'The Big Short' Explained (Movie Commentary w/ @HamishHodder and Jason Hughes)

All right everyone, hello hello! We should be live right now. Welcome everybody, welcome in! Should introduce who I've got alongside me tonight. Of course you guys know him, Hamish Hodder. How you doing, Hamish? Welcome in!

I'm doing well, I'm very excited to do this. This is, uh, I think this is the first time I've been live on YouTube for anything.

So don’t say anything you'll regret. Don't mess it up! Keep those, uh, keep those dirty jokes to yourself.

All right, alongside Hamish, Jason Hughes. How you going, Jason?

I'm not too bad, it's gonna be good. It's been a while. Guys, uh, if you're in the chat let us know. I'm gonna just quickly check on my phone whether this live stream is working. You are in the chat here and watch the movie ourselves. I'm kind of nervous that I haven't done it right.

Oh dear, here we go! Hey guys, hey Queenie, how you going? Hey Queenie, we're getting people running in the aviation! Well done! Yes, we, uh, I've checked the stream and we are currently live. There are currently 85 people watching. Wow, it's working!

Thank you very much, rock! One thing I will say before we get started: I do have my dog here at the moment and, uh, my partner's coming home pretty soon, so when that happens my dog's inevitably going to go crazy, so prepare yourself for that within the next 30 to 45 minutes. The mascot of this live stream!

Yeah, I'll get her in here a little bit later. Now I'm looking forward to it. So I'm just checking, everyone seems to be saying that we're doing well. Hey, hey, how's it going everyone? Bank of England?

Why, sorry, how did you do, Hamish?

Oh, that was from last night. You're one of the last men!

No, not really. George Soros was the man that bank broke the Bank of England, but, uh, people guessed Hamish shot her instead (laughter).

Wasn't me! Guys, we're starting to get, we've almost got 100 people in. We are going to give it a couple of minutes just to let people join, but welcome everybody! Guess what? Tonight we are watching The Big Short. How many of you guys have seen it?

Let us know in the comments if you've seen this movie before.

Oh, we got a couple of people saying show us your dog. Yeah, all right, I'll go get it. My hair is so fresh. Yep, that's because I just got out of the shower and ran a brush through it. And here we are!

How many of you guys have watched The Big Short? It's one of those movies.

Yeah, seen it before? Yeah, heck yeah! Seen it five times! Christopher, that's amazing! It's one, this is the movie!

Yeah, I was just gonna say, I think it's the movie I've probably watched the most times. There was a period where I was watching it like every week. What should I watch this week? Oh, let's just watch The Big Shot again.

You just watch, like, it's a bit.

All right, there's the mascot for tonight! Here we go! See Lou, see Loose! I hate getting licked by dogs! Just can't, I can't handle it.

All right, let's stop this stream over on my phone.

Hey guys, so, um, yes, we are doing The Big Short. We are going to watch The Big Short tonight. We're going to start in about 10, maybe a bit less than 10 minutes, so make sure you guys are ready to go.

This is, uh, important. Of course, we cannot show you The Big Short on YouTube on this live stream because of copyright. So what we need you to do is source your own movie. So The Big Short, if you guys have Netflix, The Big Short is available on Netflix.

So load it up, get it ready to go! We're going to start at zero zero at the very, very start. We'll all do a sync, we'll do a countdown: three, two, one, go when it's time.

If you're joining us and you don't have Netflix and still want to watch it, you can buy or rent The Big Short from YouTube Movies. So if that's something that you are interested in, then it will give you access to the movie and you can watch it along with us.

But they are just a couple, otherwise hopefully you've got it! Fire it up on your TV, maybe watch the stream on your laptop or on your phone.

Another thing to let you guys know before we get started is that we will be talking during the movie, because otherwise what's the point, right?

So, uh, just to make sure everyone's on the same page, we are going to be doing a little bit of discussion during the movie. Of course, we'll keep quiet during the important points, but we will be doing a bit of a conversation otherwise.

Yeah, the Margot Robbie scene, I think I’ll be keeping quiet during that one, just I'll kind of just look like this (laughter).

Um, but yeah, so they're the different ways that you can watch the movie or you can just own it, chuck it on the TV. Now here's an interesting thing for rent on, um, Prime Video for anyone who's got that.

Prime Video as well?

Yeah, all right, awesome. Well, here you go! You thought it was just going to be one movie night? Nah, nah, nah! Same squad back again next week. This time not on a Friday, on a Saturday night, 7:30 p.m. next Saturday night!

Movie night two, we're gonna be watching The Wolf of Wall Street as well. So that one, it is a long movie, so it's gonna be a slog. That’s a big one, is it three, three hours or something like that?

Three hours long?

Yeah, it is a long movie!

Yep! So, uh, we’ll get through it. It is a great movie, it's one of my favorites. It's just got some of the best scenes out of any movie I've ever seen in The Wolf of Wall Street.

So, uh, yeah, I'm looking forward to that one. But that is next Saturday, so Saturday, December 19th, 7:30 p.m. Australian Eastern Daylight Time back here on the New Money YouTube channel.

But before we got started with the movies, people are still joining up and getting ready to go, I thought that we would just fly through a little bit of a quick explanation of some of the concepts that you're going to encounter in this movie.

Because it is hard, the first time through watching it, it is quite hard to follow along unless you're someone like Jason that’s studied for however many years you’ve studied in economics.

Four years now?

Yeah! So, um, we're going to go through a little bit of an explanation. Jason, your job is to correct me when I inevitably make a mistake!

All right, so essentially the first thing to understand is this is all about the subprime mortgage crisis of 2008.

Um, so I thought I'd just go through a quick explanation. So what you're going to see, well what happens in the movie and what happens in real life, you know, many people, like people, they go and they take on these home loans.

Obviously, we can't just buy houses outright, so we take on these mortgages. But what happens is the investment banks of the world, they like to buy up these loans.

So essentially what you get is, you know, commercial banks, they make the loans, and then investment banks come through and they will, they’ll buy them essentially.

So all these investment banks now have this collection of mortgages. What they do is they chuck all of these loans into a special purpose entity, which is essentially just like a shell company, right?

So this shell company is going to produce cash flow, because obviously people are paying back these loans that are held within the special purpose entity.

So the special purpose entity is going to generate cash flow. Now what they do with that special purpose entity is they chop it up into a zillion different pieces, right?

