Loved the movie and have read the book (and a few other Michael Lewis books) several times. A few questions:
1. Burry, Frontpoint, and Brownfield made their profits by selling their swaps as they thought there would be a chance that the people on the other side of the trade would be insolvent and not be able to pay. Is that a correct statement?
2. What really happens when a private/non-agency MBS/CDO collapses and the market price goes to $0? Let's say there are 1,000 mortgages in an MBS (or debt products in a CDO). Even if 999 people default and the banks liquidate and pay out the debt holders for pennies on the dollar, what happens to the cash flow from John Q lender who is still paying down their debt? Does it get sold off to get rolled into another debt product or are there legacy MBS/CDOs that have no tradable value, but at still technically generating revenue. Is there a market for failed bonds?
3. At the end of the movie, Christian Bale's character said he kept 1 swap just to see if it would pay out. Does anyone know what happened? I guess it would be the same as whoever bought the rest of the swaps. Did they collect the payouts?