search
Only on Eduzaurus

The Big Short: The Strategies Used

Download essay Need help with essay?
Need help with writing assignment?
72
writers online
to help you with essay
Download PDF

Introduction

The film “The Big Short” released in 2015 discusses how the mismanagement of government led to a global recession making thousands of people lose their jobs. It all started when financial institutions were a boring industry to work in. Until the arrival of Lewis Ranieri, the person who thought of bundling the mortgages of people for higher returns, but it is still low risk because they pay their mortgages. From then on, they were earning a lot of money from mortgage and security bonds. Until in 2008, the global economy collapsed because they did not foresee what was going to happen. Banks kept approving mortgage loans from brokers even without having the people background checked if they had a job or not to keep up with the payment terms for the loans they applied for. They were determined to keep on earning money that they did not realize some of the mortgage loans were already way past their due dates. There were a lot of strategies that the real estate and financial industries made use to be able to market real estate properties and financial instruments.

Infographics

According to Faria (2018), Property Management Field is so multifaceted that in a given day, a property manager may step into roles in accounting, marketing, risk management or other fields. This portion of the paper mainly talks about the tools or skills that a Property Manager must possess to overcome challenges on a day to day basis. The use of infographics is highly commendable as it makes it easier for customers to track down recent changes in the market and can possibly forecast the future trends in the industry. It can be seen in the movie during the part where Dr. Michael Burry was basing his computations on the data that his assistant gave him and came up with the conclusion that betting against the housing market would earn him a lot of money. It reminds us that simply looking into findings that are already provided to us is not enough to come up with decisions, people who plan to invest should learn the basics and not put their money into something they don’t know about. Another thought in this strategy is that looking into data may traverse you to the path where you can find more value for your money and investors if you are handling a hedge fund company.

Essay due? We'll write it for you!

Any subject

Min. 3-hour delivery

Pay if satisfied

Get your price

Progressive Thinking

After finding out the future trends in the industry, it is time to know how to make something beneficial out of it. This is where the strategy of progressive thinking comes along. With the growing trends and market conditions, people want to simply go ahead of it as they anticipate the changes that will happen soon. People should realize that if what they want isn’t being offered by banks or other financial services company for that matter, they should first offer it to them. With the misconception that the housing market was booming, banks gladly accepted the proposal of Dr. Michael Burry. Investors must occasionally risk to have higher returns.

Dr. Burry made a deal that is specially for him. In turn, he had multiple meetings with bank representatives to discuss his proposal. It was ridiculous to bet against the house market since it’s tagged as one of the booming industries. His confidence and perseverance to invest on what he discovered turned out it will benefit him the most in the latter part of the story. Even though he went against the wishes of Lawrence, he proved him wrong. Although it was risky, Lawrence just had to trust the instincts of Dr. Burry.

Banks became curious why Dr. Burry was willing to bet against subprime loans and pay premium for those. It was right that they gave Dr. Burry his part of the deal, because that’s business, you accept anything that gives you money. However, they were not doing their jobs as a bank. They neglected the idea of looking into subprime loans where they might be a problem since a few people were determined to bet against those.

A few more minutes into the film, Jared hears of what Dr. Burry did and he decided to try to market it to companies which would later reject him. Until he got an appointment with FrontPoint. He used metaphors to express how subprime loans will decline in the future and the economy of the United States will crash down.

Personal Selling

More into the introduction part of the story, Jared Vennett, an employee of the Deutsche Bank offered a good proposal to Mark Baum of FrontPoint. He showed Mark Baum a portfolio of the trends indicating how the housing market industry will be on the next few months. The portfolio that Jared gave Mark contains the data of how much returns he will be yielding if he was to bet against these types of mortgage bonds. He gave them numbers by saying that people can have returns as much as 20 to 1.

When Jared was selling to Mark Baum, he revealed what banks do when they don’t sell. They combine those bonds that do not sell and call them a Collateralized Debt Obligation. And when they are large piles, they are considered diversified. The whole question was why agencies were working with banks to rate them as a good investment when in fact they are not. It is important that people who wants to invest knows this kind of business that’s being participated by financial institutions. The CDO is what caused the housing crisis to become a nationwide economic disaster.

As a Personal Selling type of strategy, he went all the way to FrontPoint’s office to inform Mark of the ongoing trend in subprime mortgage bonds. As a result, Mark and his team investigated properties in Las Vegas and found out that most mortgage payments were not being made. It was also revealed how banks easily approve mortgage loans in the hopes of circulating more money to invest. After his visit to Las Vegas, he immediately bet against the house market economy as he sees that they will benefit from this.