Imagine these are just like shares of a company, right? A company divides itself up into a lot of different pieces, and investors then come and buy the shares, right?

And the same thing happens here with the special purpose entity. People come through and they buy the shares, uh, the shares of the special pep, essentially, which is generating cash flow from all those loans.

This is what's called the mortgage-backed security. These are securities and they're backed by mortgages, so that's really the first concept that the movie kind of assumes you already kind of know.

So mortgage-backed securities. And then here's the thing: is that, um, with these mortgage-backed securities, the people that want to buy them are like insurance companies and pension funds and all these sort of things. They can't take on too much risk.

So another step in the process of what they do with these mortgage-backed securities or these special purpose entities is they're going to divide them up into these certain tranches.

That's a term that you'll hear come up in The Big Short quite a bit. So essentially what they do is they just divide up the special purpose entity and the shares into different tranches.

For this example, we've just got three tranches: the senior, the mezzanine, and the equity tranche. And then all that this means is that the shares, the senior tranche shares, they get paid first.

So you can imagine the cash flows coming in from the mortgages, the senior tranche gets paid first, so they're first in line. Then the mezzanine tranche gets paid second, then the equity gets paid, uh, equity tranche gets paid third.

You might be saying, well don't they all get paid in a perfect world? Yes, because in a perfect world everyone pays back their mortgage perfectly on time, so everyone gets paid.

But in reality, some people don't make it with their mortgage and they default. So essentially, the equity tranche will take on the defaults first, then the mezzanine tranche, and then if it gets there, the senior tranche will take on the defaults.

So senior tranche paid first, then you've got this whole kerfuffle with these rating agencies in the US where they're going to kind of put a risk rating or a credit rating on the different securities.

So the senior tranche might get a triple A rating, very safe I suppose, and then a little bit less safe with the mezzanine tranche, and then even less safe with the equity tranche.

And Jason, I'm not sure what can investment, uh, sorry, what can things like pension funds and insurance companies invest in?

They can only kind of invest in AAA, AA, everything.

It depends on the country, but basically everything that's classed as investment grade, um, which basically is that triple B, I think it's triple B, triple B and higher, and maybe triple B plus and higher depending on the rating percent you're using.

They say everything that's investment grade, and obviously within that they're going to have to heavily weight towards the top end of there.

Yep, yeah, so that's the idea behind dividing these mortgage-backed securities up into tranches, is to get the different, um, to get the different credit ratings on them so that, you know, things like insurance companies can come and buy the senior tranche or whatever.

Now, another thing you're going to hear in The Big Short is a CDO. So I'm going to chuck it over to Jason now. Jason, talk shows about what, what a CDO is. We've talked about mortgage-backed securities. What's the difference between them and a CDO?

Okay, so basically if we go back to the last slide just one second. Um, so just kind of keep in your head this, this idea of the senior tranche getting paid first, then another tranche getting paid next, and then the equity tranche getting paid last.

Um, so that's what we call a pass-through entity. So if we just, uh, skip forward, uh, one slide, um, so the MBS or the mortgage-backed security is what we call a pass-through entity.

So really, the entity is just there as something on paper, then the cash flows come in and then they go out straight away on the other side. And there's no sort of controlling of the cash flows.

And that's great in terms of diversifying if you want to invest in mortgages, it's a great way of diversifying, but it's not great in the sense that mortgages have a very sort of specific payout profile and specific sort of features that make it not ideal for certain types of investors.

So if we just skip to the next slide, um, this is basically how a mortgage works. So in this chart, you can see the each sort of line, if you if you crop this thing up into vertical lines, each of those will be a payment and the orange section is the principal that's paid down.

So the money that's borrowed to buy a house and the blue section is interest. So in any case, basically, unless the borrower completely defaults, that orange part is always going to get repaid. The interest part is going to be paid in a certain portion depending on how quickly the person pays back their mortgage.

So if they decide to pay it back three months in, then a lot of that blue portion isn't going to get to the final holder of the mortgage-backed security.

So they're actually making less money if the mortgages, if the mortgage is paid in advance, right? And it's not great if you're buying a bond expecting to get, say, ten thousand dollars or a million dollars or whatever the size of it over the lifetime of the bond, and the person pays it back early and you only get like half of that.

Like right, that's basically a default, right? So that's why they sort of came up with the way of doing these CMOs or Collateralized Mortgage Obligations.

Or I think in the movie they call them CDOs or Collateralized Debt Obligations. Kind of a more general way of putting it that we can create a way of packaging up these mortgage-backed securities and basically transferring the cash flows in a certain way that makes the top tranche much more safe in terms of how much money you're going to get back.

So if we just go to the next slide, we've got here the tranches that are generally used in CDOs. So you'll see the A, the A tranche, which is equivalent to sort of the senior tranche of a mortgage-backed security. They're going to have sort of not much prepayment protection, so if a mortgage, a borrower comes and pre-pays their mortgage, those payments are going to go straight to the A tranche.

Okay, and then once they sort of reach a certain threshold, then they'll start filtering through to the B tranche which has some payment protection. Generally if you buy one of those, it will get paid out within five to seven years.

And then the C tranche has the most prepayment protection and has the longest duration that sort of gets flipped on its head a little bit if you think about defaults because the C tranche is going to be most of, they're going to get the biggest bunch of the defaults that happen, whereas the A tranche is going to get all the cash flows first, so they're not going to be as exposed to defaults.

So that's how that sort of like works. There are a million different variations depending on, like if you're a big pension fund you can go to the investment bank and ask them to design a CDO tranche specifically for what you need.

Um, so if you, if you know you’re going to have a big cash drawdown in a couple of years because you've got some random spike of customers who are likely to retire in three years' time and you know they're going to start drawing down, you can go and ask an investment bank to get you some mortgage-backed securities or a tranche of a CDO, right, to pay out at that time.

So they have different parts or different mortgages, different parts of other mortgage-backed securities in them depending on what they're trying to achieve with that specific CDO, is that correct?

Yeah, so basically the investment bank that issues it is responsible for meeting those obligations, right?

Um, and so it’s quite complex like in the back end. Like there's a lot of moving parts. In the US where this whole thing happened, there were what was called the government-sponsored entities, uh, the GSE.

So they were Fannie Mae, Freddie Mac, and Ginny Mae, right? And they all made a part in basically securitizing some loans and insuring other parts of loans and those sorts of things.

