The Big Short

Posted on December 10, 2015 at 6:16 pm

Lowest Recommended Age: High School
MPAA Rating: Rated R for pervasive language and some sexuality/nudity
Profanity: Constant very strong and crude language
Alcohol/ Drugs: Drinking, smoking
Violence/ Scariness: Fraud, corruption, economic upheavals
Diversity Issues: None
Date Released to Theaters: December 11, 2015
Date Released to DVD: March 15, 2016 ASIN: B0177ZM3LO
Copyright 2015 Plan B Entertainment
Copyright 2015 Plan B Entertainment

Director Adam McKay is so obsessed with the 2008 financial meltdown that he inserted a series of charts and graphs and statistics about it over the closing credits of the silly buddy-cop comedy, The Other Guys. Yes, there was a villain played by Steve Coogan who was up to some financial jiggery pokery, but only the most careful viewers of that film could have deduced that what McKay, best known for raunchy Will Ferrell slob comedies, secretly yearned for, as Michael Caine might say, was to blow the bloody doors off the Wall Street bankers who treated the American economy like a bull treats a china shop.

We’ve had sober documentaries like The Flaw and Oscar-winner Inside Job and the superb drama Margin Call, all outstanding, insightful, and illuminating and essential companion pieces to this movie. But “The Big Short” has several advantages in telling the story. First, by giving us someone to root for, however imperfect the heroes of this story are, it keeps us emotionally connected to the story. Second, because it is in most respects a comedy, McKay has a wider range of tricks on hand to make us understand what happened. This fierce, fiery rant of a film is going to make you understand that the people we entrusted with our economic stability were truly despicable and truly stupid. It is funny and infuriating and then funny again and then, when he tells you that the bad guys went to jail and the big banks were broken up — no, just kidding, they weren’t — it is monumentally infuriating.

I’ll add a footnote below to give my own very short explanation of what happened.* (And one thing they got wrong.** Pretty much everything else is literally right on the money.) Or, you could listen to Margot Robbie talk you through it, as she sips champagne in a bubble bath. Yes, McKay knows what gets people’s attention and he uses Robbie and other celebrities to come in and explain the parts that the bankers intentionally did their best to obfuscate, using words guaranteed to put everyone to sleep so they could pick our pockets a little while longer. Ryan Gosling also serves as a guide, playing a real-life insider who saw that the mortgage-backed securities were going to tumble down like a Jenga tower.

The real-life acronym used by the bankers during this period was IBGYBG, which stood for “I’ll be gone; you’ll be gone,” meaning that if they could just keep passing the hot potato of economic Armageddon going around the circle a couple more times to collect the fees, they could get out before it all came tumbling down. And many of them did. As Michael Lewis notes in the the book that inspired this film (subtitled The Doomsday Machine), and, if you don’t remember anything else, remember this: the heroes of his book, the small group that bet against the bankers, made fortunes. But so did the people who lost that bet. Everyone on both sides of these deals made a lot of money. Everyone else across the country lost a lot of money, jobs, and homes.

As noted, Lewis’ book and McKay’s movie (the Oscar-winning script is co-written with Charles Randolph of the underrated “Love and Other Drugs”) wisely allow us to enter the story via the scrappy little group of misfit toys who figure out that the game is cooked, that it can’t stay that way, and that there has to be a way to bet against the other side. This grown-up Bad News Bears bunch (two of them barely qualifying as grown-ups) have a couple of things going for them. First, they are skeptics. Actually, they are cynics. They assume everyone is lying to them and just about everyone is cheating them. Michael Burry (Christian Bale), who insists on being called Dr. Michael Burry (he’s a neurologist-turned investment manager) and Mark Baum (Steve Carell) are both men who were already inclined to be skeptics and then faced terrible pain and loss that disabused them of the sense that life was fair. Jamie Shipley (Finn Wittrock) and Charlie Geller (John Magaro), two young partners literally running an investment firm out of a garage, had made almost $30 million finding unseen risks but were so naive about Wall Street that they did not know what the requirements were for being able to trade as an institution and not as an individual. These guys were all outsiders. (All names are fictional except for Burry.)

The second thing they had going for them was that they were not just willing to do their homework; they insisted on it. While the money gusher was going, no one else wanted to check the math (and no one was getting paid to do so). But, in some of the most entertaining moments of this riotously entertaining film, these guys who did not believe what they were told, went to check it out. Burry unpacked the securities to examine each of the hundreds of mortgages they contained to see if they were as secure as promised. They were not. Baum’s colleagues (Rafe Spall and Hamish Linklater) went to Florida to see the homes that were mortgaged. They were abandoned. Baum’s guys spoke to the mortgage brokers who happily explained that they preferred to give mortgages to people who had no possible means of paying them. (Max Greenfield is superbly sleazy in this role.) “They’re not confessing,” one of Baum’s partners says in amazement. “They’re bragging.”

