The Big Short Trivia Quiz

Answer: "It's what you know for sure that just ain't so."

The film posits that one of the exacerbating factors in the housing crisis of the mid-2000s was the widely-held (and ultimately erroneous) belief that the American housing market was immune to collapse. The conventional wisdom was that the housing market was the most reliable sector of the American economy, and most of the players in the financial industry failed to identify or recognize the housing bubble until it was too late. As someone says in the film, "the housing market is rock solid", citing former Fed Chair Alan Greenspan as saying that "bubbles are regional, [and] defaults are rare".

The problem began in the late 1970s when Lewis Ranieri revolutionized the bond industry with the introduction of the private label mortgage-backed security (MBS), which is essentially a collection of mortgages grouped together and securitized by an investment bank so that it can be sold to investors. "In the end Lewis Ranieri's mortgage-backed security mutated into a monstrosity that collapsed the whole world economy, and none of the experts or leaders or talking heads had a clue it was coming," explains Jared Vennett (Ryan Gosling), the ambitious Deutsche Bank bond trader who acts as the film's narrator. "But there were some who saw it coming. While the whole world was having a big ol' party, a few outsiders and weirdos saw what no one else could. ... These outsiders saw the giant lie at the heart of the economy, and they saw it by doing something the rest of the suckers never thought to do. They looked."

Answer: He decides to short the housing market.

To "short" something is to "bet against" it, as explained in the film by Margot Robbie in a bubble bath. Michael Burry left his neurology residency to start his Scion Capital hedge fund, and had great success in picking stocks. In the mid-2000s, he turned his attention to the mortgage bond market. As Margot Robbie explains, "Basically Lewis Ranieri's mortgage bonds were amazingly profitable for the big banks. They made billions and billions on their 2% fee they got for selling each of these bonds. But then they started running out of mortgages to put in them. After all, there are only so many homes and so many people with good enough jobs to buy them, right? So the banks starting filling these bonds with riskier and riskier mortgages. That way, they can keep the profit machine churning. By the way, the risky mortgages are called 'subprime'."

Michael Burry discovered that these AAA-rated mortgage bonds were really made up of extremely risky subprime mortgages, and that homeowners were likely to default after the adjustable rates kick in once their teaser rates expire. When the default rate goes above a certain level, the entire bond becomes worthless. He tells his principal investor, "The housing market is propped up on these bad loans. It's a time bomb. And I want to short it." He does this by getting the major banks on Wall Street to sell him something known as a "credit default swap" on the mortgage bonds he wishes to short, which basically only pays off if and when the underlying bond fails. The banks all think that he has lost his mind, and sell him $1.3 billion in credit default swaps. As the sales rep from Goldman Sachs tells him, "This is Wall Street, Dr. Burry. If you offer us free money, we are going to take it."

Answer: Jenga

Jared Vennett stands at one side of the conference table in front of a stack of wooden Jenga blocks. On the side of each Jenga block is written the various ratings of the tiers in a typical mortgage bond - AAA, AA, BBB, BB, and B. "This is your basic mortgage bond," he explains, motioning to the Jenga tower. "The original ones were simple. They were just thousands of AAA mortgages bundled together, guaranteed by the US government. The modern ones are different. They're private. And they're made up of layers of tranches, with the highest level AAA's getting paid first, the lowest rated B's getting paid last and taking on defaults first. Now obviously if you're buying B's you can make more money. But they're a little risky. Sometimes they fail..." He gets his assistant to remove one of the B blocks, and chucks it into a trash can. He goes on to explain that as more and more people default on their mortgages, these lower tranches will start to fail. He pulls out more and more blocks and throws them in the trash, until the tower becomes too unstable and - "Then that happens," he says - it collapses. "What is that?" Mark asks. "That's America's housing market," Jared replies.

Jared explains that he is offering Mark a chance to short "this pile of blocks" using the same credit default swap that Michael Burry (Christian Bale) purchased from half of Wall Street, and that the potential payoff could be as high as a 20 to 1 return. "It's already slowly going bust, but no one's paying attention because the banks are too busy getting paid obscene fees to sell these bonds," he explains. "Let me put it this way: I'm standing in front of a burning house and I'm offering you fire insurance on it." Mark's team aren't convinced that the underlying bonds can be as bad as Jared claims, so he tells them that he has personal knowledge of some 65% AAA-rated mortgage bonds that are made up of 95% subprime mortgages with poor FICO credit scores. "When the market deems a bond too risky to buy, what do you think we do with it? You think we just warehouse it on our books? No. We just repackage it with a bunch of other [stuff] that didn't sell, and put it into a CDO," he adds. Mark is unfamiliar with the term. "What is that?" he asks.

