The Big Short

A quirky documentary-like dramedy about the housing collapse of 2007. The story follows several characters who learn of the weakness of the various mortgage-based bonds and seek to profit on their inevitable collapse. It starts with Michael Burry (Christian Bale), an MD who runs a hedge fund. He is the first to see weakness in the subprime mortgage market and invests the majority of his fund in credit default swaps. As such, he was betting that the subprime market would crash. Per the film, his purchases attracted the interest of other investors, first Jared Vennett (Ryan Gosling). Vennett sold credit default swaps to FrontPoint Partners, run by Mark Baum (Steve Carell). There are also a couple of young men with dreams of grandeur who happen upon a Vennett prospectus concerning the coming subprime meltdown. With the help of a former banker (Brad Pitt), the two also manage to acquire credit default swaps. When the collapse comes, all of them become rich while the economy nose dives.

Mark Baum is perhaps the best character from the viewer’s perspective because he expresses the outrage that many viewers likely feel. While the other characters are out to profit, he is the one trying to uncover how deep the rot goes. He is the one who finds that Standard & Poor's offers AAA ratings to crap bonds because, if not, Moody’s will; why drive business to the competitor? Realtors are selling houses with no regard to credit because the mortgage is just going to get bundled with countless other mortgages. The home buyers are buying because the houses appreciate so much that they earn rapid equity, can quickly refinance, and draw money out! He later discovers that a $50 million collateralized debt obligation (CDO) – which is a bundling of all these mortgages – could have as much as $1 billion associated with it through even more technical and abstruse financial instruments. The rot goes to the bone. He concludes that the banks knew the subprime market was a time bomb but didn't care because the government would bail them out. Taxpayers, not the banks, paid for the banks’ reckless, even fraudulent, behavior.

The movie has a vibe to it like The Office (2005-2013). Characters, even minor ones, will turn to the camera and offer asides, sometimes explaining that it didn't actually happen as shown. The breaking of the fourth wall is most common for Vennett, who serves as a narrator for the backstory and offers pithy commentary through the film. Then we have random cameos by Selena Gomez and Margot Robbie to explain arcane financial concepts in a way that retains the viewers’ attention. Clever but again a fourth wall breach. The movie comes across as an effort to educate in an entertaining way.

I enjoyed the film but it gives a one-sided view of the crash, blaming the banks and Wall Street but generally giving a pass to the government. Sure, there is an SEC regulator who is actively seeking a job at one of the big banks and it is clear that whatever agency is meant to keep the banks in line is asleep at the wheel. What isn’t brought up is the Community Reinvestment Act or the threats by Janet Reno of potential action against banks if ‘redlining’ didn’t stop. There was no talk of Bush’s Ownership Society. The Feds spent the previous 10 to 15 years demanding that banks loosen the requirements for home loans or else. Or else what? No law was passed but the banks got the message. Banks made it easier to get a loan. These eased requirements, which provided loans to people less likely or able to pay them, are the basis for blaming the ‘poor and immigrants.'  The movie does mention the accusation but doesn’t provide the background to the claim. Hmm.

Though I clearly learned some things about the subprime meltdown that I didn’t know, it didn’t cover some things that I did know. Take it as a primer but not as a conclusion. The story is more complicated still. Check out this Podcast from Russ Roberts about the financial crisis.