What’s a Little Didacticism in a Movie With Margot Robbie & Brad Pitt?
Are collateralized debt obligations (“CDO’s”) easier to understand when a gorgeous Margot Robbie — enjoying a champagne bubble bath — explains them? (maybe, if you’re not too distracted).
How about when the teacher is Selena Gomez or Chef Anthony Bourdain?
That’s the conceit behind director Adam McKay’s “The Big Short” (based on Michael Lewis’ book), which uses a succession of celebrity cameos to familiarize audiences with the movie’s potentially dizzying subject: complicated securities that Wall Street cooked up and sold by the trillions before they crashed the housing market (and tanked the economy) in 2008.
Complexity “a Feature, Not a Bug”
As the movie makes clear, the complexity of those financial instruments was their virtue.
Or, as Silicon Valley types might say, “opacity is a feature, not a bug.”
That complexity allowed Wall Street to pass off sows’ ears as silk purses (“dog shit wrapped in cat shit,” as Steve Carell’s character puts it), while it simultaneously netted billions more betting against those same securities.
And it allowed Wall Street to rig prices well into the melt-down, by arguing that “markets are complicated.”
Until, of course, the price-rigging no longer worked, and the whole edifice came tumbling down like a proverbial jenga tower (actually used as a sales prop by Ryan Gosling’s character; see photo at left).
Warped by Wall Street
None of this would’ve mushroomed into a gigantic financial bubble if regulators had blown the whistle; the debt ratings companies withheld their seal of approval; politicians acted to strengthen the nation’s financial laws (or at least not agreed to water them down); or even if journalists had put the subject in its investigative crosshairs.
But, of course, none of them did.
Why?
Because, as the movie shows, their livelihoods (current and future) depended on Wall Street’s largesse.
Wall Street Anti-Heroes
Once the financial jargon is out of the way, “The Big Short” can be understood as an old-fashioned morality play, updated for an era of smart phones and social media.
Except that instead of an everyman Tom Hanks or even Tom Cruise, the good guys — such as they are — are all loudmouths and eccentrics.
People like Dr. Michael Burry, an aloof math genius with Asperger’s and only one eye, who confesses that all those qualities make it hard for him to relate to people (and vice versa); obnoxious investor Mark Baum, played by Steve Carell; and a curmudgeonly (and shaggy) Brad Pitt, who shows up in a supporting role as a jaded, semi-retired “master of the universe” and reluctant mentor.
Oddballs & Upstarts
The characters’ quirks explain why they are necessarily all Wall Street outsiders, which is what originally attracted the attention of author Michael Lewis.
However, their “likeability deficit” presents a challenge for the movie and moviegoers (in addition to the complicated subject matter).
Challenge #2: the putative good guys’ motive isn’t to fix an obscenely corrupt system, it’s to (also) cash in on it, even if they do so ambivalently (see, Steve Carell’s character).
Just like Shakespearean verse takes a little effort, so, too does figuring out exactly how the economy was — is — warped by Wall Street’s influence and agenda.
Anyone who wants to understand The 2008 Financial Crash — or the 2016 Presidential race — owes it to themselves to see the movie.
Profiting From a Bubble — The Postscript: “Necessary But Not Sufficient” Conditions
As “The Big Short” also faithfully shows, it’s not enough for investors to identify a financial bubble (in this case, housing and all the side bets placed on it, or what economists would call a “mis-priced asset class”).
To profit, investors (speculators?) also need: 1) a way to place their bets; and 2) a functioning marketplace** where those bets can be bought and sold at fair market prices.
The Big Short’s band of misfits got step #1 spectacularly right: they bought up housing-related credit derivatives by the fistful (actually, “shorted” or bet against them).
But they were still nearly undone by miscalculating requirement #2: to their chagrin, they belatedly realized that the Wall Street firms on the other side of their bets also set prices for them — and had both the motive and wherewithal to rig prices, at least for awhile.
When firms like Goldman Sachs colluded to price credit derivatives artificially high (to facilitate their own trades), the resulting margin calls nearly bankrupted the short sellers before the tide finally turned in 2007.
**When The Crash truly arrived on the heels of Lehman Brothers’ collapse in September 2008, the only reason the market for credit derivatives — or any other market, for that matter — continued to function was because the U.S. Treasury and Federal Reserve stepped in with huge bailouts.
One might argue (I would) that, more than seven years later, the government is still trying to clean up Wall Street’s mess (witness Quantitative Easing, Zero Percent Interest Rates or “ZIRP,” and endless other monetary stimuli that wreak havoc on other parts of the economy — not to mention savers).
See also, “Inside Job by Charles Ferguson“; “Predator Nation by Charles Ferguson”; “The (Rest of) the Michael Burry Story“; “Goldman Sachs: It’s Not My Dog“; “Wall Street Plunders Henhouse, Blames Chickens“; “Number of the Week: $600 TRILLION“; “The Wall Street Journal Whiffs on Warren; and “Drug Dealers vs. Bankers: “Top 10 Differences.“