Answer: Anthony Bourdain

Jared gets his assistant to build a new tower out of some of the BBB, BB and B rated Jenga blocks, and then begins explaining to Mark how a CDO works. "This is where we take a bunch of B's, BB's and BBB's that haven't sold and we put them in a pile," Jared explains. "When the pile gets large enough, the whole thing is suddenly considered diversified, and then the whores at the ratings agencies give it a 92, 93% AAA rating, no questions asked." Mark can't believe his ears. For the benefit of the audience, the filmmakers get a "world famous chef" to explain.

Anthony Bourdain stands in one of his kitchens in front of a counter holding several containers of fish. "Okay, I'm a chef on a Sunday afternoon setting the menu at a big restaurant. I ordered my fish on Friday, which is the mortgage bond that Michael Burry shorted, but some of the fresh fish doesn't sell," he says. "So what am I going to do, throw all this unsold fish, which is the BBB level of the bond, in the garbage and take the loss?"

"No way," he says, as he picks up a piece of fish and starts slicing it up with his chef's knife. "Being the crafty and morally onerous chef that I am, whatever crappy levels of the bond I don't sell I throw into a seafood stew. See, it's not old fish; it's a whole new thing. And the best part is they're eating three day old halibut. That is a CDO."

Answer: An alligator

Danny knocks on a door, and is greeted by a tattooed man. "Hello," Danny says to the man. "I'm surveying mortgage owners who are over 90 days delinquent. I'm looking for a... Harvey Humpsey?" The man looks puzzled. "You want my landlord's dog?" he asks. A look of realization flashes across Danny's face. "Your landlord filled out his mortgage application using his dog's name?" he asks. "I guess so," the man replies. "Wait, has that asshole not been paying his mortgage? 'Cause I've been paying my rent." Danny confirms that the landlord is over 90 days delinquent, which worries the tattooed man. "Seriously, man. Am I going to have to leave?" he asks. "'Cause my kid just got settled in the school, man." Danny tells the man that he should probably speak to his landlord, and leaves.

Porter and Danny visit another house, and finds the front door unlocked and no one at home. The electricity has been turned off, and the house is sparsely furnished. "The only thing they took was their TV," Porter says, pointing at an empty bracket on the wall. They find stacks of mail strewn about the kitchen counter, and Danny picks up an old "past due" mortgage bill. The former occupant of the house had circled the outstanding amount with a black marker, and had written "Sorry!" under it. They explore the overgrown back yard, which now surrounds a filthy swimming pool. "It's like Chernobyl," Danny says. Porter makes an assessment of their day. "Out of a hundred houses there can't be four people living here," he says. Suddenly, there is a splashing sound as something swirls out of the stagnant water and submerges again. An alligator has taken up residence in the unused pool. Danny and Porter high-tail it out of there.

Answer: "They're bragging."

Mark, Danny and Porter are shown some houses by a real estate agent, who doesn't want to admit the market's in trouble. Instead, she says that there's "an itsy-bitsy little gully", even though every homeowner seems motivated to sell. Mark asks if he can speak to a mortgage broker, so the trio head out to South Beach and meet with a couple of over-groomed examples. The brokers reveal that they write about 60 loans a month, up from only 15 a month four years ago, and that about 90% are adjustable rate mortgages. "The bonuses on those sky rocketed a few years ago. Adjustable is our bread and honey," the dark-haired one explains. "So do applicants ever get rejected?" Danny asks, which gets a laugh out of the brokers. "My firm offers NINJA loans," the blond-haired one explains. "No Income. No Job. I just leave the income section blank if I want, corporate doesn't care. These people just want homes, you know. They go with the flow." Mark leans forward in his seat. "Your companies don't verify?" he asks. "If I write a loan on Friday afternoon, a big bank is gonna buy it by Monday lunch," the first broker says. Mark asks for a second to talk to his colleagues alone. "I don't get it. Why are they confessing?" he asks. "They're not confessing," Danny explains. "They're bragging," Porter confirms.

