The Big Short: Inside The Doomsday Machine, the movie based on Michael Lewis’s best-selling 2010 book, was released on December 23 and promises to challenge attendance records. Familiar with the book, I expected to endure rather than enjoy The Big Short. Nope, I enjoyed it. Probably it deserves some of the enthusiasm of audiences—provided that your only criteria are effective story-telling, tight drama, and, above all, cinematic skill equal to its subject’s challenges.
The Big Short purports to tell the story of the financial crisis that exploded into the headlines in 2007, shook the foundations of financial markets worldwide in 2008—including a sickeningly steep stock-market crash—and ushered in what is called “the Great Recession,” which gutted the housing market and employment for years. The response of government in the United States was the largest “bail-out” in the history of investment banks, brokers, and the banking system—and an “easing of credit” by Federal Reserve money creation—pure inflation—and interest-rate manipulation unprecedented in US history. In the process, Wall Street legends like Bear-Stearns and Merrill Lynch simply collapsed.
Notice that I have described the storyline of The Big Short in very general terms, as non-technically as I can. But to even begin to grasp the simplest mechanics of this catastrophe you must understand “subprime mortgages,” “mortgage-backed securities,” “tranches” of bonds with different credit ratings, insurance against credit risk by means of “credit default swaps,” the role of “credit default obligations,” and percentages of mortgage default permitted for bonds with different “safety” ratings.
To grasp these are essential to even minimal understanding of the racing action in The Big Short. Alas, polls consistently report that very large percentages of Americans, at least, do not understand such concepts as “compound interest” or why prices of existing bonds go down when interest rates go up. But you are faced with making a movie incomprehensible without a grasp of subprime mortgages and credit default swaps. Oh, and to keep your audience’s attention locked on the big screen.
I am tempted to describe this movie’s handling of that challenge as “brilliant.” It is not brilliant; it is exceedingly effective, but screamingly obvious. I suppose that is why The Big Short is characterized as a “drama-comedy.” I will return to this topic.
But The Big Short accepted another challenge: to tell the truth about the causes of the financial crisis of 2007-2008. Yes, the movie tells the story of a few men who penetrated the mass delusion of the entire financial industry, as the crisis developed, saw the catastrophe hurtling down on the financial system, and made daring bets—“shorts”—to make fortunes out of that catastrophe. But as it tells that story, the movie unmistakably assures us that this is real scoop, the real dope, about the causes of the crisis.
The Big Short so totally fails to keep that promise, so consistently skirts any mention of the underlying cause of the crisis, that the producers might have been operating under strict censorship, which of course they are not. They created their story under the self-accepted censorship of the liberal-left party line, without which Michael Lewis’s book could not have become a runaway best seller and the movie a hit.
As The Big Short unfolds its racing narrative and the protagonists come to curse the authors of the disaster, and as the movie ends with the epilogue text running up the dark screen, we hear investment bankers, stock brokers, and rating agencies condemned as pure frauds—criminals who should not have escaped jail. We never once—I know that this defies belief, given what has been published about the crisis—hear government mentioned. Not the Federal Reserve, not the government-created-and-backed Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation [Fannie Mae and Freddie Mac], not the legislation pressuring banks to make subprime loans. Not one word. A Martian somehow hearing and understanding this movie would not know that the government existed—except for a few mentions of how government regulatory agencies were asleep at the switch. Capitalism, the private sector, through greed, stupidity, and sheer denial brought on this epic collapse of the U.S. economy and endangered the world financial system, which had to be saved by governments.
It is impossible to see this as an innocent error. Perhaps in 2010, when Michael Lewis published his book—possibly, and I am stretching, here—a writer might have focused on the direct, immediate locus of the tragedy and missed its essential cause. But by 2015, when this film was completed and released, dozens of books and articles had laid out explicitly, irrefutably the role of government as enabler of the crisis. I might mention the account by a leading banker, John A. Allison, who went through the entire experience, managed his bank to save its depositors from the disaster, and then told the story in The Financial Crisis and the Free Market Cure [McGraw-Hill Education, 2012]. There are many other accounts. The Big Short is told as though they do not exist.
Not mentioned in The Big Short even by passing reference:
- The role of the Federal Reserve, chiefly under Alan Greenspan, which supplied virtually unlimited credit to the financial system over decades, so that built-in free market limits on availability of capital were swept away and the bubble could enlarge without limit.
- The role of Fannie Mae and Freddie Mac, government created and “sponsored” agencies, putatively private, which with Congress’s special dispensation, were able to package and sell mortgage-backed securities without limit, becoming the majority purchasers of these toxic instruments so that the “private sector” had funds to create more.
- Federal legislation intended to protect potential homeowners in “redlined” districts—where mortgage default rates were sky high—by mandating that banks give them special consideration for mortgages: that is, to approve “subprime” mortgages.
Those are but three roots of the financial crisis, stock-market crash, and Great Recession. Yes, the banks, real estate brokers, investment bankers, and stock brokers enacted this tragedy, creating the illegitimate securities, faking the safety ratings, and blinding themselves to the fast-and-loose dealings.
