Movies The Big Short ForclosureThere are no good guys in Adam McKay’s new movie, The Big Short, nor in the book of the same name by Michael Lewis, from which it came.  There are interesting guys, to be sure and one or two with a sense of social justice.  There are no Erin Brokovichs or Jeffrey Wigands (The Insider,) Woodward and Bernsteins[All the President’s Men] or, more recently, the reporters at the Boston Globe [Spotlight.]  Those at the center of The Big Short are those whose powers of analysis are not blinded, but sharpened, by greed. They see disaster coming and figure out how to profit from it.  Actual good guys are entirely missing.  The few (not in the film) who should have seen what was shaping up to be 0ne of history’s biggest financial calamities — caused entirely by financial people– were, in Lewis’s words, “not interested.”

First, The Events.

If most Americans did not notice the March, 2008 purchase of Bear-Sterns by JP Morgan Chase, their attention was surely sharpened on September 7  by the take-over of Freddie Mac and Fannie Mae by the US Government.  We may not have known exactly why they had been taken over, but it seemed to be a very big deal.   By the time the explosion was really visible on Sept 16, when Bank of America bought Merrill Lynch and Lehman Brothers declared bankruptcy, all eyes and ears were at full attention. [Short  timeline, here.]  By the time the stretched tight faces of President Bush and candidates Barack Obama and John McCain (who “suspended” his campaign) hit the news on Sept 28, fear of what all this meant to the average Joe and Jane was running high; even those who on Wall Street had absolute certainty of their own judgement were beginning to feel wobbly.  If to the average TV viewer, the events and steps taken were not as frightening as an announcement of incoming nuclear warheads it was clear the US, and the world, were in unprecedented territory.

What had happened, and how?

In essence, too many loans had (deliberately) been made to too many people without the long-required analysis of their ability to make the monthly payments. These mortgages were then sold by the banks which had made them to Wall Street firms which packaged many such “promise-to-pay” mortgages into bonds which were sold to pension funds and big institutions with the understanding that a bond was a bond was a bond, safe, sound and secure.  When a few canny individuals began to see problems with said bonds they went shopping for insurance against failure, as one insures  property against fire, flood and loss.  As purchases of these credit default swaps grew, and streams of income to the insurers began growing, another bright idea occurred: why not bundle these streams of income (which would never stop because the insurance would never have to be paid because only small portions of the bonds would go bad when trivially few home owners defaulted on their mortgages) into another financial package, called a CDO? (Collateralized Debt Obligation.) [These were not new. Previously, however, they had been created from much more stable credit card and corporate debt. The idea of doing it with residential mortgage bonds, and CDS was new, and went completely unexamined as to stability.]

As the money that could be made by these arrangements depended on a steady supply of new “home-owners” (of course they didn’t own the homes) the requirements to get a loan grew less and less; more were eligible and more were granted second and third mortgages based on the fact they already “owned a home.”  When the teaser interest rates on these mortgages went up from say 4% to the promised (but ignored) market rate of 12%, suddenly the monthly payments for nannies and farmworkers, for example, were no longer possible.  People all over the country declared bankruptcy, or simply moved out; demand for housing fell sharply and with it the value of the homes; banks owned property the value of which was way below what they had paid for it; bonds that had been constructed out of the asset of “promise-to-pay” were suddenly full of broken promises and deteriorated towards worthlessness. Massive insurance payments were coming due and there was not enough capital to cover them.

At somewhere in the range of 7% defaulting the props began pulling out of the whole sub-prime mortgage market, just as removing a few lower sticks in the game of Jenga –played with great delight and tension at family gatherings– causes the whole tower to collapse.

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Second –The Book

Books The Big ShortMichael Lewis, once a Wall Street employee himself, has done the world several great favors, and earned himself a nice living, by writing a half-dozen books on financial shenanigans. Liar’s Poker (1989) was the first.  Panic: The Story of Modern Financial Insantiy (2009) followed.  Boomerang: Travels In the New Third World appeared  in 2012 and Flash Boys in 2014.  When the financial melt-down of 2007-08 happened he had the background, the experience and the contacts to try to make sense of what had happened — not just the jargon, the arcane transactions, the high-stakes gambling but the human side of the story.  The Big Short: Inside the Doomsday Machine (2010) was the result.

