The Big Short: A Lesson in Financial Skepticism (film review)

January 15, 2016

Oscar-nominated The Big Short, which is based on a true story (and in turn Michael Lewis's best-seller The Big Short: Inside the Doomsday Machine) follows several figures who foresaw the U.S mortgage housing crisis of 2005. One of them, Michael Burry (Christian Bale) is a hedge fund manager convinced that the housing market is built on a bubble that will burst when untenable mortgages come due. He bets against the historically rock-solid housing market with banks who marvel at his naïveté and happily take his money. He is soon joined by others including the idealistic Mark Baum (Steve Carell), a cocky investor (Ryan Gosling), and a reclusive financial genius (Brad Pitt).

Certain crimes are tailor-made for cinematic depiction. Daring heists, for example, are perfect. They have the right combination of suave and sexy thieves, high-tech burglary gadgets, shootouts, and James Bond-style high-speed chases. True-story white collar crimes, however, are in contrast pretty boring and don't led themselves to silver screen high drama. It can be done--see The Wolf of Wall Street or The Insider--but it's a subject more suited to a documentary format such as Inside Job or Enron: The Smartest Guys in the Room. Stealing someone's home or life savings through fraud or embezzlement will never be as visually interesting as stealing someone's wallet or sports car at gunpoint. The same is even more true for vast fraud; as Stalin is said to have noted, a single death is a tragedy while a million deaths is a statistic. And statistics, in general, are boring.

The fact that The Big Short is interesting and engaging despite its complex and potentially dry subject is a testament to the skills of director and co-writer Adam McKay, who understood that the audience needed a Cliff's Notes version of Wall Street economics in order to follow the plot. To that end he enlisted celebrities including Anthony Bourdain and Selena Gomez to help explain complex financial situations in cameos.

For a film about a deeply serious topic, the script manages to find wry humor in the mess. In a flashback when the mother of one of the characters is taken aside by their rabbi, she asks what the problem is. He responds by saying that the boy is a difficult, skeptical child who questions even the Torah: "He's looking for errors in the word of God." His mother, ever practical, asks, "So? Did he find any?" The film's tone helps as well, as the characters occasionally address the camera in wry asides-though McKay gets a little heavy-handed at times (a scene where a ratings company executive is literally wearing blinders while explaining their flawed procedures is partly clever and partly groan-inducing).

The Big Short is, at it heart, a tale about the importance of skepticism: demanding evidence, doing original research, and not just accepting what you're told--even by "experts." It was often the case during the leadup to the financial crisis that many of those involved didn't really understand what was going on; they understood (and had a vested financial interest in maintaining) their own corner of the market and their own cog in the machine. Each person in the house of cards assumed that all the other parts were being monitored by people smarter than them. While everyone assumed that someone else was at the wheel, only a few people realized that no one was at the wheel and the economy was an unsinkable ship headed for an iceberg when a cascade of untenable mortgages would come due.

The film is also notable in its lack of heroes. Even the main characters profited from the collapse, though it's not clear there was anything else they could do. As one financial expert harshly reminds two investors as they gleefully dance after making a deal, they are likely to become very rich by betting against the American Dream--and thus the housing market. When the economy imploded people lost their homes, lost their jobs, lost their savings accounts, and more.

There were whistleblowing attempts, but as the film makes clear, no one wanted to hear it and no one wanted to believe it. Furthermore much of the activity that led to the collapse was technically legal--or at least not obviously illegal. It was a Wild West of people who pretended to know more than they really did, a perfect storm of fraud, bluster, greed, stupidity, and willful blindness.

In real life, ratings house Standard and Poor's, for example, was forced to admit in court that the company's statements "extolling the objectivity, independence and integrity of its ratings are only ‘puffery' and that a reasonable investor wouldn't depend on them." In other words its legal defense when sued by its clients was that no reasonable investor would think that the ratings Standard and Poor's were giving were meaningful-that no client of theirs should have been stupid enough to assume that the information they were being given by Standard and Poor's was valid or accurate. As Jonathan Weil of Bloomberg Views wrote, "It's one thing to blow your reputation by slapping AAA ratings on all sorts of garbage subprime-mortgage bonds, as S&P did during the housing bubble. It only makes it worse to go into court years later and argue that your most cherished values are, for legal purposes, a bunch of smoke." (As of today the S&P website states that "Standard & Poor's Ratings Services provides high-quality market intelligence in the form of credit ratings, research, and thought leadership," which should presumably be following by a winking smiley face emoticon indicting that they're just kidding.)

The cast is uniformly excellent, with Carell and Bale portraying Burry and Baum as brilliant outsiders, high-functioning men likely on the autism spectrum. It's rare to see positive, sympathetic portrayals of such individuals. The film makes the convincing argument that most of the elements that led to the 2005 economic meltdown are still at play and could happen again. The American taxpayers footed the bill to bail out banks that made bad decisions while most of those responsible for the mess are still in positions of influence, or retired with million-dollar payouts. The Big Short is an important, intelligent, funny, unsettling, and ultimately terrifying film.

Comments:

#1 mid atlantic on Sunday January 17, 2016 at 6:18am

The cast is uniformly excellent, with Carell and Bale portraying Burry and Baum as brilliant outsiders, high-functioning men likely on the autism spectrum. It’s rare to see positive, sympathetic portrayals of such individuals.

I wonder if there is any correlation between financial acumen and Autism.

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