And so the “explanation” of the crisis has been: greed. But “greed” always has been with us. It does not change, just as human nature does not change, and “greed” has been identified with self-interest, the pursuit of profit, the desire to succeed. It has been identified as the engine of creation, innovation, and prosperity. So why, leading up to 2007, did these ever-present motivations of traders generate a once-in-a-century tragedy?
The answer, in brief, is that government was the enabler. It created the unlimited credit through the Federal Reserve, provided huge leverage for purchasing the securities through Fannie and Freddie, and pushed the banks to relax standards of mortgage lending. The story, of course, is far, far more complex than this. I would recommend Mr. Allison’s book and, in fact, my own much shorter book, Not Half Free.
Well, what of the story that The Big Short does tell, at best a half truth, but a good yarn? Three tiny groups of men, who against the overwhelming consensus of the financial industry perceive the unsustainable bubble and bet their futures that they are right. These are the heroes of The Big Short and as they are laughed at, threatened, and utterly dismissed—but persist in risking their fortunes and careers on their independent judgment—they manifest perhaps the most heroic of human traits: reason based on logic and first-hand examination of the facts and impervious to all other considerations.
It is a truism that Wall Street loathes and ridicules anyone who dares take issue with its permanent campaign to advertise a positive market for stocks and bonds. All of this scorn, literally giggling, but often thunderous wrath, shouted curses by red-faced big shots, is turned upon the few individuals who say: This delusion must end in tears.
The overarching challenges confronting the producers of The Big Short are to explicate the key technical concepts of the investment bubble without interrupting the headlong story and to make believable the discovery by the heroes of the full, fraudulent, and cynical game that threatens the world financial system and the lives, homes, and future of millions of ordinary Americans.
Hedge fund manager Dr. Michael Burry of Scion Capital [Christian Bale], the pioneering mind behind the big short, provides non-stop entertainment dressed in T-shirt and sandals and playing thunderous rock music in his office. The socially awkward loner with one glass eye, remote and unperturbable serene—the real Burry has Asperger’s syndrome—is played off against a permanently outraged Wall Street investor and crusader, Jared Vennett [played by Ryan Gosling, a one-time star of Disney’s Mickey Mouse Club], who storms through two years of discovering the scope of the deception and waiting for the big short to pay off. All the bright lights of The Big Short are based on real Wall Street figures who indeed made some remarkable calls about what was going to happen and bet on their judgment. Two young men who founded Cornwall Capital in a garage, and parlayed 110,000 into 120 million in the crash, supply the movie with its appealing California entrepreneurs [played by Finn Wittrock and Rafe Spall].
All leading characters in this film, by the way, carry the names of real people, lending the movie a certain sense of authenticity. Too bad some of the government movers and shakers behind the catastrophe are not portrayed and their real names used. Of 16 actors featured in the film, only one, Margo Robbie, portrays a minor Securities Exchange Commission regulator—and not a real one. We meet her briefly, and briefly clad, beside a pool in Vegas.
Most obvious are extravagant, often comic devices for explaining financial concepts to viewers. First is the blonde in the bubbly hot tub, drinking champagne, who explains subprime mortgages. Hey, how did she get in here? No explanation needed. Twice we are ushered into strip clubs where we come to understand the lax or non-existent standards for home mortgages—in one case explained by a lap dancer doing her thing. When we seek an explanation of leveraging-up by means of credit default obligation, we are at a blackjack table in Las Vegas with an economist and his pretty sidekick.
Between these egregious devices, which nevertheless accomplish their purpose, the non-stop action in offices of Wall Street and on the streets of Manhattan—a twitching, cursing, argumentative action accompanied by rap music or a heavy-metal rhythm—is intended to sustain our pulse as our heroes debate tranches of AA and BB mortgages. I6-*t works. At least, it worked for me.
My standard for “working” is not that by some miracle this movie kept my attention; the subject interests me and I grasp the technicalities. My standard is that I effortlessly kept focused on the plot, what was being explained, and, above, all, what was at stake. There is much high moral dudgeon in The Big Short. The revelation that shakes and appalls the protagonists is that this is pure, smiling, hypocritical fraud: that the players involved are “the lowest sh**s.” Apparently, there were no sh**s in government except regulators asleep or awake in bed with the financial industry. That certainly contributed to the crisis, but the movie implies that government did not to cause the crisis, it merely failed to prevent it.
In the end, The Big Short engages us with a literal handful of individuals in the vast financial industry who stand against the intimidating consensus, hanging onto their shorts with increasing panic as week after week “the system” props up the prices of securities that ought to be plunging. The movie makes it easier to root for these characters because in the end we are assured that they take no pleasure in profiting from America’s disaster.
The review in the New York Times concludes: “The Big Short will affirm your deepest cynicism about Wall Street while simultaneously restoring your faith in Hollywood…”
How perfect for the Liberal-Left in the fracas called “the election season.” Because the Times writer might have added what is obvious: “and make you think hardly at all of government” in connection with the crash, eight years of economic pain, tidal wave money creation by the Fed, trillions in new Federal government debt, and a regulation-induced sleeping sickness in American banking. The candidate who looks best through the distorted lens of The Big Short is the frankly anti-capitalist, egalitarian, class-warfare candidate, Bernie Sanders.
You don’t suppose that could be deliberate?
