January 15, 2016
Family Film Blogging (Oscar Edition): The Big Short
Posted by Christine Hurt

So, not a lot of R-rated movies appear here in my reviews, but I couldn't stay away from The Big Short, having absolutely loved the book.  My teenage son, a big Michael Lewis fan, also wanted to go, so I smuggled him in as well.  If he begins talking like a sailor (or an investment banker), it's my fault.

The Big Short has gotten a lot of love from the Academy Awards (Best Picture, Best Supporting Actor (Christian Bale), Best Adapted Screenplay), and it is well-deserved.  From reading the book, it is hard to understand how it could be turned into a movie.  This isn't The Blind Side, with lovable characters and a heartwarming story.  The star of the book is the credit default swap, which is not only not as attractive and lovable as Sandra Bullock, but very few people understand what a CDS is.  Not to mention the antagonists of the story, the collateralized debt obligation and its evil twin the synthetic CDO.  However, the movie does an absolutely amazing job creating these "asides" where the narrator or cameo spokespeople (no spoilers here), explain these Frankenstein products and the risks involved.  Genius may not describe this.

The nonfiction book follows the select few who understood that the residential housing market was going to crash, taking the mortgage-backed security market (and CDS and CDO markets) with it.  From the book, I most remembered Michael Burry (Christian Bale), the physician-turned-fund manager with Asperberger's, who is more comfortable with numbers than people.  The book and movie also follow two young "garage band hedge fund" managers (Charlie Gellar and Jamie Shipley) who have parlayed their personal funds into millions and now want to short the MBS market. Ryan Gosling plays Jared Vennett, a slick investment banker who sells the short positions.  Finally, Mark Baum (Steve Carrell) runs a hedge fund inside of Morgan Stanley, and he and his team are quickly sold on the idea that the banks have massively overreached in the MBS market.  Baum's story takes center stage in the movie, with the audience getting glimpses into his motivations, fears, and hesitations.  Burry is an enigma in the movie.  We only see him in his office or basement at home, blasting loud music.  We do not see inside of him at all, which I think of as a downside.

When the stories of these guys first appeared in the Vanity Fair, I recall the tone as "here are the guys that bet against America."  Lewis didn't skewer them, but there seemed to be a bit of shame in the story -- these guys made hundreds of millions, maybe billions, by predicting the Titanic would sink.  If anyone would have listened to them, then perhaps the crash could have been cushioned somewhat.  When a guy comes into your bank and asks to bet $200 million against your portfolio, maybe you should question your portfolio instead of doubling down, thinking you are taking advantage of an idiot.  Even still, the "heroes" of the book profited from the collapse of the world economy, so there was some unease in glorifying "the big short."

The movie, though, throws the shame away in way that I don't recall the book doing.  This telling of the story makes our Cassandras twist in the wind for much of the movie -- no one believes them, then they lose a lot of reputation and money having to make collateral calls to their counterparties while the CDOs (the subject of the swap) remain mispriced even though mortgages are tanking.  Our heroes are almost ruined.  Even at the end, when their swaps are worth billions, you wouldn't know it from the movie.  The movie depicts our heroes scrambling to close out their positions while counterparties still have cash.  If you go to the bathroom at the wrong time, you would believe our heroes lost money.  But they didn't.  They made out like bandits.  But in the movie, they are sad, even devastated.  Charlie and Jamie sneak into Lehman, showing the viewer first-hand the depressing sea of employees leaving with cardboard boxes and the empty trading floor.  Charlie earlier frantically called his mom to tell her to protect her savings, which would be more moving if he hadn't just made $80 million.  Mark Baum is at home, as if he has lost his job, on the phone with his analyst, pressuring him to close out his position (to the tune of over $1 billion).  Burry is alone in an empty office floor, looking as if he is bankrupt, though his fund gained almost 500%.  Baum gives a speech about greed and fraud on Wall Street.

Brad Pitt, who plays mentor to Charlie and Jamie and the integrity of the movie, chides them at one point for celebrating when they get bankers to laughingly sell them CDS's on AA MBS.  He reminds them that they just bet against America, and that if they are right people will lose their jobs and people will die.  "Just don't dance."  The movie has effectively inoculated our heroes from our scorn.  I have no problem with this, but I point it out for its masterfulness.  Well played.

In addition, the movie sets up other villains we might hate instead:  Wall Street bankers.  The ratings agencies.  Seriously, when Mark goes to see S & P, the executive is literally wearing BLINDERS because she has had her eyes dilated at the eye doctor.  That's pretty strong symbolism right there.  And, in about 2 minutes she has admitted that S & P sell ratings to the banks so they won't go to Moody's.  Also, the SEC.  This one was a bit of a stretch, but in Vegas, Jamie meets with an acquaintance "who works at the SEC."  This young woman appears poolside, flirting with a banker from Goldman so she can make a career move.  So, the ratings agencies are willfully blind, and the SEC is a floozy?  OK, but the scene isn't as clean as the S & P scene.  Jamie asks what the SEC is doing about MBS, and the woman merely responds that the SEC has had its budget cut.  True, but it gives the impression that with enough money, the SEC could police the private offerings of MBS more effectively.  I'm not convinced of that given that our heroes could ascertain from the prospectuses what the MBS's were made of, but a lot of ink has already been spilled on that point.  GreenspanBernanke, and The White House get some hand-waving directed their way, but not much.  However, the movie makes the claim that fraud was at the heart of the crash of the residential housing market.  The mortgage broker fraud is highlighted, but Wall Street fraud is made the big villain.  All our parties believe that fraud keeps the CDOs mispriced.  This villainy was a strange scapegoat to me, but I"m willing to go along.

All in all, it's a great movie, and given that it is a movie about something as obscure, complex and mind-numbing as collateralized debt obligations, it's pretty amazing.

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