Movie Review: "The Big Short"

"The Big Short": A-.  The Great Recession of this century occurred in 2008.  The economy went in the tank, the stock market tumbled, residential real estate foreclosures were rampant, major financial institutions declared bankruptcy, people lost their jobs, 401(k)s and IRAs took unbelievable hits, life savings were jeopardized, the middle class shrunk, welfare rolls expanded, unemployment lines extended and fingers were pointed.  The number one culprit in the public's collective view was Wall Street.  Yet here we are, eight years later, and only one Wall Street executive, and a relatively low one at that, has served prison time.  After viewing The Big Short, people may be astonished, if they weren't already, that only one white collar criminal has lost his freedom.

In the 2008 presidential election campaign, Democrat candidate Barack Obama was able to turn the tables on the GOP by asking the famous question originally posed by Republican Ronald Reagan one week before the 1980 presidential election day: "Are you better off now than you were four years ago?"  In both 1980 and 2008, the challenger posing that question was elected president over the incumbent party.  For most voters both in 1980 and 2008, the answer was a resounding "No!"  The Big Short tells the story of how our country reached that point.

Not everyone lost net worth in 2008.  Starting in 2005, when the housing industry is universally considered one of the pillars of the American economy, Dr. Michael Burry (Christian Bale), a neurologist turned hedge fund manager, starts seeing developments which have escaped the attention of almost everyone else.  Burry correctly observes that credit standards are so lax that even people who ordinarily would not come close to qualifying for a mortgage loan due to their low FICO (i.e., credit) scores now are able to buy into the housing market.  The main attraction for these home shoppers is the teaser initial interest rate on short-term adjustable rate mortgages.  After paying ridiculously low interest for three or sometimes five years, a balloon payment will come due.  Burry predicts that when these credit-unworthy mortgagors are unable to refinance, foreclosure will ensue.  Thus for those short-term loans originated in 2005 (the time when Burry sees the light), the sky will fall in late 2007-2009.

Burry is the founder of Scion Capital, a hedge fund over which he exercises complete autonomy.  When he starts investing hundreds of millions of dollars in credit default swaps, a financing vehicle which will pay off only if mortgage loans defaulted en masse, two things (among others) happen.  First, the mortgage banks such as Goldman Sachs are only too happy to sell him these products; in fact the Goldman bankers are having difficulty hiding their mirth, figuring that the socially awkward and somewhat odd looking Burry is naive to buy any swaps, let alone buying them by the bushel basket.  Secondly, Scion's other officers and investors become outraged at Burry's investment decision, which requires Scion to pay periodic fees to keep the swaps in place.  Day by day, from the time of his initial purchase until the 2008 crash, Burry updates on the chalk board outside his office the rate of return for the Scion portfolio.  It is consistently a negative percentage, sinking lower on a daily basis, and each update raises the blood pressure and ire of his partners.

But as we all know, Burry gets the last laugh.  When the housing market finally goes bust, Burry's predicted payday becomes a reality.  The final number he writes on his blackboard in 2008 is plus 489%.

The Big Short isn't a movie about what happened; we all know.  Rather, it's a movie that explains, often humorously, how and why the crisis occurred.  To that end, director Adam McKay employs two enjoyable devices.  Fans of the television show The Office will recognize the gimmick of having the actors look directly into the camera and speak to the audience.  (Coincidentally, that show starred Steve Carell, whose character is mentioned below.)  This gives the storyteller an opportunity to educate the viewers without having to tweak the dialogue artificially for that purpose.  Secondly, McKay uses cameo appearances by internationally famous Anthony Bourdain and singing actress Selena Gomez in a couple of sidebar skits, shot respectively in a kitchen and at a blackjack table, to illustrate how complex investment products like collateralized debt obligations (CDOs) and synthetic CDOs work.

While Burry is certainly the main character, the viewers are also introduced to financial contrarians like Jared Vanett (Ryan Gosling, who strongly resembles ESPN's Adam Schefter), Mark Baum (Carell), and Ben Rickert (Brad Pitt).  All of them become heavily involved following the lead of Burry by jumping with both feet into the credit default swap gamble.  Each of those characters has his own interesting background and motive.  A wrong telephone number and a discarded brochure in an office lobby figure in the fortuitous routes for their involvement.  The inclusion of these big time investors gives the story line welcome periodic breaks from the Burry plot.  Their separate reactions to their personal good fortune, occurring simultaneously with the tragic consequences befalling millions of people, is a lesson in human nature.

Arguably one of the reasons for making the film is so that the American viewing public can be made aware of the abuse of power and conflicts of interest displayed by a number of Wall Street firms, the Securities & Exchange Commission, and the two most important bond rating agencies, Standard & Poor's and Moody's.  The film also shows the stupidity -- there's no other name for it -- of the Department Of The Treasury and the Federal Reserve.  The Big Short takes a complex topic from recent history and, in a very entertaining way, makes it quite digestible.  The lessons to be learned:  If you think something is too good to be true, it probably is; and, don't assume everything you are told by the government and its agencies is on the level.