The Big Short is without a doubt one of my favorite movies.
Recently, I watched again (for the third or fourth time) and I noticed that the scene where Jared is pitching the idea to Frontpoint Partners is a masterclass on persuasion.
Jared is skillfully using a lot of advanced techniques to keep them hooked on the presentation and to sell a “crazy” idea.
You can watch the analysis in the video or read the transcript below. I’ve shared the video here because it was taken down on YouTube even though it’s commentary
It’s 2005, and Jared Vennett, a Wall Street banker with sharp instincts, has sniffed out the deal of the century.
He heard from a colleague that a hedge fund manager named Michael Burry had shorted the housing market. This means that if the housing market collapses, Burry stands to make a massive profit, potentially in the billions.
The banks, on the other hand, think they’re making easy money with this bet and that he’s fucking crazy. And who can blame them? If the housing market collapses, the U.S. economy could crash, and the global economy could be in serious trouble.
So that should never happen, right?
There are systems in place that are supposed to prevent such a catastrophe.
But Jared is intrigued…
The housing market is invincible, so why on earth would someone risk their entire career betting against it?
He does his research and hires some experts to check the math. And what do you know?
Burry might be onto something.
Jared finds himself at the right place, at the right time, ready to seize the opportunity of a lifetime.
But there’s a huge problem…
He doesn’t have the necessary capital to make the bet himself. So, he seeks backing from the banks, but they think he’s also out of his mind.
After many rejections, his only hope is on a small hedge fund called Front Point Partners. If Jared can convince them to invest, he’s set to make it big.
Here, I’ll unpack all the techniques that Jared uses to keep them hooked on the presentation and we’ll explore how to present our ideas so persuasively that people will want to believe in them even if they don’t really like us.
The Scene Analysis
[Jared Vennett] Hi! How are you? Have a seat.
He starts by telling them where to sit. Keep in mind that it’s their office.
By taking charge of something as seemingly small as seating, Jared sets the stage for the entire interaction.
He’s sending the message that he’s the one in control or at least he’s an equal to them.
He also doesn’t project neediness. You know, he doesn’t start the meeting by being overly enthusiastic, especially considering that this is a rare opportunity.
If you show signs of neediness or desperation, you’re less likely to be believed even if you’re right.
One more thing about Jared, he’s really good at his job. He’s an expert in mortgage-backed securities and other complex financial products.
I’m saying this because as we’ll explain later in the video, when you’re truly confident and prepared you’ll be able to create situational status.
So when you’re dealing with people who have more authority, then your expertise in that situation will elevate your status.
This shift in dynamics can make them more likely to listen to you and be convinced by your arguments.
[Mark Baum] Ok, Mr. Bennett, from Deutsche bank. How many people have you talked to about this trade?
[Jared Vennett] A few. There’s definitely some interest.
[Mark Baum] This is why you’re here talking to us with the wrong number. Sounds like there’s a lot of interest.
When you’re trying to persuade people, they might try to throw you off before you even start presenting your idea. But Jared knows that the game has started before they even enter the door.
So, he’s attentive and responds quickly to regain the power.
[Jared Vennett] Alright, a few people have invited us just to laugh at me on this deal. Is that you? Is that what this is?
He confronts their skepticism head-on. And cleverly frames them as people who don’t see a huge opportunity and that they have time to waste by meeting just to make fun of him.
He’s using a tool called the moral authority frame. It’s when you frame their behavior as wrong while positioning yourself as having the moral high ground.
You can use this when someone is constantly interrupting you.
Instead of trying to present your idea, you stop, you frame them or the conversation in a different way, and once they’re disarmed, you can continue.
So his response is not just about addressing skepticism; it’s about reclaiming control of the narrative.
And Jared uses this strategy throughout the entire presentation. Whenever is needed, he subtly defies them, sometimes in a funny way, and as a result, they’re always following his lead.
[Vinny Daniel] That’s not what this is. That’s just how Mark is. Let’s see what you got.
[Mark] I’m sorry.
[Jared] Do you smell that? What is that? Your new cologne? Opportunity. No. Money. I smell money.
[Mark] Okay
Mark obviously did not like how he started.
Jared then explains how mortgage bonds, which used to be simple and safe investments backed by the government, turned into complex financial products created by private banks.
These bonds became so complicated that even the banks didn’t fully understand what they were selling, but they didn’t give a fuck because they were making a ton of money.
[Jared Vennett] This is your basic mortgage bond, alright? The originals were simple. They were just thousands of Triple-A mortgages bundled together, guaranteed by the US government.
The modern ones are different. They’re private, and they’re made up of layers of tranches. The highest-level Triple A’s getting paid first, the lowest-rated B’s getting paid last, taking on defaults first.
Now, Jared is talking to people who are in finance. He could use complicated language, and they’d be able to follow him.
However, that would be a bad idea because our brains have limited energy and are very careful about where to spend it.
