The Big Short Chapter 8
- 1.
What was the annual premium that Michael Burry was paying on his CDSs?
- A.
10%
- B.
8%
- C.
25%
- D.
3.75%
Correct Answer
B. 8%Explanation
This percentage began to add up--- paying this premium for five years will result in paying out 40% in premiums!Rate this question:
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- 2.
Michael Burry's son (and then he himself) was diagnosed with:
- A.
Asperger's Syndrome
- B.
ADHD
- C.
ADD
- D.
Bipolar Disorder
Correct Answer
A. Asperger's SyndromeExplanation
When Michael's son Nicholas was having issues in school, a child psychologist diagnosed him with Aspberger's Syndrome. When Michael began to look into what this syndrome entails, he recognized that he himself displayed many of the symptoms.Rate this question:
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- 3.
In 2007, at the height of his portfolio, Burry had $__________ placed in bets against subprime mortgages?
- A.
$100 million
- B.
$320 million
- C.
$1.9 billion
- D.
$7.33 billion
Correct Answer
C. $1.9 billionExplanation
Even though his portfolio was only worth $555 million, due to the nature of CDSs he was able to put on a staggering $1.9 billion in bets against the subprime mortgage market.Rate this question:
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- 4.
Over the six years in which he had managed Scion Capital's investments, Mike Burry had realized returns of _________.?
- A.
1,000%
- B.
15%
- C.
50.78%
- D.
186%
Correct Answer
D. 186%Explanation
Scion had realized 186% in returns on their investments over the six years Burry had managed the fund, compared to the 10.13% returns in the S&P 500 (this guy was goooooood.)Rate this question:
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- 5.
The tactic that Michael Burry used to freeze his investors' money in his fund:
- A.
Side-Pocketing
- B.
Freeze Funding
- C.
Stop Transaction
- D.
Option 4
Correct Answer
A. Side-PocketingExplanation
Side-pocketing was the tactic that Burry used to ensure that his investors were unable to withdraw their funds from his firm.Rate this question:
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- 6.
The name of the specific mortgage bond pool made by Option One that began to experience huge losses in 2007:
- A.
TABX-1-2000
- B.
Option One Select Pool
- C.
OOMLT 2005-3
- D.
HOME-100%
Correct Answer
C. OOMLT 2005-3Explanation
This was the name of the pool of subprime mortgage bonds that began to experience high default rates in 2007. Burry had bet against this pool of bonds and began to realize high returns when the bonds went bad.Rate this question:
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- 7.
The Goldman Sachs fund that was heavily invested in subprime mortgages that began to take on huge losses in 2007
- A.
GS-2005
- B.
Global Alpha
- C.
Asset-Backed Securities Fund
- D.
Goldman High Growth
Correct Answer
B. Global AlphaExplanation
This fund, "Global Alpha," was Burry's first sign that the immense losses on subprime mortgages were finally beginning to be felt in the market.Rate this question:
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- 8.
People with Asperger’s often have an obsessive special interest. For Burry, this special interest was with:
- A.
Financial statements
- B.
Investing in gold
- C.
Restoring old cars
- D.
Lawn mower catalogues
Correct Answer
A. Financial statementsExplanation
Burry admitted that "he was lucky that his certain obsession happened to be in the financial markets." This special interest helped him to dive deep into the prospectuses of CDOs, something that most investors "would never think of doing."Rate this question:
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- 9.
How were the values of Michael Burry's Credit Default Swaps calculated?
- A.
Fair value
- B.
Market value
- C.
What Goldman Sachs/Morgan Stanley said they were worth.
- D.
Dependent upon the status of the housing market.
Correct Answer
C. What Goldman Sachs/Morgan Stanley said they were worth.Explanation
Even though subprime loans began to default in large numbers throughout 2007, the big investment banks found reasons to skew the data in their favor so that Burry's portfolio was unprofitable.Rate this question:
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- 10.
What founding banker threatened to sue after Burry side-pocketed their investment?
- A.
Gotham Capital
- B.
Cornwall Capital
- C.
Greenblatt Capital
- D.
White Mountains
Correct Answer
A. Gotham CapitalExplanation
Gotham Capital is the correct answer because they were the founding banker that threatened to sue after Burry side-pocketed their investment.Rate this question:
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- 11.
What specific factors allowed for Michael Burry to "side-pocket" an investment?
- A.
If the market were performing poorly.
- B.
If the market was temporarily not functioning
- C.
If the market was fraudulent
- D.
Temporarily not functioning AND was fraudulent.
Correct Answer
D. Temporarily not functioning AND was fraudulent.Explanation
This was a clause within the agreement that Burry's investors signed when agreeing to invest in Scion.Rate this question:
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- 12.
What fraction of subprime mortgages issued in 2005 & 2006 did the Center for Responsible Learning predict would default?
- A.
1/5
- B.
1/2
- C.
1/6
- D.
1/10
Correct Answer
A. 1/5Explanation
The Center for Responsible Learning predicted that 1/5 or 20% of the subprime mortgages issued in 2005 & 2006 would default.Rate this question:
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- 13.
What was an Alt-A mortgage?
- A.