It’s very complex on the back end, but basically the investment bank is responsible for making sure that there's enough good mortgages paying into the special purpose entity, and then they design the payments on the other side, so they know what the payments are going to be coming out, and they just have to buy the right mortgages to put them in. And it's basically just a legal contract saying the first 10 percent of payments are going to go to these ones and the next 10 are going to go to those ones, right?

And they just have to manage that. Yeah, so we've got our mortgage securities, we've got our CDOs, and then essentially what happened with the mortgage-backed securities, right, over time they started getting filled up—look at this chart—they started getting filled up with worse and worse and worse loans.

Okay, so in reality these different tranches that were supposed to be pretty good actually started getting filled up with these pretty terrible loans.

And when I say terrible, it's just loans that are more likely to default. So that's what a lot of these guys in the movie spotted.

And essentially, with a lot of these products that were getting worse and worse, or paying the ratings agencies to, you know, rate their mortgage-backed securities, their CDOs, their synthetic CDOs—and essentially got so complicated.

And they talk about this in the movie, it's just got this massive complicated thing that, um, the banks basically just gave descriptions of these products and the ratings agencies just rated them accordingly.

And in the movie, they do talk about the ratings agencies a fair bit and, uh, and how, you know, how when they were rating things AAA, AA, and A—really was it AAA? Maybe not!

Um, and then lastly, the other thing we’re going to touch on will you hear touched on in The Big Short is the Credit Default Swap.

So this is a type of financial derivative and this is how all these investors, these characters in the movie, this is how they made all their money.

So essentially, with credit default swaps, it's a contract between two investors. There's a buyer and then there's a seller.

So the buyer pays premiums to the seller, but if the investment defaults, then the seller is going to pay out that loss. And then the seller receives the premiums, but obviously they have to pay up if the investment defaults.

So a lot of these guys in the movie were buying lots of credit default swaps because they thought the mortgage-backed securities were going to go bad, which spoiler alert, they did!

Um, yeah! So yeah, the characters in the movie saw that most mortgage-backed securities and CDOs were filled with sketchy mortgages, so they all bought credit default swaps.

When the mortgage-backed securities started defaulting, everybody wanted credit default swaps, which drove up their value, and that is why the characters in the movie, which are real people obviously, were able to sell their swaps for very large profits.

And that is for later on when we get to the Jenga scene.

How are we gonna just sort of jump in there?

Yeah, go for it! The amount of the, uh, these mortgage-backed securities that were filled with crap basically, it was actually quite small.

Um, I think the data that we've got now says they were only about 15 percent of them that were actually bad.

Um, so it wasn't most of them. The problem was that there were so many layers, there were the securities, there were the CDOs, there were synthetic CDOs, and they were the credit default swaps, and they were all like running on old systems.

So nobody knew which, which securities were bad. They just knew that there was a portion of them that were bad.

And so what everyone did was they rushed to get rid of what they had, right?

And, yeah, if you’re, if your one is that, is actually bad, the price is going to drop because it's worthless.

But then suddenly everyone was flooding the market with the ones they had that may or may not have been good. Most of them were actually good, but you increase the supply and the price drops, resulting in the same thing as if you're the ones that you had held had defaulted.

And that's why it ended up being so terrible because everyone panicked.

Yeah, that's like any big crash, it's just driven by panic, isn't it?

Yeah.

All right team, how's the chat going? Queenie, was anyone else a bit confused the first time they watched The Big Short or was it just me?

No, I’m definitely, it’s very cool, I watched it, I’m still confused.

Yeah, I think the only one that truly understands The Big Short is Jason.

No, I've got a shelf full of books about the GFC.

So you have! I remember you telling me you've read a lot of books about it.

Definitely! Someone pat your head to prove that it's live. There we go!

All right team, we're gonna get stuck into it! So I hope that everybody has now got their movie ready to go. If you have not, now is the time! Get your movie set and ready to go, and we are going to get started!

How you guys feeling? You guys ready to go?

Yeah, excited!

Good! Ready to go?

The toilet, I've been!

Yeah, don’t worry, I'm not going to interrupt us.

Sorry, you need to go again? You want to go one more time before we start the movie?

No, I'm good.

Um, how are we going in the chat? Is everyone feeling prepped and ready to go? They've got their movie set at zero minutes and zero seconds?

We will also have the, uh, the timer running periodically in the background which will run all night in case people are a little bit, uh, slow to join, they can catch up.

Start now, says Shreyas. Everyone's ready! Joe's ready! Pumped!

Yeah man, thanks Dane! Well everybody, get your remotes in your hand! Zero minutes and zero seconds!

Hamish, Jason, ready to go?

Ready!

Yeah, we're starting in three, two, one, go!

All right, and the first thing I'm hoping that everyone is seeing is the Paramount logo.

Yeah, I hope there are not multiple versions of this movie. If there are, I'm sure we'll only be a couple of seconds off each other.

Yeah, I’m sure people can scrub along and fix it if they're a little bit out!

Yeah!

And just about now, ish, you should be seeing, was that nice line coming up on the screen? Regency or something?

Regency!

Yeah, all right, cool! Hopefully we're all synced up!

Are we going to pause?

We are not going to pause because that would mess everybody up, but we will, as we go along! All right, here we go! We'll shut up for the start of the movie.

I love that quote! Um, it's what you know for sure just ain't so, Mark Twain, is it?

Absolutely! Are you watching this a couple of seconds ahead?

No, no, didn’t change.

This is exciting, everyone!

Hey Frank, this is Luis Ranieri, isn't it?

What a snooze! (laughter)

Boring!

Yeah, reminds me of people who, uh, who day trade on YouTube. Long-term investing? Boring! Let's make some money, what do you say?

The muffin chops, who the hell is that?

That's what we were talking about. The pension fund, they needed that triple A rating!

Yep!

Hello! Hey miss, you old enough to watch this movie?

Hey is your dog just look young? Okay, don't be mean!

Hey Top Gun!

Yeah, so many references! Boom! It's pretty horrible!

It was crazy earlier this year seeing like similar pictures, um, when, yeah, it started!

Yeah, definitely!

Yeah, that's strong! [Music] They looked so true though!

Yeah!

Oh, here we go everyone! Is this Michael Barry?

I love how the photo of Michael Barry is Christian Bale.

I get the music, the one!

