The Big Short Reviewed

Perhaps one of the strangest things to say about The Big Short on big screen vs. The Big Short in book form (reviewed here) is that it makes very different mistakes than the ones the book it was based on make. The book claims that Goldman Sachs virtually forced AIG to write credit default swaps on its heavy mortgage exposure, whereas the movie actually portrays an obscure, insignificant San Jose hedge fund manager as getting Goldman Sachs to do such for him! Suffice it to say, both are silly and profoundly stupid claims (AIG needed no pressure from anyone to generate gazillions in fees on their credit default swap business, and the product existed en masse long before Michael Burry every bought some from anyone). Perhaps the most interesting divergence in the movie from the book is the movie’s complete and total silence on what is actually the central conclusion of the book – that the financial crisis was caused by the big Wall Street firms being publicly held corporations instead of privately held partnerships. Perhaps the moviemakers read my review of the book and decided to avoid that painfully erroneous conclusion that Michael Lewis came to, but I doubt it. I actually don’t know why they avoided that conclusion in the movie, other than that they thought it would confuse their audience. But they were willing to confuse the audience throughout the movie, often bringing on celebrity cameos to interrupt the movie and explain certain complex financial terminology. At the end of the day, The Big Short, the movie, opted for the more traditional conclusion about the financial crisis – that it was generic Wall Street corruption and greed that caused the world to nearly break in 2008 (including the stock prices of all the evil Wall Street firms).

The positives about the movie need to get some attention. It is wildly entertaining, which is tough to do when talking about subprime mortgage backed securities, credit default swaps, collateralized debt obligations, and leverage ratios. The fact of the matter is that Christian Bale was phenomenal in his portrayal of Michael Burry, the previously mentioned San Jose hedge fund manager. Ryan Gosling’s character is extremely fun, and even though they confuse the real position Greg Lippmann had (the individual Gosling portrays), it was entertaining and enjoyable to watch. I thought Steve Carrell really overplayed his character, but I had the privilege of meeting Steve Eisman (who Carrell portrays) on several occasions, and perhaps I am holding Carrell to an unfair standard. Eisman was eccentric and moralizing – there’s no doubt about it – but I never felt like Carrell was playing him as much as he was playing Michael Scott from The Office playing him, which also might be unfair. The settings for the movie were well put together, and there were simply luscious scenes (the time they spent feeling out the mortgage brokers in Florida was a classic, and probably a scene many of us felt like he actually lived through from 2000-2006 when we routinely saw pizza delivery folks enter the 1%, without so much as being able to spell their name). Anything critical I could or will say about the movie does not change the fact that it was funny and it was reasonably well made.

So what was the problem? All synopses of the financial crisis that misdiagnose the central role Wall Street played in it as rank conspiratorial callous greed and evil, as opposed to utter incompetence and cluelessness, is just plain wrong. Evil masters of the universe do not self-destruct their stock prices by anywhere from 80% to 100%. Dick Fuld was not holding the vast majority of his net worth in Lehman stock all the way up until the end because he was merely evil; he was genuinely stupid, and wrong. The narrative of evil financial firms bringing the world to its knees and walking away scot-free is a sell-able one, and certainly palatable for a blood-thirsty society who would love to believe it was a victim of a mass one-percenter white collar crime. The Occupy Wall Street movement, the popularity of Elizabeth Warren, and the rock n’ roll magazine, Rolling Stone, are all clear here: Main Street was a bunch of innocent, hardworking, faithful, honest Americans, and they got taken to the cleaners by the sociopathic greed of a few dozen evil genius bankers. I am never confused as to why that narrative sells. But it doesn’t mean it has an iota of truth or logic to it.

I won’t use the review to telegraph all I plan to say about the financial crisis in my pending book. There were evil people on Wall Street. There were incompetent people on Wall Street. And a financial crisis that started with a cult around housing and ended with financial instruments created to support that cult blowing up is going to involve the manufacturers of these financial instruments involved. But when we look at the national drug epidemic, we have to look at the extraordinary demand for the drugs, and the web of dealers, suppliers, peddlers, agents, regulators, distributors, and enablers all involved. Focusing on one actor in an epidemic is a great way to centralize angst, but it sure isn’t going to tell you about the epidemic. The movie does something that I found remarkable – it explicitly and accurately points to the thing that brought the greatest distress on the balance sheet of the Wall Street firms – the synthetic CDO’s and CDO’s squared they piled on to their balance sheets. The movie goes to the difficult labor of defining them, does a reasonable job doing so, and provides the definition in their own words that they amounted to bets these firms were making on what would happen. When is the last time you heard of a bet on an outcome causing that outcome to happen or not happen? The CDO’s blew a hole in the Wall Street balance sheets, that’s for sure, but the soil for a housing bubble had been fertilized for decades by then – the synthetic CDO’s just helped make sure that the Wall Street firms went down with everything else when the bubble faced its inevitable burst. A part of the story? You bet. The cause of the story? Ridiculous.

A movie about the real and actual societal context and climate that enabled and facilitated what became a national crisis in 2008 would be a movie most Americans would not be willing to watch. It would indict a lot of bad people, and it would indict a lot of incompetent people, but it would inevitably indict an extraordinarily broad array of groups. And more than anyone wants to recognize, including the folks behind The Big Short, that broad array just may end up involving the person in the mirror if the story were told exhaustively.