The Big Short
The 2008 Recession was the worst financial disaster to befall the country in nearly a century. Not since the great Depression of 1929 had the US taken such a hit. Although much of the Bay Area was insulated by the strength of our IT and bio tech industries, blue collar communities such as Vallejo and Richmond were devastated. Vast numbers of homeowners saw the value of their largest asset plunge by 50%; many houses became worth less than the value of their mortgage loans. In just three years, nine million workers lost their jobs, more than five million families lost their homes, millions more slid into poverty, and the economic inequality between the haves and have nots reached highs not seen since 1920. Foreclosures had huge ramifications both to families and to communities. Families had to move, school was disrupted for many children, and the community itself deteriorated because of the vast number of empty houses. Merchants were hit hard, with many business bankruptcies and empty store fronts. A shameful statistic is that, by 2014, twenty three percent of all children in America were living in poverty or with "food insecurity", a euphemism for hungry. The dislocations that children endured can mark them for life. The numbers are so huge it is difficult to really comprehend the extent of the damage and suffering. More than a few of the homeless that we see everyday began their journey to the streets from a foreclosure, either as tenants who had to leave, or as owners. All of this sounds like the description of a third world country but we are talking about one of the wealthiest nations on the planet.
The causes of the 2008 Recession were complex but it began at least 5 years earlier with a rapid increase in home prices coupled with increasingly questionable mortgages. Now known as subprime, many were characterized by fraudulent appraisals and with borrower incomes vastly exaggerated by the mortgage broker or lending agent. These loans were adjustable, and could go up quickly as rates rose. Many of the loans did not even require amortization, so if rates rose, the mortgage balance would grow rather than shrink. But these predatory loans were very profitable for the banks, and even more profitable were the creation of bonds based upon these shaky loans. The agencies (Moody's, S&P) rating these bonds were paid by the banks and simply told the lenders what they wanted to hear: no problems. Not only "no problems", but many of the loans were rated AAA. No bank seemed to have any clear idea as to risk of default on these loans. To make matters worse, the banks encouraged homeowners to use their home as a piggy bank and to take out second (or third) loans. Many of these loans had ballon payments with short due dates but banks and mortgage brokers assured owners, saying that they would simply roll the loans over when needed. Of course that was before the same owners lost their jobs. Government agencies, charged with oversight, did not understand the risks that the banks were taking. Neither did the banks. Alan Greenspan even recommended that home owners use adjustable rate mortgages (2004). The Secretaries of the Treasury during that period (Rubin, Summers, Paulson) seemed clueless as well.
In 2010, Michael Lewis, a well known financial journalist (Liar's Poker), published a carefully researched very readable account of the 2008 Recession. Well reviewed, The Big Short stayed on the NY Times bestsellers' list for many months. Adam McKay and Charles Randolph wrote a screenplay based on Lewis' book. What a film, directed by McKay, best known for his comedic films (Talladega Nights). And what a cast, what a story! Hang on to your seat!
Best described as a manic, dark fictionalized documentary comedy, The Big Short opens with Ryan Gosling, as a trader for Deutsche Bank, narrating, describing how the banking business had been a boring no brainer business until some genius discovered that that he could create and sell bonds composed of mortgage loans. These bonds could then be sold at great profit and low risk, if the loans were accurately rated. We then meet the rest of the cast: first a team of traders operating as a quasi independent unit of Morgan Stanley, who has been quite successful in earning outsize profits from counter intuitive bets. Led by Steve Carell, his team includes 3 others, all experienced traders, all very smart but uniformly weird. Then we are introduced to a second investor group headed by an eccentric former physician and analytic genius, played by Christian Bale.
Bale's character is convinced that the housing market is a huge bubble and will deflate dramatically and soon. He has analyzed the composition of the mortgage bond offerings (CDO's) and sees that many are plainly flawed and fraudulent. He convinces several banks to allow him to sell short these securities. The risk management people in the banks think he is crazy but are happy to sell him the product. When someone from Bale's team mistakenly tips off Carell's team to the vulnerability of the bonds, Carell sends two of his team down to Florida, where they soon discover many subdivisions with hundreds of abandoned or foreclosed houses. A terrific scene features a hulking tough looking tattoo covered guy answering the door. Turns out he is a tenant, with his family, living in a house that the owner stopped making payments on. This scene, which starts out with a sense of menace, turns into something quite affecting. At another house, the tenant informs the team that the owner actually received a mortgage in the name of his dog. In an unforgettable scene at yet another abandoned house, they go into the backyard when all of a sudden they meet the current resident, nude in the swimming pool.
McKay and Randolph's screen play, awash in wit, is never less than brilliant. They have taken a national tragedy and transformed it into a dark scathing comedy. At the same time, they succeed in inventively explaining economic complexities. Using celebrities, they break that 4th wall and talk directly to the audience. In one scene, actress Selena Gomez and economist Richard Thaler sit at a Las Vegas blackjack table where Gomez keeps winning, hand after hand. Thaler explains directly to the viewer how closely her bets resemble those on housing, and how, sooner or later, the winning streak will end. Another uses Anthony Bourdain, in a major restaurant kitchen, explaining how his use of three-day-old halibut in his fish stew, converts a second-rate ingredient into a dish that he can charge dearly for. Bale even occasionally steps out of character to explain a fine point. In one very clever sight gag, the traders visit a senior analyst with Standard & Poor's, one of the rating agencies for many of these toxic mixes. Wearing dark tinted cardboard glasses after an eye appointment, she explains to Carell's character why she rated those bonds as AAA, when they in fact were "shit". The Big Short is riveting, the pacing fast and the ending abrupt and infuriating. No one will fall asleep in this film.
McKay has assembled a superb acting ensemble here. The acting is outstanding and even minor characters are arresting. Cinematography is very accomplished and the soundtrack pitch perfect The Big Short is, in a word, brilliant. This vastly entertaining look at a national train wreck will surely become a classic. It is clearly headed for a number of awards at the Oscars. But more than entertaining, it is an important film because it shows us the arrogance, ineptness and greed of Wall Street and the incompetence of the regulatory agencies that were intended to check those behaviors. Millions suffered so much, but only one person ever went to prison. And thanks to government bailouts, most senior execs got their bonuses. If ever we needed a demonstration as to how badly the system is stacked against the working man and the poor, this is it. No one will leave the theater without a sense of outrage toward those who were paid well to lead, and being paid, led us off a cliff.
Playing widely, including at the Kabuki and the Presidio in SF, at the Shattuck and the Grand Lake in the East Bay, and surprisingly, in many suburban theaters. Screening time: 130 minutes. Have a good New Year, filled with peace, health, happiness and prosperity, in that order.