Yeah, the one that everyone uses in their YouTube videos!

Michael Lewis spent a lot of time with Michael Barry when he was writing the book. Said Christian Bale spent I think a day with him before they filmed the movie, and he said that after the day he said, I need you to send me like the clothes you're wearing now!

Um, that’s what he was wearing in the movie there!

All right!

Well, you spend, send me the clothes you’re wearing!

And Michael Lewis says that the first time he saw him acting it was like mirror image!

Oh wow!

Yeah, Barry has a glass eye! Yeah, it has Asperger's as well! And when I was undiagnosed until he was in his 30s, I think, but now I think he puts a lot of his success and his ability to focus down to that undiagnosed Asperger's.

I tell you what, if that's what it was, it certainly helped him make a lot of money!

So (laughter)

No, I still find it crazy that, you know, Michael Barry had the insight like everyone else was asleep at the wheel and he actually went in and looked at all this—all these mortgages.

It's just unbelievable!

I don't even do that, like, and I think that it was something to do with you couldn’t until it became—there was some change where that became the mortgage-backed security, became publicly traded, that obviously all the documents were publicly available.

Yeah, yeah, basically, the prospectus, like they had to give you the information of which mortgages were in there.

Exactly!

But I think there was a period of time where they didn't, they didn't have to!

I can't remember!

And possibly!

Yeah, and he just went through and poured through how many thousands of people there is!

Yeah, there’s a bit of a montage where it shows him just like churning through.

Hmm, 30 days late, 60 days late, 14 days later. Man, this is such a good movie! You guys are in for a treat! If you're gonna watch through the whole movie, you guys are in for a treat!

He's so weird!

Hey, and that's crazy! 2005, so he was early!

He was early, much earlier than everybody else was!

Yeah!

What search engine is he using there?

Who knows?

Yeah, how do I have so many blues?

Oh, here comes Steve, what's his last name?

Easeman!

Heisman!

Yes, yes!

Steve Scott?

Yeah, Steve Easeman, but they changed his name in this, right?

It's Mark Bourne, I think is the character! Mark Baum, Bourne, something like that?

Yep!

Yeah, maybe just so that they didn't name Steve Carell Steve!

Possibly!

Possibly!

Yeah, I'm not sure!

He was named not like he was hiding or anything!

Yeah, yeah, maybe they added some parts that were fictional to his character, and then it was too much that they just decided to— I don't know, maybe they asked the actors, do you want us to use a fake name or a real name? I don’t know!

Uh, what a good actor though, seriously!

I love this comment he makes of this guy! He's like, he's like, what do you do? Commodities? Good luck with that! (laughter) He just walks out!

If you're joining late, everyone, feel free to sync up!

So yeah, they changed him, they changed his name because they changed quite a bit of his back story.

Um, right, okay!

Yeah, the real Steve Eisemann had a child that died, um, and that sort of made him into who he was, but he doesn’t want to be in the movie.

Yeah, yeah, makes sense!

Here he is, Michael Bury, the man, the myth! Scouring through!

I wonder how long he actually spent doing this, that would be a cool stat to know!

Yeah, it's probably in the book! You could probably go and look!

Maybe it's been like two years since I read the book!

This guy's my favorite!

Yeah, Greenspan just said (laughter)!

Uh, so (music) okay, how true is that? (laughter) It's very true!

Shhh! Where was that? There it is!

Hmm, [beep beep] I think [beep beep] there it is!

Yep!

Yeah, percentage of total mortgages originated, look at it go up over time! As time goes on, they just go for more and more subprime as well!

There's someone in the comments here that said Michael Barry's in the background of one of the first scenes.

He is! Is he?

He picks up the phone and says something like, welcome to Michael Barry's office!

Oh really? Wow, I'm not sure if that scene's gone yet!

Yeah, true!

I think that’s what he did! Was he one of the first to buy credit default swaps on mortgage banking?

Michael Barton!

Hey! I want to do this!

And I think that's a scene coming up with the banks, like they all laugh.

Can I take this? Wall Street, I hate it!

Can I take this mug?

Take two! (laughter)

Hey Pedro, thanks for joining us, buddy! Lawrence walks to the office here!

If you've just joined, I'll help you sync up! That’s great!

Uh, okay, apparently this is very, very Steve Eisemann to be like this!

Yeah! The whole world's corrupt! Everything's going [beep]!

This is like everyone, they're trying to convince themselves they love their job!

Yeah, I love money!

They could name that thing—oh no, don't do it!

Yeah, so they changed it to his brother instead of him, instead of his son!

Yeah, get out of here!

That you're just hearing that on the other end of the table!

Oh yeah, all right, see ya!

Oh God, these people look exactly like what investment bankers look like!

Oh yeah, like 100%!

It’s very accurate is what he’s trying to buy up on the screen here?

Credit default swap! (laughter)

Laughing! (laughter)

When he just knows, it knows it's gonna happen!

And a very good concern to have!

Yeah, Goldman ended up being all right, but, yeah, Bear Stearns at the end of the movie, they show that a lot of these guys were concerned that they weren't, you know, the people that sold them the credit default swaps were not going to be around to pay out, right?

Yeah, sorry guys, we can't put the movie on YouTube obviously, because the copyright gets taken down instantly.

Uh, if you're wondering what part of the movie we're on, I will help you sync up! If you are late, feel free to start The Big Short and move along to that point in the timeline, and you'll be able to join us! Michael Barry is currently trying to buy some credit default swaps and getting laughed at by a bunch of bankers! Nice!

They're all sitting there like, I don't know what's in this thing, can you make it 50? (Laughter)

Oh, this is the cup! This is where he gets the cup, right?

Yeah! Yeah! (laughter)

How do they try to get Buffett to bail out Lehman? Did they?

The Fed tried to get him to come and buy Lehman, and he considered it! (Laughter)

Yeah, he must have been very certain, very confident!

Interrupt collapsing!

Hmm, Jim Cramer! He keeps taking the car! Another mug to the collection!

There are now, this is very accurate as well. There's a cafe here in Sydney which is like the hangout for the investment bankers!

Oh, okay!

How well—yes! Winston Churchill!

So when you're trying to convince your parents to buy something!

Yeah! This isn’t crazy!

Man, imagine having that sort of pressure!

That's why I never want to manage money for someone else! Imagine having that pressure on your shoulders!

Yeah, very stressful! If your decisions, they could cost your investors a lot of money! They'll come for you!

