Humor me a minute because your confusion is typical of everyone who looks at this and it's important to try and dispel it because it fucking matters.

Did you... get anything from that? No? Congratulations. You weren't supposed to. That's a screenwriter's trick. It's called "The Pope in the Pool." The phrase was coined by Blake Snyder, a nice guy who was a terrible screenwriter who took the limited success from Stop Or My Mom Will Shoot to launch a career as a screenwriting guru. "The Pope in the Pool" comes from a scene in the unmade script The Plot to Kill the Pope wherein a bunch of necessary (but boring) exposition is delivered by someone yammering while the screen is filled with the pope, wandering through a swimming pool in a bathing suit. The idea is that by giving the audience a distracting image, you can bathe them in bullshit that's boring that you, as the storyteller, don't want them to know but you, as the storyteller, need them to know or else nothing will make sense.

It's worth noting that Blake Snyder's magnum opus is a book called Save the Cat! - on the example that the first thing you should do is have your protagonist do something endearing like... save a cat. That makes them likeable, you see. It's such base-level bullshit that you get writers' in-jokes like this:

Yeah. First scene in House of Cards is Frank Underwood killing a dog. The anti-Save the Cat!. How droll.

It's worth noting that Save the Cat! is third-gen screenwriting advice. The content in it is basically a paint-by-numbers dumbing-down of William Goldman's Adventures in the Screen Trade. By way of comparison, Goldman had an Oscar when he wrote it. The "save the cat" advice in Adventures in the Screen Trade is not to have your hero save an animal, it's to not let your hero act in a callous and insensitive way even when it's totally motivated by reality and plot. The example used is Goldman's own Great Waldo Pepper:

SPOILERS: she plummets to her death and Robert Redford doesn't save her.

It's worth noting that Adventures in the Screen Trade is famous for the tagline "nobody knows anything" because it was, in no small part, a rebuttal of the first-generation screenwriting book Screenplay which is basically a narrative version of Cole & Haag which was basically a formula for how to do whatever the fuck you want so long as the page count and formatting is right.

So. From "here's what a screenplay should look like" to "Here's Margot Robbie instead of understanding", institutionalized. This matters because we learn not from statistics or math but from narratives.

There's a plot device in screenwriting called the MacGuffin. What's a MacGuffin? Nobody cares. Somebody wants it, someone else has it, what it actually does doesn't matter. And within The Big Short, the actual mechanism by which the economy crashed is a MacGuffin. It's a thing that doesn't fucking matter.

Michael Lewis is a great writer. But what he writes is HOW, not WHY. And as The Big Short has basically become the narrative of the 2008 financial crisis, all we care about is how it came about, not why it came about.

This is unfortunate in that there were other narratives. The Big Short's principle narrative was that some people were smart, more people were dumb, and the smart people got rich while the dumb people lost everything. Prior to it, however, the narrative was about quants and exotic financial instruments and the preposterous complicated risks that were layered and interwoven in order to sell to others.

Here's Brad Pitt in The Big Short:

In the movie he basically plays this same character from True Romance:

In real life, however, the person he's playing was more like this Brad Pitt:

What REALLY happened with CDOs is that everyone selling them knew they were bullshit but nobody buying them was sophisticated enough to know it. Michael Burry (and others) were the ones who had the money to bet against an entire segment (Burry famously paying Goldman Sachs to create a special instrument just for him that would allow him to bet against the market - it's better to say that Michael Burry won a wager than that he invested.

Cornwall seeks highly asymmetric investments, in which the upside potential significantly exceeds the downside risk, across a broad spectrum of strategies ranging from trades that seek to benefit from market inefficiencies to thematic fundamental trades. The firm has produced an average annual compounded net return of 40 percent (52 percent gross). Cornwall Capital was one of a few investors who saw and shorted the subprime mortgage crisis market prior to the 2007 collapse; according to Michael Lewis, they were perhaps one out of 20 in the world who did so.[5][9] This particular trade generated 80 times the initial premium (investment).[1] The founders of Cornwall Capital started a hedge fund in their garage with $110,000 and built it into $120 million when the market crashed.

Because fundamentally, the narrative on CDOs was that they were investments that produced outsized yields through acceptable risk. The reality of CDOs was they were a way to make money by buying risky loans, with the riskiest loans paying the most money. If that's a junk bond, everyone understands it - filter it through enough statistical and mathematical laundering and it's a black box.

Prior to The Big Short, the financial crash was about clever banks that managed to hide nasty bullshit in stuff they sold as if it were roses and they should all go to jail. After The Big Short, the financial crash was all about clever venture capitalists who saw a risk nobody else foresaw.

Narratives matter. And the narrative on ETFs is that they allow you to buy a market segment without experiencing any risk. The reality of ETFs is they're a derivative that nobody's looking at and the way they trade is not the way anything else trades. The incentives in the construction of an ETF are wholly removed from the incentives of buying an ETF. The incentives in the management of an ETF are wholly removed from the incentives of owning an ETF. And this is why there are eleventy-seven arguments against Burry - because everyone is parroting the narrative they've all learned about ETFS, which is they're great because they aren't actively managed and there's no risk after all you're just buying a basket of stocks.

But you're not. You're buying a magic number that you're giving an arbatrageur the opportunity to scalp in exchange for meeting an arbitrary goal.

The goal of a mutual fund is to MAKE MONEY. If you buy a mutual fund, you are 100% aligned with the fund managers. The goal of an ETF is to HIT AN ARBITRARY NUMBER AT ANY COST. If you buy an ETF, your goals and the ETF creation units holders' goals have no correlation whatsoever.

My favorite platitude of investing is "bear markets return capital to its rightful owners." The people paying attention to what's going on, as opposed to what they're being told have an advantage.

CDOs were considered low risk because a national decline in housing prices was calculated to be a "six sigma event." In other words, according to the math used in their creation, the sun was more likely to go nova than for there to be a national decline in housing prices. Of course, when you create a powerful incentive to generate risky mortgages you fundamentally alter the makeup of the housing market. This is the sort of externality that none of the CDO originators included in their model because if they had, they couldn't have sold them. And yeah - if there were a few million dollars worth of CDOs they would have been a cautionary tale. But there were two trillion dollars' worth.

And there are three trillion dollars worth of ETFs.

It's worth noting that Michael Burry was diagnosed with Aspberger's shortly after he made all his money. It made sense to him - he'd never liked people, he'd never understood them, and he had a challenge communicating with everyone. This probably gives him an advantage in cutting through bullshit narratives - the collective wisdom is much less available to him simply because he doesn't plug into the zeitgeist the same way.

The zeitgeist is that ETFs and stocks are interchangeable (with ETFs being objectively better). The reality is that ETFs are pretending to be stocks and as soon as the situation is stressed, there's no reason to believe they'll behave like stocks. In fact, there's every reason to believe they'll behave like CDOs. They'll behave like short squeezes. They'll behave like a bunch of disparate equities that have no reason to be interlinked that are tragically interlinked nonetheless.

And that could get interesting.

Did I explain that adequately?