The Big Short Essay Example

Introduction

"The Big Short" is a comedy-drama movie released on 11th December 2015. Michael Burry who is a manager of the hedge fund in San Jose California, after noticing that most home loans are in danger of defaulting throws over 1$ billion into credit default swaps. As a result of his action other investors including Mark Baum a specialist in the hedge fund, are attracted, and together they make a great fortune. "The Big Short" is a comedy-drama movie released on 11th December 2015 (Benson, & Manchak, 2014). The name 'short' in the finance world means a drop in value. Below is a discussion on how the above type of fraud affects the global economy and its impact on individual victims.

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The Impact of Fraud on the Global Economy

Michael Burry paid various big banks every month to shoulder the burden of the product he owned which was based on housing mortgages that were risky. Burry together with other investors back in mind knew that the market would crash (Benson, & Manchak, 2014). Each day that the housing market seemed not to crush cost the investor's lots of money to those banks that had agreed to the Credit Default Swap deal. Latter as Burry had expected they would be a burst in the housing bubble. As a result, the banks pay Burry and the other investors since people were unable to pay their debts. Burry and the other investors had failed to think about the consequences of the burst in the housing sector on thousands of families in America. Those who failed to pay their mortgages were losing their homes.

The big short tries to explain the fraud of Wall Street firms like the Lehman Brothers, the greed of the mortgage bankers is exposed since they offered quick loans to citizens without even considering whether the people would pay them back (Benson, & Manchak, 2014). It was one of the major economic frauds in the globe that not only affects a single nation but the economy of the whole world since countries depend on each other. Most frauds are as a result of people who have aimed to benefit from losses of people. The celebration of Michael Burry and those other investors in the Credit Default Swap resulted to poor economic globally, in the United States its said six million people become homeless, eight million people become unemployed and a lot of money was lost. After the burst in 2008, the economy slowed down for almost five years globally (Benson, & Manchak, 2014). The crimes are committed by government and corporate professionals. They are non-violent and financially motivated. Credit default swap deal in the movie is an example of white-collar crime.

Unemployment was noted to have risen at a higher rate. To the economy, the more the high rates of unemployment, the less the economic health. When the economic health of the globe is being measured among the macroeconomics considered is the level of unemployment (Tatsiramos, & Van Ours, 2014). Nations need taxes to pay debts and enhance development, after frauds like the CDS the revenue collected reduces, those left with jobs are highly taxed by the government to cover those unemployed (Benson, & Manchak, 2014). In a country like the United States each unemployed person instead of contributing to raising taxes, they suck funds from the economy since they are eligible for the unemployment insurance. Unemployment results to fall in the values of products including the houses. Therefore, lack of opportunity to recruit and employ people is the basis of bankruptcy. With increased number of job loss, the money collected by the government decreases resulting in underdevelopment.

Infrastructures are the major sources of government's income, good roads, ports, airports and railway lines mean more people are encouraged to participate in trade. Infrastructure is the key component that facilitates local, regional and international trade. The higher the economic activities, the higher the revenue collected (Benson, & Manchak, 2014). When they are a fraud, the government expenditure increases and much revenue is assigned to stabilize the economy rather than to develop the economy.

People were left in possession to default in paying back their loans that led to the auction of various homes thereby resulting to lack of shelter which creates a big impact on the globe's economy. The affected government has to make extra budgets to take care of the homeless. More money is spent to ensure they are proper sanitation, to give homes to those who lost theirs and also through the government's interactions with the homeless. Poor living results in low revenue collected and on the other hand, much money being spent hence low development is made. About eight million people became homeless in the United States after the housing bubble burst (Benson, & Manchak, 2014). Only the selected nations that are allowed by their economic status assisted the homeless and provided habitat to them. Such states also fully facilitated the alleviation of poor living standards and enhanced mitigations in the occurrence of a long-term problem.

After the success of Burry and other investors, many companies lost huge amounts of money, and they become bankrupt (Lewis, 2015). Due to the financial crisis, the banks were not in possession to give loans to help companies from closing. Later most companies could not operate without funds and with the low number of employees. They were closed due to low or no production, the rate of unemployment increased. The production of goods reduced too, and the availability of commodities was inadequate. The cost of goods hiked, many companies and factories had closed, and the production of commodities was reduced hence low competition. As a result of low competition, those companies that were active hiked prices since people had limited option. It was a strategy of the companies to gain stability.

