Movie Review: The Big Short

TheBigShortby Brad Nelson5/23/16
This is a movie that attempts to tell the story of the housing boom-and-bust in an entertaining and informative way. Remarkably, it mostly succeeds.

First off, I accept that this movie is full of good information about the housing bubble that burst around 2007-2008. My one criticism, which I will not harp on, is that it totally and completely ignores government’s crucial role in creating or incentivizing that bubble. Other than at the end when it mentioned that many of the banks expected that the government would bail them out come what may, there is no mention of government’s involvement.

So do understand that from this standpoint, this is a propaganda film. It’s all about the big, bad capitalists. But even this underrates the often subtle touch of this movie which is supposed to be based on a real insider stories. The conclusion from the best real-life character in the film, Mark Baum (played wonderfully by Steve Carell), is not that the bubble was caused by a bunch of evil people but by a bunch of stupid people.

In fact, the movie does not make this explicit, but it cannot escape your attention if you watch this that the gullibility or unreality bubble preceded and caused the housing bubble. There was a total lack of a desire to connect cause-and-effect. I see this exact same type of bubble in regards to Donald Trump. Whether regarding banking/mortgages or politicians, people often abandon the expectation for anything to make sense.

This movie is about a few people who made a whole lot of money because they “shorted” the home mortgage market. If the housing market went significantly bust (something considered impossible), they would make money. That is, they were a mere handful of people who recognized the unreality (and sometimes, indeed, the outright corruption, but mostly wide-eyed stupidity) of the financial markets as they packages and re-packaged home mortgages as an investment opportunity.

This basic severing of cause-and-effect, of reality from good-time-rock-and-roll delusions, is really the core of this movie. Almost everyone involved wasn’t your typical evil capitalist driven by greed. It was about an expectation that there was no end to making easy money — whether on the back end by packaging and re-packaging portfolios of mortgages or on the front end in buying houses. As much as we might want to see the villains of this bubble being the mean old banks, we shouldn’t forget that a very large portion of those “poor people” who lost their houses were also involved actively in the irrational exuberance of the bubble. One lady in the film had five houses that she had acquired with nothing down.

The film explains some of the technical terms by breaking the fourth wall and doing an aside, usually with celebrities who explain things in non-technical terms. This is effective in some cases. In others, it’s less so. But it is effective at not making your eyes glaze over from a movie that is too technical. You are given a break now and then.

I think Christian Bale is horribly miscast as the socially awkward financial genius. I can see Matt Damon pulling this off far more effectively. But that’s a relative quibble. The clear star of this movie is Steve Carell in his role as Mark Baum. This has got to be the kind of juicy role that actors live for. This movie by no means revolves around his character. But the power of his character anchors what otherwise could have been yet another ho-hum documentary-style film.

Even though these guys were in the midst of this, I’m not sure that they draw the right lessons at the end of the film. You should be at least a little skeptical. One other thing that strongly occurred to me while watching this is how people these days gain so much of their reality from fiction via various forms of entertainment (perhaps this film included). Never forget that many yutes gain their information from comedians or just mere celebrities Again, Donald Trump comes to mind. This movie should be taken with a grain of salt even as I think you do get some real and vital inside information on what went down. But by no means is it the complete story. It might not even show the most important element: government’s involvement.

Those quibbles aside, from a cinematic perspective, this is an interesting movie from start to finish. Well…almost. The first ten minutes or so presented a movie that looked like a bit of a turkey. But stay with it. It gets better.

Brad is editor and chief disorganizer of StubbornThings.
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Brad Nelson

About Brad Nelson

I like books, nature, politics, old movies, Ronald Reagan (you get sort of a three-fer with that one), and the founding ideals of this country. We are the Shining City on the Hill — or ought to be. However, our land has been poisoned by Utopian aspirations and feel-good bromides. Both have replaced wisdom and facts.
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15 Responses to Movie Review: The Big Short

  1. Timothy Lane says:

    Incidentally, George Soros has made his fortune by shorting the currencies of various nations, and cleaning up when they failed (a failure his actions probably contribute to). In Malaysia, one of his victims, he’s used to justify anti-Semitism. More recently he has been shorting the dollar — and his profits no doubt benefit from the financial and fiscal decisions of Barry Screwtape Obama, to whom Soros contributes extensively. This is a reminder that shorting in itself is morally neutral, like most business behavior.

