The Big Short (2015)


Despite its own blatant obsession with profits and artifice disguised as substance, Hollywood has been deeply unkind to Wall Street in its films. It’s unsurprising given the fact that liberals have colonized Hollywood and an overwhelming majority of films and television shows have varying quantities of leftist editorial.  You’d assume they’d be nicer given that plenty of Wall Street hedge fund money flows into Hollywood. Perhaps the tone of reproach and recrimination that forms the backdrop of The Big Short can be attributed to Wall Street’s increasing reticence to fund Hollywood ventures. Regardless, The Big Short is filled to the brim with contempt for banking and partisan agitprop.

I went into the cinematic adaptation of The Big Short expecting it to have the same editorial flaws as the book and these expectations were confirmed. Unfortunately, the film exceeds the dishonesty of the book and makes additional errors which alternate between rehashing thinly veiled leftist talking points and acts of blatant deception. And the book is plenty dishonest all by itself.

Why grouse about it?  Because the film, like the book, wants to have its cake and eat it too. It wants to be big Hollywood entertainment while simultaneously convincing you that it’s being honest with you and giving a definitive, fact-based account of the housing crisis. It’s a movie that wants you to believe that it is a Smart, Hollywood Movie made by Smart, Educated People Who Get It and it’s exposing that stuff you always assumed was a bunch of shit, but it’s really here to confirm your bias! See? The New York Times and the Wall Street Journal agree, too!

The film deploys a number of techniques to insinuate its truthfulness. Just like House of Cards, The Big Short makes generous usage of the dramatic aside. The actors deliver little monologues directly to the audience which refer to the actual historical events to let you know that you’re being admitted into a circle of confidence and being given the straight dope.

In the book, Michael Lewis offers little explanatory passages throughout the book to help the reader understand the actual instruments and transactions being discussed. In the film, they use celebrity cameos and snarky text blocks. They’re lifting the veil of secrecy and demystifying all that Wall Street technobabble! Margot Robbie explains CDO tranches while luxuriating in a bubble bath! Anthony Bourdain makes an analogy between CDO’s and fish stew made with aged ingredients!  Selena Gomez breaks down synthetic CDO’s while playing blackjack! How droll!

Bear in mind that the film isn’t without entertainment value. Director Adam McKay has a track record in comedy and he wisely sought to emphasize the book’s bleak humor. As a piece of entertainment, The Big Short is a Wall Street movie that at least has a little fun with an admittedly gloomy topic.  I just wish it was as substantive, informative and morally righteous as its cheerleaders claim. 

The film’s partisan bias surfaces right away.  In a voiceover delivered by Jared Vennett (Deutsche Bank trader Gregg Lippman IRL), Ryan Gosling takes us back to the heady days of Salomon Brothers in the late 70’s and early 80’s where the mortgage-backed security had its humble origins.  We’re introduced to Lewis Ranieri, the presumed father of the MBS as recounted by Michael Lewis in Liar’s Poker.  Before mortgage securitization, Vennett says, banking was a boring profession. It was inhabited by losers. It was devoid of this absurd speculation with Byzantine instruments and impenetrable jargon.  It was boring. You got that, proles? Banking used to be boring.  Let’s make banking boring again, Comrades!  If only there was a politician with those aspirations.

The film also shamelessly deploys some blatantly partisan semantic dogwhistles. In Vennett’s initial pitch to FrontPoint Partners (the hedge fund run by Mark Baum who was played by Steve Carrell), he uses a jenga tower to explain the CDO. In his explanation, he says old fashioned mortgage-backed securities were backed by the government and were safe. But then along comes private market subprime bond securitization which introduces all these risky instruments into the system! Got that, proles? Government = safe and boring. Private market = unregulated, risky, unbridled, rapacious greed

If only it was actually true.  Let’s take a look at what Cameron Cowan of the American Securitization Forum had to say to the House of Representatives Subcommittee about the role of legislation and GSE’s on the expansion of the subprime mortgage securitization market back in 2003:

As part of the Tax Reform Act of 1986, Congress created the Real Estate Mortgage Investment Conduit (REMIC) to facilitate the issuance of CMOs. Today almost all CMOs are issued in the form of REMICs. In addition to varying maturities, REMICs can be issued with different risk characteristics. REMIC investors—in exchange for a higher coupon payment—can choose to take on greater credit risk. Along with a simplified tax treatment, these changes made the REMIC structure an indispensable feature of the MBS market. Fannie Mae and Freddie Mac are the largest issuers of this security.

