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The Big Short

In 2005, eccentric hedge fund manager Michael Burry discovers that the U.S. housing market is extremely unstable due to subprime loans. He draws this conclusion after recognizing similarities to the 1930s crisis and calculates that the market will collapse in 2007. Burry then meets with several major investment and commercial banks to purchase credit default swaps, but is required to pay substantial monthly premiums. The high premiums cause Lawrence Fields, Burry's principal client, to accost him for the high premiums that will bankrupt Burry's fund in a couple of years if his conclusion is wrong, though Burry holds firm.

A Deutsche Bank executive later mentions Burry's dealings to his co-worker Jared Vennett. Vennett, sensing an opportunity, tries to secure investors for shorting the market, erroneously calling a trader at FrontPoint Partners who are nonetheless interested in his pitch. Vennett explains the fraud in the market and the disingenuity of seemingly safe bonds. Mark Baum, the head of FrontPoint, is moved by Vennett's pitch due to his disenchantment with banking's business model. The FrontPoint team travels to south Florida to investigate the veracity of Vennett's claims — finding empty neighborhoods and meeting with mortgage brokers who admit to fraudulent practices — and then decide to invest with Vennett.

Meanwhile, young investors Charlie Geller and Jamie Shipley accidentally discover Vennett's presentation on a coffee table in the lobby of JPMorgan Chase. They are immediately convinced as they see the high potential payouts, but the small size of their fund requires them to enlist Ben Rickert, Shipley's childhood neighbor and a retired securities trader. Rickert agrees to help and the trio begin investing in credit default swaps.

As defaults increase in early 2007, the values of credit default swaps and collateralized debt obligations (CDOs) inexplicably rise and their credit rating remains stable. Burry struggles with the lack of payout and he restricts withdrawals, leading Fields to sue. Baum talks to an acquaintance at Standard & Poor's, finding dishonesty amongst the credit rating agencies to maintain business with investment banks. Geller suspects the banks are committing fraud, leading him, Shipley and Rickert to visit the American Securitization Forum, where bankers are unconcerned about defaults. Shipley learns that the SEC has no regulations governing mortgage-backed securities activity. Geller convinces Shipley and Rickert to bet against higher-rated tranches of the bonds, since they are likely to fail if the lower-rated bonds fail. Vennett and the FrontPoint team also attend the Forum, where Baum learns from a CDO manager that the market for synthetic CDOs is twenty times larger than the market for the mortgages themselves, leading Baum to realize the entire world economy is set to collapse.

Geller and Shipley see that New Century Financial, a leader in subprime lending has filed for bankruptcy, and they identify it as the beginning of the housing bubble bursting. At the same time, Baum finds that Bear Stearns is liquidating hedge funds and Burry has his phone calls ignored by the banks. Geller and Shipley realise that for the prices to have remained stable despite defaults continuing to increase, the banks must be freezing the prices of their securities in order to sell and short them before the market crashes. Outraged, Geller and Shipley contact an old friend who works for The Wall Street Journal, but he declines to report the story to preserve his relationships with the investment banks.

As the subprime bonds continue to fall, Baum learns that Morgan Stanley, who owns FrontPoint, has also taken short positions against mortgage derivatives. However, it had sold short positions in higher-rated mortgage derivatives to offset the risk. Because even the higher-rated derivatives are collapsing in value, Morgan Stanley is facing severe liquidity problems. Despite pressure from his staff to sell their positions before Morgan Stanley collapses, Baum refuses to sell. Rickert, on vacation in England, sells Geller and Shipley's positions; the two receive huge profits but lose their faith in the system as Ben informs them that foreign bank systems are beginning to crash as well. Burry begins receiving calls from the banks he had originally taken short positions against. Burry yields a profit of $2.69 billion, with Fields alone receiving $489 million. While Baum is speaking at an industry panel, his team learns that Bear Stearns stock has fallen 38% in just ten minutes and the bank collapses shortly after. Baum is the last to sell, making over $1 billion, but laments that the banks and government will not take responsibility for the crisis.

Vennett receives a large bonus for the profits he generated. FrontPoint continues to operate as per usual, but Burry closes his fund after public backlash. Geller and Shipley go their separate ways after unsuccessfully trying to sue the ratings agencies and Rickert returns to his retirement. Just prior to the credits, it is noted that most banks responsible for the crisis face no consequences for their actions, with one single trader, Kareem Serageldin, being imprisoned and that banks are again selling CDOs under a new label of the bespoke tranche opportunity.