    • Brad Nelson Brad Nelson says:

      This is a reminder that shorting in itself is morally neutral, like most business behavior.

      There’s a great scene involving the reclusive Ben Rickert (played by Brad Pitt…sort of pretending to be Robert Redford under all that beard). He’s sort of a modern economic survivalist. He thinks that everything is going to collapse, so he’s moved onto a farm where he has non-GMO seeds and the whole “natural” shtick. Note: rich people can always afford to build themselves walls between themselves and reality.

      Anyway, a couple financial upstarts who are old friends of Rickert come to him with the information that there is money to be made from shorting the mortgage market. When the payoff finally comes, the two yutes can’t contain themselves. They are jumping up and down just like your typical brain-dead, culturally vulgar, tattooed yute. Rickert turns and tells them to stop it. They shouldn’t be gaining any pleasure because their success means that there are a lot of normal Americans who will be hurt.

      This movie, as narrowly focused as it is, can be seen as a template for the bubblification of anything. “Greedy capitalist” is a Marxist put-down of simply the desire to make money and do well. Call it “greed” if you will. But as someone noted elsewhere, the reason almost no one went to jail over any of this is that no one broke any laws. For your typical Leftist ideologue or low-information voter, this movie is a case for the need for more regulation.

      In that sense, this movie is a fraud because it is quite arguable that the Federal government regulated the banking and housing market into this bubble in order to fulfill their “social justice” utopian paradigm of “affordable housing.”

      But whatever the facts may be, and I have no doubt there are plenty of “greedy capitalists” out there, this movie is not just history. The mains story is as relevant as ever. As it did for me, it may make you aware of the bubble of incompetence wending its way through our society, and not just in the financial sector. Whether driven by “equality,” affirmative action, and/or our dumbed-down educational system, you can expect more bubbles to pop soon.

  2. Steve Lancaster says:

    When the government is involved in an activity it is not competent to perform it always does it badly. It should not surprise anyone that government interference in the mortgage market caused the crash and that there were people who read the tea leaves and profited from the crash. The same thing happened in Oct of 1929. Markets do take wild swings, but with the help of government they only get worse.

    • Brad Nelson Brad Nelson says:

      It should not surprise anyone that government interference in the mortgage market caused the crash and that there were people who read the tea leaves and profited from the crash.

      It does still surprise people, Steve, including the makers of this film who do not even include government as a minor cause. Your smartest people on the planet (aka “low information voter”) will tell you with all the confidence of a view buzzed by PC feel-good vibes that the cause was not enough government regulation.

      That economic bubbles exists isn’t new. But that we learned exactly the wrong lesson from this one is a moment when as a culture we jumped the shark. We became the kind of “stupid is a stupid does” that Forest Gump talked about.

      And just as a general rule, we should not become dumb like the Left and replace thought with word-phrases. “Government regulation” is not a specific thing. It does not define what kind, how much, or for what purpose government regulates something. To have some regulation to deal with fraud is one thing. To use government regulation to achieve social ends is a different thing. And if people are not able to make these distinctions then they have no chance of understanding the motives, goals, or effects of people who cry blandly for more “government regulation.”

      I agree with you on your word choice of “government interference.” The government was interfering in the housing market trying to achieve, once again, “magic money” via government diktats. The film at least got this aspect of it right when it said it would be the normal taxpayer who paid for the cost of the bubble, even if the film makers showed little or no knowledge of the large context of the bubble.

  3. Lucia says:

    I was a real estate appraiser during this time and noticed that almost everyone who was part of the loan transaction, from borrowers to lenders to underwriters to FNMA, believed that property values would never go down. I was frequently pressured to change my reports in some manner that would help the loan succeed, even if it meant lying about the quality of construction, manipulating the comparable sales to provide a false picture of the market, pushing the estimated value up more than a smidgen without support from the comparable sales, etc.