"Do people have any idea what they are buying?" Mark asks, when he gets back to the brokers. "I focus on the immigrants, you know? Once they find out they're getting a home they sign where you tell them to sign, don't ask questions, don't understand the rates," the second broker says. The first broker confirms that he also targets immigrants. "Look, I'm a yield guy," he explains. "I make $2,000 on a fixed-rate prime loan, right? But I can make $10,000 on a subprime adjustable." Mark then goes to talk to one of the broker's clients, an exotic dancer, who confirms that she always gets adjustable rate mortgages, but clearly doesn't understand how they work. "If home prices don't go up you are not going to be able to refinance, and you're going to be stuck paying whatever your monthly payment is once it jumps up after your teaser rate expires," Mark explains. "Your monthly could go up two or three hundred percent." She stops dancing. "Two hundred percent? On all my loans?" she asks. "What do you mean all your loans?" Mark asks. She gives him a look. "I have five houses and a condo," she says.

Mark calls Vinny back at the office. "There's a bubble," he says, and tells him to buy $50 million in credit default swaps on the mortgage bonds that Jared Vennett wants to sell them.

Answer: A llama

Charlie Geller (John Magaro) and Jamie Shipley (Finn Wittrock) have been running their hedge fund, Brownfield Capital, out of Jamie's garage, but they have ambitions to make it big on Wall Street. They travel to Manhattan to meet with JP Morgan about the possibility of getting an ISDA agreement, but are embarrassed to learn that they are far below the capital requirements. An on-screen caption explains that an ISDA is "an agreement that lets an investor sit at the 'big boy table' and make high level trades not available to stupid amateurs". The caption goes on to say that "Trying to be a high stakes trader without an ISDA is like trying to win the Indy 500 riding a llama."

Charlie and Jamie stumble upon Jared Vennett's proposal to short mortgage bonds using credit default swaps, which they think is the trade of the century, making their need for an ISDA all the more pressing. They reach out to Ben Rickert (Brad Pitt), Jamie's neighbor in Colorado who happens to be a former trader for Chase who "quit the whole game in disgust". Ben looks at the information from Charlie and Jamie, and confirms their analysis about the housing market. "Okay, so why are you calling me? I don't do this anymore," he says. "Look, Ben, we need you to help us get the ISDA. If we get a hunting license, we can short this crap. And we know you hate Wall Street. We're not asking you to do the trading," Charlie explains. They just need his help to get "a seat at the table". Ben is reluctant. "It's a pretty ugly table, guys," he says. Jamie makes one more attempt at convincing Ben, and tells him, "This is a once in a lifetime deal." Ben thinks about, before finally saying, "Okay, I'll call Deutsche Bank." The guys thank Ben, and Charlie celebrates by doing a dance on the couch.

Answer: Eye exam sunshades

Georgia Hale is standing in her office, struggling to read some files through the very dark eye exam sunshades she has on. "I can't see a damn thing," she says, as she takes her seat. "My eye doctor's always busy. I end up taking any appointment they'll give me and then the whole morning gets shot to hell." She asks Mark and Vinny what she can do for them today. "Well, we don't understand why the ratings agencies haven't downgraded subprime bonds, since the underlying loans are clearly deteriorating," Vinny begins. Georgia explains that while the level of mortgage delinquencies does seem worrying, they are actually within Standard & Poor's models. "So you're convinced the underlying mortgages in these bonds are solid loans?" Mark asks. "That is our opinion, yes," Georgia replies. "Have you looked at the loan level data?" Vinny asks. "They give these loans to anybody with a credit score and a pulse." Georgia is offended by the accusation. "Excuse me, sir. What do you think we do here all day?" she asks defensively. Mark tries to steer the conversation back to something helpful, and asks Georgia for details of any mortgage bonds that they have refused to give a triple-A rating to. "Oh, I am under no obligation to share that information with you, whoever you might be," she says, but Mark presses. "Just answer the question, Georgia. Can you name one time in the past year where you checked the tape and you didn't give the banks the AAA percentage they wanted?" he asks.