Yeah, yeah, so I don’t care!

Um, you're happy when you're unhappy!

I did investigate!

Oh, they sort of did investigate what his strategy was, but I just thought he was totally crazy and he was wrong, basically!

Wow!

Hey Brandon, you want to pop up the timer again? Mark's asking!

Yep, we'll do!

Hey Mark, we've started the movie! Um, obviously we can't show it on YouTube, um, so if you bring up the movie and sync yourself with the timer, you'll be at the same spot we are!

Three points since last year! Greg Lipman, right?

Yep! Here we go! It’s the best scene in the movie!

This is, you got, you guys got to pay 10!

We'll shut up because this is important!

There's definitely some interest! Follow along on the screen if you want!

So people talking about the likelihood of just working like obviously in hindsight looks very obvious!

But, I mean, obviously it was a crazy long shot and the timing is important as well because you've got to pay every month to keep the trade open!

Here are our tranches up on the screen! So high return, but yep! Sometimes talk [beep] um, you're too close!

The quant, the quantitative! (laughter)

I like how just in the background they're just like, that’s very racist! [Music]

Actually my name's Jung and I came second in that competition!

Yeah, so keep following along on the screen for the continued explanation!

Do (laughter)!

Good analogy, a FICO is a credit score!

Yep!

Yeah, foreign (music). That's me in every class!

Here's the fish analogy!

It's a whole new thing! (laughter)

We've had that comment! We’ve—someone commented that dog (beep)!

Catch it!

Call me Bubble Boy!

Oh my gosh! Went by the bull investor!

Did that scene make more sense in the chat now that we had that little discussion before we started the movie? Let us know!

Yeah, I want it to be right! (laughter)

We still haven't met Charlie and what's his name?

No, I think that's the next—oh yeah, right!

Yeah, it must be soon!

[Music]

And it seems like it is at this point where word slowly starts to spread and everyone starts to think, oh is there an issue?

But obviously a lot of people are still oblivious!

Um, how big are his glasses, Jamie and Charlie?

That's right!

I mean, such a douche!

You know what this guy looks like? He looks like that pharmaceutical guy who was hiking prices!

Oh yeah, what's his name?

Uh, what's his name?

They're a bit short though, a little bit.

They should have—no, not going yet!

Yeah, they definitely should!

Yeah, when the Indy 500 riding a llama!

That's good! I want to start using that in everyday conversation more! (laughter)

1 billion 470 million dollars short! Damn it! A rounding error!

Yellow!

Okay, see you later! Gets back, elevator, fetal position!

Ah, imagine if you just found that line around!

This is not actually the way it happened too, by the way!

But imagine if you found that! That was amazing!

Get Brad Pitt in!

Where is he?

It's a lot of good actors in this movie! A lot!

Yeah, on a stock market movie as well!

Um, yeah, but this was after Moneyball. I think Brad Pitt had already done one for him, right?

Yeah, that's right!

That's a great movie too!

Yeah, and that was their actual investing strategy! They just, uh, worked out the probability of crazy things happening and placing their bets accordingly!

Hmm, hey, here he is!

I didn’t know that was Brad Pitt the first time I watched the movie! It took me a while!

Reminds me of crypto people! (laughter)

You gotta get on Tomato Coin!

Oh yeah, oh this is their little field trip when they actually do some, uh, on the ground, on the ground research!

Yeah, they’re like convention in Vegas, isn’t it? Kind of Miami!

Now this, I think this is before when they just, they’re scouting out!

Hmm, that’s where they just go to their houses!

Yeah, and then just brokers!

For sale sign after for sale sign! Empty houses! (laughter)

Oh God! Oh sad reality!

Yeah, that’s what Ben said at one point when they were celebrating their trade!

Hmm, that’s the thing! It wasn’t even the people behind the houses that were affected!

Well, not just that at least!

Yeah, yeah!

That’s true! Even a lot of the people buying their houses as investments kind of got sucked in by predatory lending!

Yeah!

Thinking that, you know, an adjustable rate or an introductory rate is, you know, going to be fine!

And worst case you’ll be able to sell your house to somebody else!

And that's, that's what's third—that's the stripper scene!

That's what that highlights when she's like, yeah, I have four houses and a condo!

Yeah, and they've seen this!

Stuck in salesmen, basically, the mortgage brokers that—

Yeah!

Since, I mean it's the same thing! Like now if you watch like Dave Ramsey videos, like the people who buy these crazy expensive cars and borrow money to do it, it's because they get sold!

They go into the car dealership, they're not really making it!

They're not doing it themselves! They're getting sold on it!

Unfortunately, it's difficult to like stop that happening to you!

Um, yeah!

Ah, there he is in the background!

And the reason that the Sion’s value is going down is because he has to pay premiums to keep these positions open with the credit default swaps, right?

Yeah, yeah!

So that's the thing is if you—you could default on your payments for the position and the next month it pays out!

So it's about timing as well!

Yeah, yeah! There was a limited range in which he had to be correct!

Yep!

Yeah, that's the thing with options, and futures and all those things is timing!

Derivatives man!

Hank Paulson is the CEO of Goldman Sachs and then went to the treasury to work for George Bush!

So, um—oh true!

I was down 17 on the contracts that are avoided!

Oh, okay Karen, it’s a nice house!

Hmm, it’s just the gully!

Yeah, yes, okay, 60 is nuts! (Laughter)

Before it’s the investment bank!

So the investment banks, they're buying these mortgages, bundling together mortgage-backed securities and then selling them on, so that's why these guys are able to make so many!

And the thing is, they can sell them for more than they buy them for because of the way they package them!

So they make instant profits as well!

That's how this whole system got so big!

So bad!

Yeah, and they have zero risk because they're just selling it!

Geez!

Problem is it’s true! (Laughter)

Who's Warren Buffett?

So good!

This is the scene, look, why Hamish? There's a guppy!

Oh! Oh no!

Oh, anaconda!

Oh, there's a bubble!

There's a bubble!

YouTube comments!

And now everyone’s watched this movie, everyone sings!

So you can see the next bubble!

Yeah, true!

See, come on! If you go and read like any subreddit, everyone thinks everything's a bubble!

Oh, this is a good saying! This is a good—

Mm-hmm!

You’ll get the Sunday!

I buy that! You get so pumped, it goes on! High fives people!

