I haven’t seen The Big Short, which opens tomorrow, but I’ve read (and own a copy of) the book and cite it in American Nightmare. Based on the trailer, the movie appears to focus on the notion that the financial crisis was caused by greed and lack of bank regulation, an idea endorsed by Paul Krugman.
As both Krugman and New York Times writer Neil Irwin point out, the movie’s notion that only a few people were able to figure out there was a housing bubble is wrong; many people realized there was a bubble (or bubbles). What the heroes or antiheroes in Michael Lewis’ The Big Short figured out was a way to profit from the bursting of the bubble. While it is possible to “short” stocks, i.e., bet that their price will go down, it normally isn’t possible to short bonds, such as the packages of mortgage bonds that banks were selling.