So when someone makes things unnecessarily difficult, our brains think, ‘This isn’t worth my time,’ and start to drift off. That’s why you should always think about how to package the information in a simple, concise, and interesting way.
[Jared Vennett] Now, obviously, if you’re buying B’s… You can make more money, but they’re a little risky. Sometimes they fail. Somewhere along the line, these B’s and BB’s went from a little risky to dog sh*t. Where’s the trash? I’m talking rock-bottom FICO scores, no income verification, adjustable rates dog sh*t
Using the Jenga Blocks serves as a powerful visual analogy. Not only it simplifies the subject but it also makes the presentation more dramatic.
That tower is going to collapse but when and why?
[Jared Vennett] The default rates are already up from 1 to 4 percent, fellas, and if they rise to 8 percent, and they will, a lot of these Triple B’s are going to 0 too, and that, my friends, is an opportunity.
If you’re having trouble figuring out how to present your idea, a great way to start is by explaining the large forces at play – It might be Economic, social, or technological trends… And how these forces have aligned in a way that opens a brief window of unique opportunity.
When you frame your idea within these forces, you’re making it relevant and urgent.
That’s what Jared did here.
[Mark] Okay, you’re saying that at 8%, the bonds fail. And we are already at 4%.
[Jared] That’s right.
[Mark] If they go to 8, it’s Armageddon.
[Jared] Yeah, that’s right.
[Porter Collins] How come nobody’s talking about this?
[Danny Mosses] You’re completely sure of the math.
There are two objections at the same time.
He deflects the first and responds to the second because that conversation thread helps him more in advancing the pitch.
[Jared] Yeah, I’m sure of the math.
The way he presents the math specialist is uncalled for.
And he makes it look like Jiang works for him. When in fact, he was employed by Deutsche Bank.
However, by including him in the presentation, no one questions his math or his data.
[Vinny Daniel] So, you’re offering us a chance to short this pile of blocks. How?
[Jared] With something called a credit default swap. [The Financial Instrument] It’s like insurance on the bond [Analogy], and if it goes bust, you can make ten to one, even twenty to one return [Opportunity], and it’s already slowly going bust [Urgency and Intrigue]
As we said earlier, we should always consider how to present the information in a more compelling way. This template can be useful when you need to give a definition or explain a procedure.
[Porter Collins] Ten to one, twenty-one? No way.
[Jared] And no one’s paying attention. No one is paying attention because the banks are too busy. Getting paid obscene fees to sell these bonds.
Still, he ignores his statement and continues with the narrative but this time he focuses on the social element… which is that people who run the banks are blinded by greed and are making a costly mistake.
This angle plays well with Mark because he fucking hates the banks. And the fact that Jared who works for the bank, has managed to keep him interested so far, shows how good is he.
[Vinny Daniel] But wait, you are the bank. You work for the bank. I bet your margins are pretty nice and fat.
He asks a very logical question, Aren’t you the bank? Isn’t there a conflict of interest? But he doesn’t respond directly. He breaks his power frame in a funny way. The message here is not to relieve the tension but to show that he’s confident enough to navigate this area.
[Jared Vennett] Let’s not talk about my margins. By the way, being nice and fat, that’s a nice shirt. Do they make it for men?
[Vinny Daniel] Aren’t you the bank?
[Jared Vennett] I work for the bank. I don’t think like a bank, big bank, small bank. I like to make money, alright? Let me put it this way: I’m standing in front of a burning house and I’m offering you fire insurance on it.
That’s a great analogy. First of all, it’s accurate. It reflects the nature of a credit default swap.
A CDS is like insurance: You pay a regular fee, and if the bonds lose value, which they likely will, you receive a payout.
Second, this analogy effectively conveys the urgency and high stakes of the situation.
[Danny Moses] How can these underlying bonds be as… Bad as you say it wouldn’t be legal?
[Jared Vennett] Nobody knows what’s in them.
Nobody knows what’s in the bonds. I’ve seen some that are 65% Triple-A rated that I know for a fact are filled with 95% subprime sh*t with FICOs below 550.
[Vinny Daniel] Get the fuck out of here.
Now, since he has established that he doesn’t care about the banks and that he’s only in it for the money. He can continue with the narrative that banks are greedy and that he knows something they don’t.
[Jared Vennett] You want me to really blow your mind?
When the market deems a bond too risky to buy, what do you think we do with it? Take a guess.
[Vinny Daniel] I don’t know. You tell me.
As you may have noticed he uses a conversational style. It keeps them engaged in the presentation but most importantly it creates some tension.
There are two ingredients for keeping people’s attention: Novelty and Tension.
Novelty is when you give new information. You frame your idea differently from what they are used to hearing, or you use metaphors and analogies to explain complex topics.
Then we have TENSION.
You can build tension by explaining the consequences of failing.
In addition, tension is also created when they give objections.