Yeah, I love this bit! This is so good! (Laughter)

It’s great!

So paranoid! Has like 13 phones!

Dammit! Nicole’s on the other line! Speaks him anyway out of 14!

Dammit!

Hey, so (music) um, imagine that feeling when you know that you're onto something!

Oh man!

Mayor Michael Bloomberg, remember that?

And when he ran for president for like two weeks!

Yeah, right?

Yeah, he's wearing a mask! That's very 2020!

Yeah, head of the times!

Yeah, what a tune! (Laughter)

[iPhone] Which one's that?

Remember that?

That's the original, was it?

Looks like it didn't know how it was a number maybe?

Yeah, that's what, that 2007 must be! Must be the original one!

Yeah, the first one was 2007, right?

Yeah!

Yeah, so what’s this bit?

This is where they've all kind of started getting their positions.

This is when it starts, like the mortgage market starts going down, but the bonds aren’t moving, right?

Correct?

These guys are very skeptical!

Yeah, what?

So posting collateral is like a margin call!

Hmm, oh! (laughter)

Geez, I love this!

So what defaults were going up?

Oh, what's this?

Oh yeah, this is where they go because the ratings agencies weren't—they weren't called downgrading them!

Yeah, they weren't downgrading them!

That's what I'm trying to say!

Oh, one of her glasses is going to stop those rays within your models!

[Music]

Good questions, that’s cool comments!

The ratings agencies turned a blind eye!

That's why she's wearing the glasses!

That's cool, very clever! Very clever!

[Music]

Um, hey I cash for writings!

No, I’m not!

No damn, bummer!

Okay, this is where things are! Building their apps, and they're making a lot of money doing it!

All the apps are exactly the same!

Yes, just bullies this guy, his assistant!

Or assistant!

He's really confident!

And the background you've got Ramu Washington!

Neutral!

I like that, don't spook anyone!

I'm not advertising position!

And then this happens, which actually did happen!

Yeah, um, we got a question!

Yeah, any of you guys want to answer after this scene?

After this scene, laughs!

Zero!

Good one, Mark!

Don't advertise our short position!

We don't want to cause a stir!

And then he does that! (Laughter)

Hey, you guys want to answer the question?

Yes, Brandon!

Um, sorry, Chanel, uh, yep! This one here!

Yeah, you ever thought about working in finance?

Yeah, I do prefer to do my own thing!

But no, I don’t think I would be an analyst or a trader!

How about you guys?

Yeah, I’ll never say never!

But I do like doing my own thing!

Um, so, I don’t think so! Trader, no! Analyst, maybe!

But probably not! Still, I’d probably still like to do my independent work!

But I'll never say never! We'll see how things evolve!

Yeah, and I work in finance now!

Um, you love it? It’s right up your alley!

Yeah, I work in lending at the moment!

I'm finishing that up soon and going to work as an analyst, so yeah, answer is yes!

Back to the movie! (laughter)

Haha, oh poor Michael Barry!

It's really interesting seeing how much his investors really turned on him!

He was, and he like Christian Bale's portrayal is accurate!

He was so sure of this bet, he like had already put in the books, you know, he knew that this was going to happen!

And he was so surprised at how many of his investors just didn’t respect him!

Wrote angry emails! Crazy!

I mean we all would do that though, right?

Um, like if you were invested with a funnel, you know that generally, like a fun’s not gonna beat the market, not gonna do that well!

And then he goes and does a crazy trade, and you're down!

The thing is though, 20%. He wrote countless emails to all his investors explaining exactly why he was doing what he was doing!

Yeah, and they still nobody cared! They just got really angry!

Yeah, I'd love to see the emails themselves!

Yeah! Like what if you were invested with some fund when they started saying, oh, I'm going to bet against like the coal industry, right?

This big bed against the coal industry that has to be right in the next two or three years or that the fund is going to zero!

So you'd probably say they're mad, but this is what's annoying, Michael Barry here is that he's seeing the same thing that everyone else is seeing!

Yeah, the ratings agencies aren't doing anything differently!

Default rates are going up!

Um, yeah, the bonds just the same!

And he's calling it fraudulent!

And that's quite a suck because you know you're right, but no, the game’s rigged!

Yep!

Yeah, especially if there’s a timeline!

Yeah, it's crazy!

I can't wait forever!

Like if you're just long an investment, even if it's taking a long time for the market to realize the value, there's no risk to you to hold pressure!

There's no pressure!

Whereas if you're short and you're making margin calls and you're losing more derivatives, yeah, then it’s a different to do it!

Yeah, that’s for sure!

I went with someone else's money as well!

That is true!

So what he's saying here is he's going to bet against the highest tranches!

Yeah, so it's like second highest, just below the AAA!

It's funny how Michael Barry has become the sort of hotshot investor since the movie because he used his real name!

Yeah, yeah!

Like everybody knows him!

The other guy's got it right too, but they're not like—

I haven't got that!

Everything's so now they're going on this spree of buying the credit default swaps against the AA, so against the AA tranches!

Yeah, which is supposedly very, very safe! Owned by all the big dogs!

And they are happy about it!

Reality right here! Oh, it's crazy!

And that was the, uh, the trade-off during COVID!

Like when there's the trade-off! It’s like you do the lockdowns and unemployment goes up!

Do more people die because of that than we're gonna die of COVID?

Yeah!

It's a balance between healthcare and financial impact!

Yeah!

Oh here we go!

This is when they see it!

Oh, and spend the nanky laughs!

Oh now they want him! Fair enough!

Yeah, sure! I read an article today about how a lot of these systems are running on computer code that was written in the 70s!

And they can't get it off because it's too expensive!

Well, a Commonwealth Bank tried to get like a portion of their sort of clearing programs off of this old code, and it cost him a billion dollars to do!

Wow, oh I love it!

No one believes him!

Take your meds!

Haven't moved!

Um, yep!

So right now, so many banks are caught on the wrong side of this equation that before they draw attention to it, they want to get on the other side of the equation! (Laughter)

So garage band head fun catchment!

See that's the thing, there’s so many of these people!

Like what could they do?

Yeah!

Like if you’ve got kids, you can't risk your job!

Especially when you know what's about to happen!

Yeah!

Out!

Um, what so right now the banks are trying to offload their mortgage-backed securities because they know they're terrible and they're trying to buy credit default swaps before everyone figures out what's going on, right?