Brokers were able to market real estate properties to customers because of the flexibility they gave them. These customers didn’t have to wait long until their application for mortgage loans were approved. Broker Agents did all of these without telling their clients that rates may go high. The agents told them other options, but they were not telling the truth, they just did those to ensure that there will be money coming in for the banks.

The strategy of personal selling is a good idea in the real estate and financial services industry as it gives a good image to the company that they really care for the welfare of their customers. Companies who are into risky investments tend to carefully choose their personnel who are in contact with their customers.

Customer Orientation

After finishing the sale portion of a deal in a financial investment, it is important to continuously observe and monitor the changes in the profit and loss rates in your customer’s investment. The strategy of keeping the customer oriented of what is happening with his invested funds will ensure customer satisfaction. Customer orientation will also assure the customers that what they went into has some sense of assurance and it is not some fraudulent transaction. It can be seen on the part where Dr. Michael Burry constantly keeps his eye into the profits or losses he is earning from the money of his investors. He was attentive enough to his clients’ demands that he e-mails them of where their money was, and he was concerned of getting their money back from the risky investment that he made.

This strategy was also used by Jared Vennett, when the rates were still normal, Mark Baum calls him down to his office to make Jared assure him that they will be earning from their investment since they are paying high premiums for it.

Dr. Michael Burry, the first to bet against housing funds was visited by one of his investors, Lawrence Fields. He was not impressed of what Dr. Burry did and instead warned him to get his money back. Throughout the conversation, Dr. Burry was composed and knew all the right things to say. It is important than when you’re investing using other people’s money, you can make them trust your words because that’s the only thing they can hold on to. Another important point in this part of the story was patience, of course there was already a trend, but he can’t say how much longer they must wait before it all happens.

Cost-Oriented Pricing Strategies

According to Zeithaml et al. (1985), cost-oriented pricing strategies are used more than competition- and demand-oriented pricing strategies. Ben Rickert specifically used this type of pricing strategy for when he was selling Jamie and Charlie’s investment when the United States experienced its economy crashing down, with businesses firing their employees and eventually closing. They asked Ben to sell the subprime loans for them because he had knowledge about financial services and banking primarily. Ben was able to sell it for a good price which made Jamie and Charlie richer than they were ever before. Ben priced it in a way that would be acceptable for both parties and eventually him and the buyer went into consensus at a price both were willing to take.

When Jamie and Charlie figured out how they might be right of their investments, they were happy about it because they were going to get a large amount of money. While Ben Rickert was angry because that would only mean that there will be a lot of people who will be losing their jobs and the economy of the United States will be greatly affected.

It was devastating how people who paid their rents on time to their landlords must deal with the problem that banks caused them. How unfair it is for people who are working honestly to lose their jobs in just a blink of an eye. While the government just sleeps on the issue at hand, along with the banks and rating agencies, where they were defrauding the people of the United States.

True Growth Strategy

All the parties in the movie made use of the “True Growth Strategy”. According to Sondhelm (2018), it is utilizing data analytics when making decisions. This was evident in the part where Mark Baum was given the final deciding task of whether he should already sell their mortgage bonds. He was having second thoughts because of the sympathy he was feeling for the people who lost their jobs but, what a person himself will be losing is much more important than others. He was feeling bad that the people were going to blame the poor and the immigrants for the economic downfall the country is experiencing. However, the decision to be made was now or never, it’s either he goes home with a lot of profit or with none. Finally, with the data that Vinnie was providing him, he authorized the sale of his subprime mortgage securities.

Conclusion

With the economic meltdown in the United States that affected the whole world, it is important to notice how vital the government’s involvement in this matter is. If only they were able to regulate and monitor mortgage bonds, banks will have to implement tighter restrictions to people applying for housing loans. With the large amount of money lost, people losing their jobs and homes just in the United States.

My take on investing money in financial services such as stocks, bonds, and insurance, how important it is that you know how to compute on your own even if you have an agent that advises you which ones are profitable. It will never hurt to double check computations as it involves a lot of money that you worked hard for. People should never invest into something they don’t have any how idea how the specific business works and how people from the inside may manipulate their perceptions of these investments.

Disclaimer

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers. You can order our professional work here.

We use cookies to offer you the best experience. By continuing to use this website, you consent to our Cookies policy.

background

Want to get a custom essay from scratch?

Do not miss your deadline waiting for inspiration!

Our writers will handle essay of any difficulty in no time.