I went to see the movie, The Big Short last week.  I had enjoyed the book by Michael Lewis (I read everything he puts out) and wondered how it would translate to the silver screen. In particular, I wondered how they would take the alphabet soup of the “Great Recession” (CDOs, CDSs..) and make it understandable for a broader audience. Let’s just say, they succeeded.

So then I wondered how I might bring this into the classroom and found a short clip that I thought might work:

Here’s the set-up: 

• Investment banker (played by Ryan Gosling) is meeting with a group of investors (led by Steve Carell) to explain an “opportunity” that he has uncovered in the mortgage bond market.
• The opportunity is in the mortgage bond market which is represented by the Jenga blocks. He explains how the mortgage loans have been “securitized” [or packaged] into financial instruments [bonds] bought by other investors. What investors don’t know is the poor quality of the mortgage loans that are backing these financial instruments.  They are being sold as “AAA” (highest quality) when in fact they consist of a lot of “dog****” (if you use in class, be aware that Ryan Gosling from 1:15-1:30 uses some coarse language to describe the poor quality of these bonds).
• Nice explainer from Time on “5 things you should know before watching the Big Short” to give you more context on how the video relates to the financial crisis.

What kind of questions can you ask students after watching the video?

• What is the “opportunity” that he is describing?
• What does the Jenga pile represent? What do the letters on the blocks represent?
• What is the difference between the top of the Jenga pile and the bottom? Where are FICO scores higher (the higher or lower levels)?
• Why does Steve Carell want to understand Ryan’s relationship with the bank?
• Why do you think investors didn’t understand these financial products and this “opportunity” existed?
• What is so significant about the 8% number that is mentioned?
• Based on this video, do you have a better sense of what brought the housing market and ultimately the economy?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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