster became known as The Great Depression. During the active years of the Great Depression, unemployment rates were at an all-time high; therefore, leaving millions of people with a scarce supply of daily necessities such as food, money, and shelter.

    Read More

  • Factors Affecting The American Dream

    1326 Words  | 6 Pages

    Sheree R. Curry article talks about 5 contributing factors in the housing market crash, low doc loans, Adjustable rate mortgages, equity line of credit, more money down needed and mortgage insurance. Low Doc Loans are loans that do not require much information and do not require borrowers to provide documentation of their income to lenders, Adjustable rate mortgages were made to adjust periodically to reflect market conditions, equity line of credit is a loan in which the lender agrees to lend a maximum amount of money and has to be paid by a certain time, you also need more money down “minimum has now increased to 10% down.” This quote shows increase in a down payment, mortgage insurance used to get replaced by people putting 20 percent down on a FHA-backed mortgage and avoid paying the

    Read More

  • Lehman Brothers: Financial Fraud In 2008

    2178 Words  | 9 Pages

    Executive Summary Lehman Brothers were an investment bank involved in transactions worth billions of dollars and one of the most powerful investment banks in the world. Lehman Brothers collapsed in 2008 following bad investment in the sub-prime mortgage market and used bad accounting practices called Repo 105 transactions to try and cover up the bad assets. This report sets out the use of the fraud triangle when describing the actions which led to the collapse. The pressure applied on the bank, the opportunity due to the lack of regulation to carry out the actions and the ability of the bank to rationalise their decision making.

    Read More

More about The Big Short Essay

Open Document