    My conversations about the nature of hot real estate markets were revealing. Borrowers, realtors and lenders alike seemed to be delusional, and my caution about the example of the California market, that values decreased rapidly at the same rate as they had risen, seemed to have no effect. I tried to get borrowers to take a hard look at the incomes that were required to afford the monthly payment of the new loan and to consider what would happen if we had a recession which might bring them down to only one income. Sadly, I saw about 1/3 of the properties I had appraised fall into foreclosure after 2007.

    The blame fell on the appraisers, the one group that had no union, no lobby, no unified voice or power to defend their profession. Andrew Cuomo took up the club to fix the appraiser “problem” and lobbied for regulations that would isolate the appraiser from being influenced by anyone in the lending chain, even to the point of networking for clients. The appraiser is supposed to be a firewall, a disinterested third party, but the isolation didn’t change the cronyism in the lending network. It just made it more difficult for appraisers to do their job. The new regulations standardized appraisal forms and language used to fill out the forms so precisely that computers could do the appraisal with humans as only data gatherers.

    When the crisis started, the federal government, (FHA, VA, FmHm) undertook about 5% of loans, but within 5 years it was making about 90% of all loans, including subprime. Is anything wrong with that picture?

    • Timothy Lane says:

      Only if you’re a taxpayer.

    • Brad Nelson Brad Nelson says:

      What you’re saying is completely consistent with this film, Lucia. And thanks for the inside, real-world info.

      There’s a great scene where Mark Baum is talking to an agent at Moody’s or Standard & Poor’s (I forget which). Baum was investigating the intel he had that the AAA rating of the mortgage bonds were hiding the fact that inside these packages of bonds lurked a lot of mortgages that would go bust because they were bad risk loans, especially because they were loans that would have an interest rate that would go up. So apparently you had a lot of loans based on low or no-money down, and even some of the bankers portrayed in this filmed bragged about turning no one down.

      The lady he talked to assured Baum that all the ratings were carefully evaluated. But when Baum asked her if any bonds were ever rejected or rated other than AAA, she hemmed and hawed and eventually admitted that she needed to rate these as AAA or the business would go elsewhere. (The good question, never asked in this film, is that if that incentive was always there, why is it having an effect only now? What changed?)

      Incredibly, the film ends by saying “Of course they’ll get around to blaming the poor when it is all over.” I think that is a phenomenally stupid thing for this otherwise smart film to conclude. It is arguably that a great deal of the impetus for the bubble was the drive for “affordable housing.” There was a social goal, which the banks and others were more than happy to sign onto because, one, they could make a lot of money, two, they couldn’t expand their businesses if they didn’t go along with the social goals of the Federal government and, three, if it all went bust everyone figured (rightly) that the Federal government would bail them out.

      And I note that this film doesn’t perhaps get into the greatest motivator of this bubble beyond the mere desire to make money: If you didn’t go along, you might be considered racist, a hater of the poor, etc. That is, there was no upside to holding to normal lending practices, although some banks obviously did smell a rat and didn’t get caught up in it. So a film that purports to give us the truth instead, in my view, caves to political correctness.

      So basically the story is, in my view, correctly seen as the overturning of normal market forces (if you can’t afford a home, we won’t sell you one). And no doubt there are many greedy villains on Wall Street. But as interesting of an inside view as this movie gives, they miss (probably intentionally) the big picture.

      • Timothy Lane says:

        The ratings agencies need to be handled differently. I suspect that what happened during the bubble was a concatenation of events. One was an increasing percentage of bad loans due to the bipartisan goal of arranging for the poor to own their own homes. Another was the development of derivatives — securities consisting of tiny shares of lots of other investments (such as mortgages). This combined with the inherent conflict of interest in rating securities to help lead to disaster.

        • Brad Nelson Brad Nelson says:

          Another was the development of derivatives — securities consisting of tiny shares of lots of other investments (such as mortgages).

          Yes, the movie got into some of the nuts and bolts. I don’t begin to understand it all, but the movie explained it like this: One of the safest investments is home mortgage loans because people will always pay their mortgages. Clever bankers and investment houses then found ways to re-package these loans together and re-sell them as as additional safe investments.