Look, If they agree with everything you say, there’s no interest. They’re just wasting your time.
So don’t get baffled when people object to your ideas. That’s a good thing; it means they are interested.
You want them to give objections; you want them to try to dominate the conversation. It makes the interaction more interesting and you are knocking down all the reasons why they shouldn’t act.
Now back to the scene:
Then he explains that the banks do not accept the loss from the toxic bonds that didn’t sell but combine it with other toxic bonds. Somehow that’s a new and high-quality product. But a few individuals saw these products for what they are… BS.
[Jared Vennett] Alright, you think we just warehouse it on the books? No, we just repackage it with a bunch of other sh*t that didn’t sell and put it into a CDO
[Mark] A CDO.
[Jared] Yes, a CDO.
[Mark] What is that?
[Jared Vennett] This is where we take a bunch of B’s, double B’s, and triple B’s that haven’t sold, and we put them in a file. I mean, the pile gets large enough, the whole thing is suddenly considered diversified, and then the whores at the rating agency give it a 92, 93% Triple-A rating, no questions asked.
Let’s pause here because it’s a very important concept.
Earlier I mentioned that when you’re really good at your job or knowledgeable about the subject, then you can create situational status.
Now in most situations where Mark and Jared would be in… Mark obviously has a higher status because he is the head of a hedge fund and has more money.
However, they are talking about mortgage bonds where Jared is an expert.
So, in this situation, Jared has a higher status and this dramatically increases his chances of closing the deal.
Alright, there are 3 steps you can follow to establish a temporary high status, no matter how powerful your counterpart is:
The first step is to break their power frame with small acts of defiance.
Correct them when they make a statement about your field in a subtle, respectful manner. Preferably by being a bit funny.
You withhold information. When they want to discuss something else, you may say something like: “We’ll discuss that later but for now we need to make sure we are on the same page with this”
Most importantly, you maintain a confident body language and you send the vibe that there’s something really important going on and they need to pay attention.
The second step is to redirect the conversation to your area of expertise, where your statements are unquestionable.
The third step is to frame yourself or your service as a prize to be won.
Now let’s continue with the video…
[Mark] Say that again:
[Jared Vennett] Collateralized Debt Obligation. It’s important to understand because it’s what allowed a housing crisis to become a nationwide economic disaster.
Then they explain what a CDO is, which as we said is basically dog sh*t wrapped in cat sh*t
[Jared Vennett] Institutions treat these CDOs like they are as solid as Treasury bonds, and they’re going to 0.
[Danny Moses] That can’t be right. There are 500 billion in a housing bust… So last year alone, the rating agencies, the Banks, the fu*cking government, you’re saying they’re all asleep at the wheel.
So basically, it wasn’t just a few bad apples that brought the crisis, but all the key institutions failed to do their fucking job. It was a very flawed and corrupt system and it probably still is because there was no real accountability or justice for what happened.
[Jared] Yeah, my whole department’s long on this stuff. They call me Chicken Little. They call me Bubble Boy,
A’s 0
B’s 0
BB’s zero
BBB’s zero
and then that happens…
[Mark] What is that?
[Jared] That’s America’s housing market.
The terror in his eyes.
After the meeting, Vinny does not want to believe he’s right while Mark wants it to be right just to see the banks getting screwed.
Both are in a heightened emotional state which is normal after a great presentation.
But Mark quickly goes above the emotional process and says let’s figure this out… Is there a housing bubble, and if there is, how exposed are the banks?
Now, I think you will find it helpful if we make a summary of all the psychological insights we got from this scene:
1. Maintain a confident attitude.
One of the ways to do that is by actually being prepared.
2. The game has started before you even say the first word so always be attentive.
3. Don’t be afraid to confront skepticism head-on.
4. Always frame yourself or your service as a prize to be won.
5. Use the moral authority frame to deal with interruptions.
6. In my last video, we explained that you have the power frame when they are reacting to your words so defy them when needed to maintain control of the conversation.
7. Explain in a simple, concise, and interesting way because you want to please their primitive brain.
8. Put your idea in the context of large forces at play.
9. Focus on conversation threads that get you closer to reaching your goal.
10. Present an authority figure to add credibility to your idea.
11. Use analogies to simplify complex topics.
12. Use a conversational style. You know, include them by asking simple questions, or by using rhetorical questions to emphasize key points.
13. Be aware of the two key ingredients for keeping people’s attention – Novelty and Tension
14. If the counterpart has a higher status, you can create situational status which is enough for you to close the deal.
However, once the interaction is over that status you’ve established disappears and you have to start again.
15. No matter how tough the situation is, learn to go above the emotional process and make a logical decision… like Jared did throughout the presentation and Mark did in the end.
If you want to learn more about persuasion and being calm in stressful situations, I recommend watching these videos.
I just finished reading the book Pitch Anything by Oran Klaff and man what an amazing book. It’s a must-read if you want to take your persuasion skills to the next level.