Referred to a mortgage issued to a FICO score below 700
- B.
Referred to a mortgage issued to a FICO score above 680
- C.
Referred to a mortgage issued to a FICO score below 680
- D.
The worst FICO scores an individual could receive.
Correct Answer
B. Referred to a mortgage issued to a FICO score above 680Explanation
This was a superficial description of loans, so even though subprime mortgages were technically classified as mortgages lent to individuals with FICO scores below 680, these Alt-A mortgages were not backed by legitimate income research. This basically misclassified individuals with high credit scores, even though this rating was unwarranted.Rate this question:
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- 14.
What did the Bank of America salesman claim was the issue as to why they wouldn't respond to Mike Burry in June of 2007?
- A.
Power outage
- B.
Systems failure
- C.
Earthquake
- D.
Plumbing issues
Correct Answer
A. Power outageExplanation
When things began to take a turn for the worse, the big investment banks stopped returning Burry's calls, presumably to try to understand the crisis at hand. Goldman claimed systems failure, BoA "power outage."Rate this question:
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- 15.
Why was it ironic that Gotham Capital wanted to sue Michael Burry?
- A.
Michael Burry was already bankrupt
- B.
Joel Greenblatt had family ties with Burry
- C.
Gotham Capital had never filed a lawsuit
- D.
Joel Greenblatt named Michael Burry his favorite "value investor."
Correct Answer
D. Joel Greenblatt named Michael Burry his favorite "value investor."Explanation
Gotham Capital, whose CEO was Joel Greenblatt, threatened to sue Scion Capital for this move. This crushed Mike Burry, as Joel Greenblatt was an incredible influence on his life.Rate this question:
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- 16.
Which of the following is NOT a rumor that Michael Burry heard about himself in 2007?
- A.
He installed a security system on his house.
- B.
He left his wife
- C.
He went into hiding
- D.
He moved to South America
Correct Answer
A. He installed a security system on his house.Explanation
Many rumors floated around when Burry's investors became more restless throughout early 2007.Rate this question:
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- 17.
How was Michael Burry able to relax himself at work?
- A.
Heavy Metal
- B.
Yoga
- C.
Classical music
- D.
Push ups
Correct Answer
A. Heavy MetalExplanation
Burry had an interesting technique in relaxation techniques---Metallica really cooled him off.Rate this question:
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- 18.
At the end of the chapter, what did Burry comment on that he was surprised about?
- A.
He was surprised that his investments had actually begun to pan out--he'd had little faith.
- B.
That he had not yet been sued by his investors for fraudulent activity.
- C.
That his wife had not left him for another investment banker.
- D.
There have been relatively few reports of investors actually being hurt by subprime mortgage troubles.
Correct Answer
D. There have been relatively few reports of investors actually being hurt by subprime mortgage troubles.Explanation
The default rises had not yet seemed to tear the market down like he had thought. (Oh boy was he in for a surprise.)Rate this question:
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- 19.
In what year did Michael Burry found Scion Capital?
- A.
1992
- B.
2000
- C.
2004
- D.
1776
Correct Answer
B. 2000Explanation
Michael Burry founded Scion Capital in the year 2000.Rate this question:
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- 20.
What political dictator was Burry compared to, because of the emails he sent out?
- A.
Kim Jung Il
- B.
Adolf Hitler
- C.
Joseph Stalin
- D.
Kim Jung Un
Correct Answer
A. Kim Jung IlExplanation
The correct answer is Kim Jung Il. This comparison is made because of the emails that Burry sent out. Kim Jung Il was a political dictator known for his authoritarian rule in North Korea. The comparison suggests that the content or tone of the emails sent by Burry resembled the actions or behavior of Kim Jung Il.Rate this question:
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- 21.
How much was the 2006 bonus pool at Goldman Sachs per employee?
- A.
$542,000
- B.
$355,900
- C.
$736,000
- D.
$871,000
Correct Answer
A. $542,000Explanation
Burry thought that this was a ridiculous amount and was enraged at his salesperson.Rate this question:
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- 22.
What three banks did Burry send his CDSs to, in order to get a better idea of the market?
- A.
Goldman Sachs, Bank of America, Morgan Stanley
- B.
Goldman Sachs, Bank of America, Merrill Lynch
- C.
Goldman Sachs, Smith Barney, Citigroup
- D.
Goldman Sachs, Deutsche Bank, Bear Stearns
Correct Answer
A. Goldman Sachs, Bank of America, Morgan StanleyExplanation
Burry sent his CDSs to Goldman Sachs, Bank of America, and Morgan Stanley in order to gain a better understanding of the market. These banks were known for their expertise and involvement in the financial industry, making them reliable sources for market information. By analyzing the data and insights provided by these banks, Burry was able to make informed investment decisions.Rate this question:
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- 23.
What period is referred to as the "Long Quiet?"
- A.
June through October
- B.
January through May
- C.
February through June
- D.
December through September
Correct Answer
C. February through JuneExplanation
The period referred to as the "Long Quiet" is from February through June. This suggests that during this time, there is a relatively calm and peaceful atmosphere, possibly characterized by less activity or events.Rate this question:
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