Yeah, trying to get on the right side of the equation before they get the ratings changed, basically!

Everyone's panicking! Everyone's selling!

But there's so many steps in this whole thing that nobody —the price hasn't reacted yet!

Yep, there it is! That's what we were just talking about!

So (laughter)!

Oh!

Oh!

So basically what he's saying is he was shorting the Bs, but he didn't think the As were gonna go bad, so he sold those!

That's what Charlie did differently!

Yeah!

He did bet against the As!

Yeah, so he was long—Morgan Stanley long on the As, short on the Bs!

And if the As go against you, it's a lot worse than the Bs!

Oh, it’s a lot worse than what you gained from the Bs going for you!

Yep!

Right?

Oh, um, so they lose if Morgan loses!

Yeah!

So they're winning, but their parent is losing!

Yeah!

And if Morgan Stanley goes bankrupt, everything will get tied up for years and years! Nothing left for them!

Yep!

Yeah! So we're talking this is such a vibe!

I’m sure it is! (Laughter)

So, so loud here about this!

Watching them watch the movie!

Dude, that would be like the live stream that—synthetic live stream, synthetic CDO live stream!

Come on ladies!

This is me at the gym! (Laughter)

This is such a good scene!

But one thing I wanted to point to is that this movie does such a good job of showing just weaving in how clueless the rest of the world is while these guys are so switched on!

Yeah!

Yeah, they're just in their spin class!

Yeah, no pressure!

Hmm!

Hmm, do 12.3! This is, this is it!

Like you hated me and I'm about to send you $100, 400, 500 million dollars!

You know, you're welcome!

Damn right!

It’s like, uh, what a jab!

A couple of weeks ago when Valtteri won that race!

Boss ass!

He’s like, to whom it may concern!

Yeah, it's palpable!

Lucy! Come watch this! This is important!

Lucy, come learn!

And that's the end of that story.

I'm getting 80 million dollars overnight! Boom!

I love this scene!

Greenspan! Yeah, this is a really good one!

This is fantastic! Bear best dance!

Yeah, this is Bear—did this actually?

I think this actually happened!

Yeah, in the speech and the stock price tanking!

And yeah, just incredible!

Just one of those moments in life where it all happens! Perfect timing!

Mm-hmm!

That is what you want your management to be saying, isn’t it?

The days before Robinhood!

Yeah!

Someone has to text you stock prices!

In the Great Depression, they used like a morse code basically!

A little ticker! Really?

Where you get like the ticker?

Wow!

The code and on the bad days of selling, the tape would continue to roll out of the tickets for hours after the market closed because the volume was so heavy!

Wow, that's crazy!

Hmm!

Um, boom, go for it Mark!

Boom!

Everyone leaves and here we go! The climax, if you can call it that!

Everyone's like, no, I'm out!

I'm out!

Yeah, I'm out of here!

Listen, Greenspan! Greenspan's got a really good book about capitalism!

It's only, it's like 250, 300 pages, right?

It's well worth reading!

Um, don't talk to the press!

Lehman Brothers had been around since the 1800s!

150 years old!

Yeah, started trading cotton, I think, in the early days!

Wow!

Do not talk to the press!

Yeah, always hated that!

Companies want to tell you who to talk to and who not to! [Music]

So this is still a nervous time for these guys!

Yeah, they haven’t sold yet!

Um, hey, classic!

Ah, there's a guy from America!

Yep, lost his house!

Hmm, that's right—mortgage brokers looking for jobs!

Yep, but he has reopened it!

Is it still Sion acid or Sion capital?

Hmm, I think most of the money is his though now!

Okay?

I don’t think no public money anymore!

Maybe a little?

I don't know!

Hey, there’s a happy ending for Mike Barry!

It’s okay!

Can we get a Mike Barry in the chat?

There’s a bit of positivity amongst all the, all that's happening in the movie at this point!

It's better a downer, isn't it?

It is a bit of a downer!

I remember much when the market went down like crazy!

Hmm!

This Bloomberg—guess who's paying you?

Uh, taxpayers didn't actually end up paying for it!

And the taxpayers bailed them out!

But, uh, like within a year they'd made all their money back!

Um, because they invested in the banks right at the bottom basically!

The stocks went back up and they made all their money back!

Wow, well that's a good bailout then!

Yeah!

Yeah, we were very lucky with the people who were at the Fed, at the Treasury!

I love this [beep]!

Oh wait, unlucky, unlucky!

Cobbler, point to someone!

Okay, sell it all!

It’s unbelievable! 5 trillion dollars!

It's a lot of money!

There's a lot of people that got affected!

Yeah, true!

This wasn't just contained in the USA!

Yeah, yeah!

I don't know if these—some of these facts still hold up!

I know that the one about Mike Barry being invested in water is no longer the case!

He sold those investments ages ago!

Yeah, all right!

Attempted to sue the ratings agencies!

Well fair enough!

Go Ben!

They have plenty! Is Ben Rickett his real name?

Not sure, I can't remember!

I'm not sure!

I remember then he gets investigated by the FBI!

There you go!

Not so much anymore!

Not water, but he does buy Facebook stock among other things in the most recent quarters!

Josh in the chat says, uh, which minute of the film are you at?

Unfortunately, the last one!

Unfortunately, last minute!

Yeah, sorry!

But this will, there you go!

That's it, team!

Wow! What a movie!

Hey, what's a movie!

One of the classics!

How did you guys find that?

There you go, I can stop this timer now!

Yeah, if anyone has any like suggestions, let us know in the chat!

There's still 43!

We had about 50 people that decided to actually watch it through with us live, so well done guys!

Well done on making it through to the end!

What did you think of the movie?

Did, um, I'm interested to hear, did it make, maybe if you watched it the second time around, did it make a little bit more sense?

Um, now that you’ve, maybe with our little spiel at the start and with the little notes as we went along, be interested to hear!

One thing we could do, we could watch the 60 Minutes, it's a brief clip, the 60 Minutes interview with Mike Barry!

Yeah, that's quite interesting!

Um, I think it's 60 Minutes, it is 60 Minutes!

Yeah, it's a quick clip!

And by the way, Ben Rickett, his real name is Ben Hockett!

Ben Hockett, that's right!

And Mark Baum is Steve Eisemann!

Michael Barry is Michael Burry!

Uh, what's the vent—someone, Bennett?