Add to this home ownership mandates from HUD, the FHA and pieces of legislation like the Community Reinvestment Act, and you’ve got a pretty clear set of government mandates and incentives which provided more than enough fuel for a housing bubble.

The film is playing a very simple game of misdirection. Just because subprime mortgage bonds were underwritten by private institutions does not mean that private institutions created the conditions for the housing bubble.  Both the film and the book make no effort to distinguish between mortgage loan origination and securitization and the moral hazard that accompanies this separation. 

Just like the book, the film turns a completely blind eye to the role that monetary policy played in inflating the bubble. In a particularly revealing scene, a Goldman Sachs employee informs the “garage band hedge fund”, Cornwall Capital that they can buy credit default swaps because “If you give us free money, we’ll take it.” 

Of course, the filmmakers wanted to portray the dirty, evil greedy bankers as unscrupulous thieves.  But if you just reorient that statement and apply it to the relationship between the Federal Reserve and the banks, it’s actually remarkably accurate.  The Fed dispenses “free” money, and the banks take it

The film’s biggest partisan offense is McKay’s decision to swap Cornwall’s visit to the SEC with a visit to the Wall Street Journal. Cornwall wanted to expose the imminent housing collapse and they made their initial pitch to the press. In the film, their pleas are met with indifference by a Wall Street Journal reporter who’s so deep in the tank with the bigwigs, he can’t jeopardize his position to do the right thing.  Of course! Those bootlickers at the Journal aren’t going to have any courage. They’re toadies for the bankers! They were completely oblivious to the possibility of a housing bubble!

In the book [1] however, the WSJ connected them directly with the enforcement division of the SEC. And guess what?  Their case was treated with total indifference. 

They tried to make up for it in a scene involving a female college friend recently departed from the SEC.  In a poolside conversation at an extravagant industry conference in Las Vegas, the former SEC employee is basking in the sun in a sexy bathing suit listening to the impassioned pleas of Jamie Shipley and Charlie Geller. She confides that the SEC wasn’t pursuing enforcement actions because the funding dried up. 

Come on, guys. This is a bald-faced lie. Not only did SEC enforcement actions escalate during the Bush administration with nothing to show for it, but SEC agents were busy watching porn when the economy cratered. The SEC are not exactly the indispensable watchdogs that many politicians would lead you to believe.

They even sneaked in a line of incredulity when their friend flirts with a shirtless hunk from Goldman. “You mean there isn’t a law which prohibits you from seeking employment in the private sector?!”

Yes, we get it, McKay. You’re doing your best to include all the requisite talking points.  

Topping off this turd pile of talking points is the parting speech Mark Baum gives as he’s persuaded into selling FrontPoint’s position in credit default swaps just as the economy grinds to a halt. He anguishes over the decision because he knows that the crisis will be blamed on “immigrants and minorities.”  That’s right, you dirty conservative bastards.  Not only do you sanction unscrupulous Wall Street thievery, but you’re xenophobes and racists and you’ve screwed everything up for people who are just trying to get a modest piece of the American Dream.  Now shut up and get in line. 

The book and the film are remarkably unwilling to assign any real criticism towards the government. Both Lewis and the filmmakers seem intent on having you believe that the government played no role in encouraging mortgage securitization, home ownership, leveraged finance or excessive household debt.

In the last scene, Mike Burry as played by Christian Bale is typing up his final letter to his clients after banking $720 million from credit derivatives. In a voiceover, he inveighs against fraud and following authority.  On the surface, it’s a powerful screed, but like the remainder of the film, it’s shallow and slightly misleading.

Surely, we should repudiate fraud in business dealings, but if you aren’t going to discuss government fraud or how it contributes to a culture of fraud, the moral lesson seems unnecessarily selective and intellectually dishonest.  Unquestioned deference to authority is something that each person should challenge, but if your story about the 2008 financial collapse doesn’t question any government authority and heaps all of the blame at the feet of Wall Street, you might just be a partisan hack. 

[1] p. 166, The Big Short

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