Review of The Big Short (2015) by Will_Tell — 02 Jan 2016

The movie was entertaining throughout, with very few dull moments. Even a few humorous points were well done. The financial content of the movie was fairly complex, which is the way it's meant to be. That is, the financial instruments used by "Wall Street" leading up to the crisis were sufficiently complex that hardly anyone could understand how they worked.

And thus hardly anyone could foresee their eventual collapse. If you believe the story as told by this movie, you place almost all the blame on the Wall Street banks and financial ancillaries, for creating and trading these complex financial instruments in order to make a fortune, while the government regulators were essentially asleep at the switch.

Of course, that's far from an accurate picture. It was the federal Department of Housing and Urban Development (HUD) that told Fannie and Freddie to make loans to "underserved" borrowers, and in fact specified minimum quotas for the numbers of such borrowers.

In order to comply, Fannie and Freddie substantially reduced their underwriting standards. Whereas before 1992, Fannie and Freddie required that mortgages require a 10 percent down payment, by 2000 they required no down payment.

So it was federal policy to encourage banks to make mortgage loans to borrowers who were poor credit risks. In fact, I would use the word "force" instead of encourage. This aspect of the "crisis" was not on the agenda of the filmmakers.