Ryan Gosling’s character's name is Greg Lipman!

Yeah, in real life!

If you want to look these people up!

Had fun guys, but got to go to sleep!

It is midnight New Zealand, so thanks very much for joining us, Stefan!

Thanks for joining us!

Had a good time! Love this format, well done fellas!

Thanks very much for tuning in!

Um, and hit us with questions if you want!

Um, yeah! A very, very interesting movie and very well put together!

Um, more times you watch it, the more, the better you understand!

Yeah, absolutely!

Um, I'd love to hear any of you guys, if you have any feedback on the format!

I think we tried to do the best we could because obviously, we didn’t just want to sit here and watch the movie because otherwise, like what’s the point?

We wouldn’t say anything, so did we get it right?

Do you feel like we should have spoken more or talked less or, I don't know!

I'd love to hear any feedback on that because we're obviously doing another movie night!

If you missed that at the start, next week, next Saturday!

If I can get this up, we are doing The Wolf of Wall Street!

Saturday, December 19th at 7:30 p.m. that one we’re basically going to just, um, get started straight away because there’s not really—that's just pure entertainment!

There’s not too much, that’s a long one!

We need to get right on it because it is a three-hour movie!

So, yeah, if you game, it’s probably in my top three favorite movies of all time though!

So if you want to join us next week, um, then definitely, definitely join us for another live movie night!

But, uh, while we're, uh, The Big Short, Wolf of Wall Street, and Wall Street, yeah we could do all of them!

I'm trying to find the right clip and get some coffee next week!

Um, there’s a really good documentary, it’s available on YouTube for free!

If you search GFC Vice, it’s the one on the Council on Foreign Relations channel!

It’s about an hour and a half long!

It’s a really good documentary about the rescue of the financial system and how the bailouts worked and why they did them and all those sorts of things!

Right here!

I'm gonna flip this, flip this over!

And let’s watch!

So this is real life Michael Barry in a quick interview, um, on the global financial crisis!

Let’s have a listen!

I can't hear anything!

I can't hear it!

Oh, you can't hear?

No, damn! Bummer!

Okay, maybe it can't broadcast that! Nevermind!

Go type in into YouTube and go type into YouTube, the extra, extra, the 8.4 billion dollar bit and watch that video!

That's annoying that I can't, but I guess it makes sense!

But, uh, there you go!

Oh, I know, I know what I could do!

See if this works! Ready!

I'll have to unplug, swing this around!

Ah! We’ll see if that’s, um, Branson just said in the chat The Wolf of Wall Street isn’t on Netflix Australia!

It is, I believe, on Stan!

Yes, it’s on Stan, pretty sure!

Sorry, if you want to join next week, you don’t understand, you can get the 30-day free trial and watch with us!

Here you go! Ready!

I’ll try and do this so you can watch this clip!

So how much of these things did you buy?

I mean you got out of everything!

Default swaps betting against the housing market, right?

Right!

We bought basically short 8.4 billion of credit default swaps, um, related to mortgages or financial companies!

Must have been very confident that this thing was gonna blow!

We had a giant bet for us and, and I was extremely confident in the outcome!

Were your investors as confident?

Uh, I think a few investors were. Some of them thought you were crazy.

Someone thought—you probably thought you'd lost your mind!

I think, I think I know for sure that some of them thought I lost my mind!

So you made a ton of money?

Made a ton of money! Much more than I ever imagined I’d ever have!

Were your clients grateful?

I think a lot of clients were just glad to be done with it at the end!

You know, we've, we doubled their.money!

Well, we made 725 million I think in the funds in 2007 and in the first six months of 2008 there was about 730 million in withdrawals!

Perhaps I had made the trade too big for the fund and my confidence in the trade had ticked off some people even though you made them rich!

Even it’s remarkable!

There are investors who made tens of millions off this and, uh, we're still pretty upset!

Wow!

There you go! Very remarkable!

Unbelievable!

Do you guys have any questions in the chat before we finish up?

This has been a wow, a two hours and 34 minutes stream!

Yes, actually Brandon, if I send you the link maybe you can just like pop up the thumbnail or something so people can see it!

Yep, sure! Hang on!

I’ll need—what do I need? Facebook?

Yeah, I’ll send you on Facebook!

Okay, yeah, no worries!

How’d you guys like the movie though?

What did you think?

I’d love to hear from you guys in the chat!

So send your thoughts and opinions through! But yeah, definitely thanks very much for—thanks for joining us guys!

That was so much fun! I really enjoyed that!

Um, you sent me the last time I watched that movie!

Send it—sorry!

Talk amongst yourselves because I can’t quite, it’s not coming up!

Just sent it to you!

Oh yeah, I see!

I see! Um, how about I copy the link and then I'll put it in the chat?

Does that work?

Oh no, that's going to take people to—maybe Facebook?

That’s, that’s not right!

Does that even work?

Oh gosh, that's too different now! Forget it!

Oh! I’ll have to—I have to put it over!

It’s called, um, Panic: The Untold Story of the 2008 Financial Crisis!

But if you search GFC Vice, it should be the, the first, the first right!

Okay!

It’s on the YouTube channel, this Council on Foreign Relations! This one here!

That's it!

Cool, cool!

Alrighty!

Still 33 people with us! Thanks very much!

I think we might wrap it up!

But I don't think we're getting any, um, any questions coming through!

Um, but yeah, definitely join us next week guys for Wolf of Wall Street!

Um, that's going to be—man, that's going to be a long one!

But should be a good one!

And, uh, yeah! Thanks very much!

Thanks very much Jason and Hamish for, for joining me tonight and watching the movie!

That was pretty good!

Yeah, that was great! Thanks for having us!

Great, uh, great stint!

It's a great movie!

Such a good movie!

And yeah, definitely let us know what you guys thought!

Leave your comments down! If you're watching this after the fact on YouTube, let us know down in the comments what you thought!

Any feedback or anything over the next weeks appreciated so we can make the experience better for you guys for when we watch Wolf of Wall Street!

Make sure you've got your own access to the movie just like what we're doing again tonight!

Uh, because obviously we can't show the movie as we watch it!

But I think that would just about do us guys!

Thank you so much for watching and joining us!

There’s a bit of an experiment! First—oh I'm gone! I'm back! Here I am!

First seven movie night, and I think it was a success!

So thanks guys, and uh, we’ll talk to you very soon! Bye-bye!