By the time a stripper explains to Baum that she has mortgages on five houses and a condo and has been assured she can refinance when her adjustable rate jumps up, he begins to see the potential in betting that these securities will fall as people like this cannot pay the mortgages. When he goes to a convention of financial types working in this field (Byron Mann is almost deliciously corrupt as the arrogant and ethically vacant Mr. Chau), he knows he is right.

At the same convention, Shipley and Geller are jubilant when they are able to make a big bet against the bankers. And then they get a reality reminder from their their mentor, played by co-producer Brad Pitt. He could not take the corruption of Wall Street any more and left for a life somewhere between disaster prepper and artisanal farmer, wearing a face mask when he goes to town and urging everyone to get colonics. He met the young investor when they were walking their dogs. He reminds Shipley and Geller not to be so happy. When they win big, it will be because the economy is collapsing, causing real, devastating pain.

This is an outstanding film, with sensational performances by a brilliant ensemble cast. It is one of the best of the year and the most important as well.

Parents should know that this film includes constant very strong and crude language, vulgar sexual references, strippers, nudity, and extreme widespread fraud and corruption.

Family discussion: What made just these men able to see what so many other people did not? How did they verify their analysis? Will it happen again?

If you like this, try: the book by Michael Lewis and documentaries about the financial meltdown including “The Flaw” and “Inside Job” as well as feature films “99 Homes” and “Margin Call”

*Here’s what happened, without the jargon or the bubble bath. As you see at the beginning of the movie, Lewis Ranieri, now one of the wealthiest people in the world, came up with the idea of essentially crowd-funding mortgages. He took lots and lots of mortgages, bundled them into bonds, and let big institutional investors, like pension funds, buy them. It was a great investment for them because pension funds need a safe and secure source of income to pay retirees and these were safe and secure — much more than stocks — because people almost never defaulted on their mortgages and because so many mortgages were bundled up together that even if some did default it would have almost no impact. These bundles of mortgages were so popular that the banks ran out of safe and secure mortgages to put into bonds. And so, they started pushing mortgage brokers to issue more mortgages, and that meant giving mortgages to people who would not otherwise have qualified. (Some people will tell you that the government was at fault for pushing home ownership on people who could not afford it. They are wrong. Most of the pressure was coming from people who wanted to buy mortgages, not people who wanted to buy houses.) So, the formerly safe and secure bonds started filling up with less and less safe and secure mortgages. And the people responsible for differentiating the risk of the bonds, including the rating agencies, decided to just keep rating and selling the new, less secure securities as though they were exactly the same as the earlier ones. All of the “formulas” (sometimes called “algorithms” or “models”) used to justify this were bunk. Imagine it this way: there’s a vineyard that makes superior wine that everyone wants to buy and there are strong legal and economic incentives to buy it. But you only have so many grapes, so you start watering it down, still selling it at the same price, and getting the people who rate wine to continue to give it the same rating. Then you run out of water so you start blending it with turpentine, and all of your projections show that it is just as good and will still sell just as well so you price it that way and assume there is no risk.

Here’s the important part: everyone at every part of this conveyer belt of increasingly risky securities all being treated as though they were not risky was being paid based on the number of transactions, not the quality of the transactions, a sort of very big, very expensive game of tag, where there was never any “it” until finally “it” was everyone.

**Actually, because of the immense lobbying power of the bankers (see 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown) the SEC had no authority to regulate these mortgage-backed securities. The agency that should have had jurisdiction was the Commodities Futures Trading Commission. When then-Chairman Brooksley Born suggested that they might look into some kind of oversight, Congress and the then-Treasury Secretary made sure she could not. Also, there are post-employment restrictions that prevent SEC staff from going to work for the people they supervise.

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7 Replies to “The Big Short”

    1. Thanks, Mr. Cerf! In addition to being a movie critic, I write a lot about business and finance, so this is a special interest of mine and I loved writing that explanation!

  1. I saw that financial mess coming as an officer in my Townhouse condo community HOA; just wasn’t sure how best to place a bet against the mortgage-backed securities disaster sure to come. Couldn’t find anyone who agreed with me with financial experience, most thought I was crazy to believe it would blow up.

    1. Thanks for this, Leigh. The movie makes it clear that these guys were able to make their bets because they had access to instruments only available to people with hundreds of millions of dollars to invest. These guys were outsiders in terms of Wall Street but insiders in terms of the rest of the world.

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