His cast of characters are not heroes in the sense of stepping in and righting a wrong or extricating others from a dangerous situation.  They are smart, and not just a little odd, men who first suspect, then investigate and then see clearly the incredible risks of the growing sub-prime money making machine.  They set about creating means to make enormous profits for themselves when everything came falling down.

The book is organized roughly through the introduction of the half a dozen men who figured out the booming housing-mortgage-CDS-CDO edifice would very soon lead to disaster. Lewis gives us some personal background about each, about what raised, and confirmed,  their suspicions and what they began to do to “hedge against” the coming downturn. As the book progresses into the months prior to the September, 2008, collapse, it takes up more of a calendar progression, cutting between the various players and what they were doing, some of them meeting and working with each other. Though several thought that “a great nation had lost its financial mind,”  only one, Steve Eiseman, is shown to have had severe moral qualms about what was happening.  Even so, having lost faith in government regulators during a similar collapse not a decade earlier, instead of blowing whistles as loud as he could, he organized himself to take full advantage.

Of course, being a book, not a movie, there is room for a good deal of detail about the malfeasance that created the crash — from accounting rules that allowed bondholders, or bond originators to book as profit the expected returns,  to disguising foreclosures as “involuntary pre-payments.”  We are treated to direct quotes from players about why banks offer “interest free checking,” [to reap higher returns in fees and penalties] and plenty of salty language concerning the mental and moral stature of those unable or unwilling to see what was happening.  Vinnie Daniels offer the opinion at one point that the”morons outnumber the crooks, but the crooks are higher up.”  The film too, has its share of Eff-bombs.

The convergence in early 2007 in Las Vegas of some seven thousand sub-prime sellers, packagers, buyers at the American Secularization Forum — which had only attracted only 500 or so several years earlier– is a measure of something seriously wrong, which the participants only thought of as seriously great.

We hear about Goldman Sach’s soiled fingers – acting as middle man for the credit default swaps, extracting percentages from buys and sells, and a bit about its central role in the creation of CDOs to entice Burry to throw more cash at them.  We read that the actual beginning of the meltdown was a full year earlier, late spring and early summer of 2007 as the percentages of defaults in mortgages starting rising – to over 30% in December. For extremely odd, and unresolved reasons, neither the prices of the bonds, or the CDSs and CDOs built from them, showed the movement they would have in a properly functioning market.  At the same time Ben Bernanke, Chair of the Federal Reserve and Hank Paulson, Secretary of the Treasury, were assuring Americans that whatever was happening “was contained.”

There is also in a book, plenty of room for interesting but not directly relevant stories about the people — Eisman’s obsession with spider man comic books, for example, Dr. Michael Burry’s discovery, though his young son, of his own Asberger’s Syndrome, the working relationship between Eisman’s wife and therapist. Lewis mines letters and e-mail to show state of mind, and day to day decisions and worries.  There is also a substantial section on a Morgan Stanley bond trader, Howie Hubbler, also involved in CDSs and CDOs, who now holds the record for the largest single trading loss in history — “a bit over $9 billion.” Even as he schemed to profit from the mortgage collapse, he hadn’t understood the complexity of the financial instruments he was trading.

One laudable mental trait marks out those who saw the collapse coming from those who did not.  With perhaps the exception of Michael Burry, each continually doubted his own judgment:  what do those bond guys know that I don’t?  They kept checking their conclusions; they kept doing the field work.   Though increasingly sure of what they had analyzed they were open to the idea they might be wrong.  Even Burry at one point, the surest of the sure because his views came only from “the numbers” not from social judgments or face to face interviews, confesses that he might be wrong in his certainty.  The problem is “I just don’t know how.”

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Third –The Movie

Movies The Big ShortFor all the difficulty in understanding and then explaining to others the hidden workings and failures of “structured finance,” The Big Short, the film steps up to and meets the challenge.   Not only is Lewis’ book used as a solid base but clever theatrical choices and top-notch acting entertain us into an education which likely had passed most of us by, despite the many sober attempts in newspapers, magazine and books to untangle what happened in the spring and fall of 2008.

