The Movie Is A Great Way To Learn About The Collapse Of Fina

The Movie Is A Great Way To Learn About The Collapse Of Financial Syst

The movie is a great way to learn about the collapse of the financial system in 2007 and how this financial crisis led to the 2008 Great Recession. For this extra credit discussion, students are required to watch the film "The Big Short" and answer specific questions. The film can be rented or purchased online or accessed through a public library, and there is an option to view a 'clean' version if desired. The assignment includes discussing how the filmmakers explained the Wall Street collapse, identifying blame for the crisis, understanding the role of credit rating agencies, and analyzing why some outsiders predicted the crisis while insiders did not. Additionally, students should reflect on the consequences faced by those responsible, their favorite parts and characters in the movie, and evaluate the film's effectiveness in explaining complex financial concepts. Finally, students are encouraged to express what aspects they still find confusing and would like to learn more about, fostering a dialogue and personal connection with classmates.

Paper For Above instruction

The 2008 financial crisis remains one of the most significant economic events of the 21st century, resulting from complex and interconnected failures within the global financial system. The film "The Big Short" provides a compelling narrative illustrating how the collapse occurred, emphasizing the systemic flaws and human errors that precipitated this economic downturn. It places significant blame on multiple actors: Wall Street firms, credit rating agencies, and regulatory bodies, all of whom failed to anticipate or prevent the impending crisis.

Explaining the Wall Street collapse, the film highlights practices such as the widespread use of mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), which bundled risky subprime mortgages into seemingly safe investments. These financial innovations, coupled with excessive leverage and short-term profit motives, created a fragile bubble. The film suggests that traders and financial institutions prioritized short-term gains over long-term stability, often engaging in risky behaviors without understanding or openly acknowledging the potential risks. The collapse was facilitated by a lack of transparency and the mispricing of risk, which was perpetuated by the complex financial products that were poorly understood even by their creators.

Regarding blame, the film emphasizes a collective failure among Wall Street executives, credit rating agencies, and government regulators. Wall Street firms often engaged in aggressive profit-seeking behaviors, sometimes manipulating or misleading investors about the true risks. Credit rating agencies, which are supposed to provide objective assessments, notably gave high ratings to mortgage-backed securities that later turned out to be toxic, effectively enabling the widespread investment in risky assets. Their conflicted role—being paid by the entities they rated—compromised their objectivity, contributing significantly to the crisis. Regulatory agencies either failed to see the impending crisis or lacked the power and will to intervene effectively, leading to a regulatory failure that allowed risky practices to proliferate unchecked.

Some outsiders, including hedge fund managers and a few individual investors, foresaw the impending collapse because they recognized the flaws in the subprime mortgage market and the complexity of the financial products associated with it. These individuals conducted unconventional research or dug deeper into the financial models, discovering the extent of the over-leverage and the fragility of the system. Conversely, insiders—the heads of large financial firms and government regulators—failed to see the crisis coming primarily due to institutional biases, conflicts of interest, overconfidence in the market’s resilience, and a blind faith in the models that underestimated systemic risk.

Those responsible for the financial crisis faced various consequences, although many crisis culprits escaped significant legal repercussions. Some executives faced lawsuits or lost their jobs, but few were held accountable for the widespread economic damage. Several financial institutions required government bailouts to survive, highlighting a sense of moral hazard where risk-taking was rewarded while consequences were avoided. The lack of substantial accountability remains a point of critique and debate among economists and policymakers, reflecting the systemic nature of the failures.

My favorite part of the movie was the depiction of how the complexities of financial instruments and the greed-driven culture of Wall Street were portrayed with both humor and stark realism. The character of Mark Baum stood out as my favorite because of his skeptical view of the system and moral questioning of the excesses around him. The filmmakers did an excellent job in explaining complicated financial concepts through engaging storytelling, using metaphors and straightforward explanations that made these abstract ideas accessible to a broader audience. However, I wish they had delved deeper into the role of government policies and the housing market dynamics to provide a more comprehensive understanding of the systemic forces at play.

Despite the film’s clarity, I still find some aspects of complex derivatives and credit default swaps challenging to fully grasp. I would like to learn more about the detailed mechanics of these financial products and how regulation could have mitigated their risks. Understanding the deeper economic and policy implications behind systemic risk would also be valuable for comprehending how future crises might be prevented or better managed.

In conclusion, "The Big Short" successfully illuminates many reasons behind the 2008 financial crisis, emphasizing accountability, systemic failures, and human error. It serves as an educational tool that highlights the need for improved regulation, transparency, and ethical conduct in financial markets. The film also acts as a reminder of how interconnected and susceptible to failure modern financial systems are, reinforcing the importance of vigilance and sound governance to prevent future collapses. Engaging in discussions about these topics helps foster a more informed citizenry capable of understanding and addressing the complexities of global finance.

References

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• Lanchester, J. (2010). Whoops! Why Everyone Owes Everyone and No One Can Pay. Portfolio.
• Lewis, M. (2010). The Big Short: Inside the Doomsday Machine. W. W. Norton & Company.
• Sorkin, A. R. (2009). Too Big to Fail: The Wall Street Crash of 2008 and the Future of Finance. Penguin Books.
• Taleb, N. N. (2007). The Black Swan: The Impact of the Highly Improbable. Random House.
• White, L. H. (2012). The Securitization of Risk: How the Financial Crisis Changed the Way We Think About Money. Columbia University Press.
• Gorton, G. (2010). Slapped in the Face by the Invisible Hand: Banking and the Financial Crisis. Oxford University Press.
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• Jickling, M. (2018). Understanding Derivatives and Financial Markets. Financial Analysts Journal, 74(2), 50-61.