... the parties (that is Burry and the banks) only start paying each other premiums around Q2 2007 when he predicted mortgages would go bad?
That way he could minimise the amount of premiums paid to the banks during the period up until Q2 2007 where the value of the mortgage-backed securities increased.
Wasn't it the case that he, like the other short-sellers, did not foresee the mbs's increase in value, and was assuming that the mortgage bond market would collapse more rapidly than it did, once it started to collapse underneath?
I plan to re-watch and notice some more of those details.
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The story is king.
But why would the banks do that? They are in the business of making money. They are not going to give away free insurance. No, you pay your premiums on time or you're in default.
Of course what Burry should have done (with the benefit of hindsight) is wait a bit longer before making the deal.
Actually jusT came here asking a similar question.. Why didn't he wait another 12 months and wait, instead of taking 80-90m dollar losses each year? He knew he'd deff be taking losses for at least two of the years..
shareBecause he needed to do the deal before anyone else got wise to what he had realised and the returns on the swaps plummeted (since the premiums would be much higher if the banks thought there was actually a realistic chance of default)
shareAlso it's important to realise Burry thought differently from everyone else in the industry. Not only did he see the crash coming when he looked at the housing loan market structure he thought it was obvious. He was genuinely worried somebody else would beat him to the punch.
I suspect the problem is that you have too many paperclips up your nose
And let's not forget that neither he, nor anyone else who got wise to the rotten cdo's, had any idea how corrupt (let's put it that way) the system really was. Burry can read the numbers on the individual mortgages, and see the writing on the wall. But the mortgages are wrapped up by the thousands in bonds, the bonds in cdo's, the cdo's have other derived securities riding on them ("synthetic cdo's") and in the end there's so much money at stake that people are willing to go to any lengths to keep the illusion alive that the mortgages are as secure as they were in the 1970s. Like those big banks demanding AAA ratings from Standard & Poor's otherwise they go to Moody's.
But this thing between the banks and their rating agencies -- exactly how they got their ratings -- is their little secret so no one knows this until Baum and friends start digging.
This is why I love this movie. It explains so well the levels of secrecy and rot used to make the whole system so opaque that no one knew what they were dealing in.
Shorts just don't work that way. The bank isn't going to let you just keep increasing your leverage for free like that
Death to shakeycam directors!