          The analogy given in the film was playing a blackjack hand where the players has 18 and the house has a six or seven showing. The odds of the player winning are good. Factored into this also is that this player has been on a “hot streak” (which the filmmakers rightly point out is an irrational aspect). Anyway, the film shows how repacking mortgages as additional opportunities for profitable investment works. It’s like someone standing at the blackjack table making a side bet that the player will beat the house. This is a safe bet. And then players make side bets on the side-betters. But what if the house wins? Then it all collapses.

          This comes at you pretty fast and you’re taking it on faith that the filmmaker’s analogy is apt. We never learn if this new approach to repackaging home loans was an innovation out of the blue, spurred by other circumstances, or what. The film stays silent. But surely with a bazillion investors and banks, such an obvious way to make a lot of money wouldn’t have been overlooked for so long, so it seems logical that something changed. And if the film mentioned why this new way of packaging mortgages emerged, I don’t remember.

          Regarding the bond rating companies, it seems logical to suggest that there was a natural impetus for the rating companies to give realistic ratings. To do otherwise meant someone was taking on greater risk than they would suspect and thus the bogus ratings would come back to bite the rating company. This feedback loop (normal market forces) would keep them in check.

          So what changed? Why suddenly did the rating houses feel no need to stick to reality? Why did so many in this sector feel no need to stick to reality? Why did we nominate Donald Trump and Hillary Clinton? I believe these issues are related. There is a deeper issue here.

          • Timothy Lane says:

            With a derivative, those who invested in them weren’t dependent on any particular mortgage. For example, a thousand mortgages might be combined together, and then people would buy a tiny share of the combined total. If you invested in one mortgage, it could fail and would need to be adequately rated. But if you invested in a tiny fraction of a large pot of mortgages, you were in no danger unless there was a general collapse in their value, and hardly anyone expected that to happen.

  4. Kung Fu Zu Kung Fu Zu says:

    I have not seen this movie but if you want a good synopsis of what caused the mortgage crisis then open the below link and read the piece.

    I will not say anything else as I believe informed people should be familiar with this information. I would like everyone to read it for themselves. It may be a bit detailed for those not in business, but it is worth plowing through.

    • Timothy Lane says:

      A bit of a MEGO there, but the basic conclusion seems sound. I will note that even this article seems to be a bit hesitant in blaming Fannie Mae, nothing that it provided a market for bad mortgages but not (after the early coverage) that it pretty much forced banks to make those bad mortgages. (One thing people need to remember is that the concept of “disparate impact” — if something has a disparate impact racially, it’s presumptively racist — was used in real estate.)

      • Kung Fu Zu Kung Fu Zu says:

        What does MEGO mean?

        I will note that even this article seems to be a bit hesitant in blaming Fannie Mae

        I thought the following paragraph was pretty damning.

        In the 1990’s under the administration of Franklin Raines, a Clinton Administration appointee, Fannie Mae began to demand that the lending institutions that it dealt with prove that they were not redlining. This meant that the lending institutions would have to fulfill a quota of minority mortgage lending. This in turn meant that the lending agencies would have to lower their standards in terms of such things as down payments and the required incomes. These subprime borrowers would be charged a higher interest rate. Having put the lending agencies into the position of granting subprime mortgages Fannie Mae then had to accept lower standards in the mortgages it purchased. That set the ball rolling. If a bank granted a mortgage to a borrower that was not likely to successfully pay off the mortgage then all the bank had to do was to sell such mortgages to Fannie Mae. The banks typically earned a loan origination fee when the mortgage was granted. The lending agencies could then make substantial profits dealing in subprime mortgages.

        It must also be remembered that Fannie Mae was found to have falsified its books and nobody went to jail. Hell, Raines even kept a bonus based on phony numbers.

        • Timothy Lane says:

          That was early in the article, not in the summing-up.

          MEGO means My Eyes Glaze Over. I believe I got it from William Safire.

          • Kung Fu Zu Kung Fu Zu says:

            Originally, I was going to advise people to drop down to the summary if they felt the piece was too long. You have seen why I decided not to. This subject is too important and complicated to leave to a summary.

            Being detailed and a bit lengthy, this is the type of piece I like to read over a cup of coffee while alone.

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