After the fraud by Michael Burry and the other investors become successful the United States trade was affected, and as a result, the international trade was affected (Lewis, 2015). Among the benefits of good international trade is, low costs, they exist efficiency in production, market fluctuations are reduced, they are a variety of goods to the consumer they are innovation, and it allows efficient investment. After the housing bubbles trade globally was highly affected with nation failing to trade with each other as normal. The situation results in the available products to be sold at higher prices. The producers lacked effective means which they can sell their commodities to the ready markets. Those countries that depend much on exports experience large losses. The frauds result to the third world countries and the developing nations to depend on the advanced nations since they cannot recover on their own the corrupt proceeds. Countries encounter huge debts which affects the people residing in such locations.

Frauds result in inflation; the prices of the houses become too higher for consumers to afford. Those who were capable of raising the money ended up spending too much money than it was before; as a result, they were high rates of inflation all over the United States and other countries that were affected (Lewis, 2015). They were a negative impact on the interest rates, after the rise of costs of housing the government increased the interest rates to try and end inflation. The higher the interest rates increased, the more they reduced economic growth and caused the rise of inflationary pressure. However, some organizations are immune to white collar crimes; even the most crucial institutions are affected by mortgage frauds. To the economy, some organizations strive to stabilize the financial sector. However, instability results to decline in economic activities. After the burst in the housing bubbles, the stock exchange was highly affected with the exchange of currencies becoming unstable. As a result, a lot of wealth was lost, and peoples businesses were highly affected. A change in the mode of business can result in a great change in what the government collects in a day. After the fraud, lots of businesses were unable to operate as normal resulting to a low collection of infrastructure (Lewis, 2015). Investors learned a lesson since few people saw the housing bubble burst that astonished many investors and banks were caught unaware. After the burst of the burble, mitigation measures were put into place by different organizations to prevent themselves from future white collar crimes. The public was affected since several rules and policies were initiated to curb the rising criminal activities (Lewis, 2015). The people too were scared due to the change in lifestyle and high rates of unemployment; they took more caution before participating in any businesses.

Another impact of frauds is political instability. The government loses lots of money during the financial crisis. It may result in the government not performing as expected since some of its activities depend on funding. As the government tries to regain stability, it lacks the total protection of their assets hence internal and external threats. Corruption is highly recorded when the government is unstable. The government is responsible for controlling trade. In case of instability, trade may precipitate to the loss of revenues hence decrease in economic developments (Lewis, 2015). The government spending may increase as it tries to end the financial crisis and as it tries to help people left homeless hence increase in taxation

The rate of poverty increased at a high rate since those who were employed could either earn money only to pay housing plans. Others lost their jobs and could not only afford money to rent a home but could not raise money for basic needs. Many people limit their spending to less than 1 $. Poverty later resulted in high crime rates, from robbery to cyber-crimes (Ayllon, 2015). Business people and experts in financial matters ended up committing white collar crimes to compensate the wealth they lost during the housing financial crisis. In addition, poverty has a negative effect on the economy. Therefore, the higher rates of crimes require the government to increase the funds of criminal justice systems to ensure efficiency in judiciary rulings (Ayllon, 2015). Poor living standards result in poor dieting hence diseases. It is the responsibility of the government to improve the health care facilities to take care of all citizens. As a result, they are increasing in taxes to cover the added expenses. The demand for goods is less hence low production since producers receive little amounts of money as they sell few commodities.

On the other hand, the fraud in the movie though resulted in a negativities in the economy, years later it helps shine the economic sectors. Many organizations learned from the fraud and financial sector changed tremendously. Currently, the financial status compared to the time of the crisis is more stable and stronger (Andres, Asongu, & Amavilah, 2015). In the banking sector, they become more protected from assets price decline. The banking industry has become less competitive and large industry. Policies and amendments though they might limit businesses were introduced by the different government organizations to ensure total security. Later people ended up been self-employed and started their businesses as a way to be more secure in the future. The government encouraged on citizens buying their own homes to end the cases of people becoming homeless in the future.

The Impact of Fraud on the Individual Victims

Those who were involved in the housing fraud were too affected in one way or the other Michael Burry, and other investors as a result of the fraud ended up making huge amounts of profits. The banks ended up paying investors huge amounts of money as it was in agreement. Though the four (Michael Burry...