"If we don't give them the rating they'll go to Moody's, right down the block," Georgia replies. "If we don't work with them, they will go to our competitors. Not our fault. Simply the way the world works." Mark sits back in his chair and rubs his eyes with his hand. "And I never said that," Georgia adds quickly. "You can afford to make less. Make less," Mark says, and then insults Georgia when she tries to deflect responsibility. She takes her glasses off so that she can look Mark in the eye. "I wonder what your incentives might be? Is it maybe in your best interest to have the ratings change? Is it, perhaps? How many credit default swaps do you own, hmm?" she asks. "Doesn't make me wrong," Mark says quietly. "No," Georgia replies, "It just makes you a hypocrite."

Answer: He tells them to stop.

Charlie and Jamie are panicking because the CDOs that they bet against have increased in value even though mortgage delinquencies are up, and they keep paying Deutsche Bank and Bear Stearns premiums on their swaps. "Look, either we're right or we're wrong in a giant, giant way, and if we're wrong then we got to find someone to help us get out of this trade." Charlie says to Ben on the phone. "I think we need to go to Vegas," Ben says. They go for the American Securitization Forum, where "every bond and CDO salesman, subprime lender and swap trader in the country" will be in attendance. There, they try to hedge their bets by taking on more exposure in the BB and BBB tranches of the CDOs, but the prices have gone up and outside of their price range. "We need a deal we can afford, we need a deal they're not gonna refuse," Charlie says at dinner. "What if we bet against the AA rated tranches? Who's not gonna take that bet?" Charlie knows that swaps on the AA tranches will be cheap, and that the upper levels of the CDOs are bound to fail if the bottom levels fail over a certain level. "I rarely say these words but Charlie's right," Jamie adds, as he pulls out some documents. "The payoff is 200 to 1, but they're all taking the ratings at face value. They're charging pennies on the dollar to bet against the AAs." Ben takes a look at the returns on AA swaps, and says, "Just when I start thinking you guys are clowns. No one on the planet is betting against AA. The banks will think we're either high or having a stroke, and they'll take every dime we have to offer. Kinda brilliant."

The guys close deals to short the AA tranches of CDOs at Goldman Sachs, Bear Stears, Merrill Lynch, Lehman Brothers and Morgan Stanley. When they're done, Charlie and Jamie begin celebrating and dancing, but Ben tells them to stop. "Do you have any idea what you just did?" he says. "You just bet against the American economy." Charlie and Jamie still don't get it. "Which means, if we're right, people lose homes, people lose jobs, people lose retirement savings, people lose pensions," Ben explains. "Here's a number - every 1% unemployment goes up, 40 thousand people die. Did you know that?" Charlie and Jamie are speechless. "We were just excited," Jamie says meekly. Ben tells them not to dance, and walks off in disgust. "Woah, I just got really scared," Jamie says to Charlie.

Answer: Water

The crash begins, and all the investment banks on Wall Street are affected. One by one, all of the "Big Shorts" sell their positions. Ben Rickert helps Charlie and Jamie unload their swaps for $80 million, mostly to UBS. Mark Baum holds out for the longest, and eventually sells, making almost $1 billion for his fund, and $47 million in commissions for Jared Vennett. Michael Burry unloads his total short position amounting to $1.3 billion, and makes a 489% return for his fund, but at the cost of years of fending off lawsuits from unhappy investors who wanted to withdraw their money before the crash. In an email to all of his investors, Michael writes, "Making money is not like I thought it would be. This business kills the part of life that is essential: the part that has nothing to do with business. For the past two years my insides have felt like they're eating themselves. All the people that I respected won't talk to me anymore except through lawyers... People want an authority to tell them how to value things, but they choose this authority not based on facts or results. They choose it because it seems authoritative and familiar. And I am not and never have been 'familiar'. So, I've come to the sullen realization that I must close down the fund. Sincerely, Michael J. Burry, M.D." In an overlapping montage, we see the tattooed guy and his family, who are now homeless and living out of their car, and a job fair attended by hundreds of people, including the two mortgage brokers from Miami.

In the closing titles, we learn that the collapse of the U.S. housing market cost eight million their jobs, six million their homes, and $5 trillion in pension money, real estate value, 401k, savings, and bonds to vanish overnight. The titles also has this to say about Michael Burry: "The small investing he still does is all focused on one commodity: water."