Part 1. Using the draw tools in Word, show what happened to the demand for housing by drawing the demand for housing in 2005, 2006, and 2009. Explain what caused demand to change over this period.
Part 2. If one wanted to speculate in the sub-prime mortgage bond market, explain the difference between buying a sub-prime mortgage, buying a sub-prime mortgage bond, and buying a sub-prime credit default swap (CDS) and how these financial instruments can be used to bet for profit.
Part 3. Explain the concept of leverage and how it applies to credit default swaps.
Part 4. Consider the players described in The Big Short. These include the large Wall Street firms and insurance companies AIG, Deustche Bank, Lehman Brothers, Merrill Lynch, Bear Stearns, Citibank, and Charlie Ledley of Cornwall Capital, Steve Eismann of FrontPoint Partners, Michael Burry, Greg Lippman, etc. Describe the nature of speculation in the sub-prime mortgage market and identify who was betting on what.
Part 5. In the end, U.S. taxpayers ended up paying almost a trillion dollars to bail out various Wall Street financial institutions. What role did government regulation of financial markets play in the events described in The Big Short. Consider the Do Nothing Policy discussed in lecture and apply it to the events described in The Big Short.