With a sometimes manic pace and raucous music McKay does an admirable job of compressing the story, whittling down the players [still over 80 credits for actors] and eliminating much of the personal background of each. A couple of the characters are given names resembling those in the book, and I believe, in real-life.  Others have had names changed while personality traits match those of the book/life.

Steve Carell does a lively and credible job of playing Mark Baum (Steve Eisman in the book), a wild man of a trader and gambler, almost completely immune to human conviviality –impetuous, foul-mouthed and unobservant of others –unless they are useful to what is in his ferociously focusable mind.  An early scene of him storming into a group therapy meeting, unloading and rushing back out, ear clamped to his phone gives a wonderful one minute sketch of the man.

His associates and detail-men are Danny Moses [Rafe Spall] and Vinnie Daniel/Davis [Jeremy Strong], the cautious one.  Their on-the-ground ascertaining of what was happening in the Florida real-estate market is a key, and human, moment in the film as well as in the growth of their certainty.  Baum’s interview of a stripper on her pole — could you stop moving around so much?– and the discovery that she herself has five mortgages is priceless. 

Christian Bale plays Dr. Michael Burry, a glass-eyed, irascible type of loner, who became a neurologist because medical school was easy,  and who, entirely on his own realized what was likely to happen to the over-sold sub-prime mortgages and the bonds composed of them. In 2003, before all the others, through manic close reading of the prospectuses of sub-prime mortgage backed bonds he knew something was bound to collapse.  He needed no human confirmation.  In fact, he persisted against enormous human doubt and abuse.  The numbers told him all.  It is he, clearer in the book than the film, who first persuades big financial firms to create and sell him insurance on the bonds, the so called credit-default swaps.

Ryan Gosling plays Jared Vennet [Greg Lippman in the book] who explains the tower of doom to the still disbelieving Baum and associates. Brad Pitt is Ben Rickert [Ben Hockett] of Brownfield neé Cornwall] Capital. To his credit, he is aware of the social implications of the failure they are all betting on:

“If we’re right, people lose homes. People lose jobs. People lose retirement savings, people lose pensions. You know what I hate about fucking banking? It reduces people to numbers. Here’s a number – every 1% unemployment goes up, 40,000 people die, did you know that?”

But he, nor more than the others grab anyone — regulator, congressman, big reporter– to reveal what he knows. [In the book, he and his partners at Cornwall did try to interest NY Times and Wall Street Journal reporters in the story; they talked to one person at the SEC, to no avail.] It’s quite a cast, and all rise to the challenge of portraying Wall Street alpha males.

The director brings to his very serious subject some beguiling dramatic tricks. First among them is the face-to-the-audience aside, a stepping out of character to confide in the good sense and wise perception of the viewers.  We are treated as one of those “in the know.”  There are occasional sub-scripted dictionary definitions of CDO, and other odd turns of language.  He also brings in celebrities with homey analogies to explain the complex terms being used to fuzzy-up the buyers’ minds.

Anthony Bourdain, the television food guide with a personality much like the Wall Street traders, makes a nice cameo to explain CDOs as using yesterday’s fish in today’s stew and calling it fresh.  Selena Gomez explains Synthetic CDOs by showing those around a Las Vegas table making bets on the wins and losses of the actual betters, and others on their bets.  Margot Robbie, hot from her turn in Scorsese’s The Wolf of Wall Street, plays herself in another nice bit of pedagogy, covered in bubble bath while sipping champagne.

Quick cuts are made between characters making deals, or suddenly understanding what is going on, with gamblers, wheels turning, dice falling.  Such a mise-en-scene could have been over-worked or seemed too heavy handed but in McKay’s hands it works quite well.  The clearly evident lack of knowledge by major players about their risks, masked by the type triple-A wall street personas, is perfectly mirrored by the Vegas side-show.

Conceptually, events, people and ideas move so fast at times it is not always clear who is working with whom, or against another. Despite the staged explanations of difficult concepts, the speed of events, and sometimes the speed of vocal delivery, interferes with establishing more than passive knowledge of the terms and events.  For this viewer, a second time through brought added clarity.  Technically, there were a few times, especially in the beginning, when the speed of the cuts, the loudness of the music and the sweeping camera motions were a problem, inducing a kind of movie-vertigo.  I had to move to the back row and diminish the physiological impact.

The music, by Nicholas Britell (regarded highly for his Twelve Years a Slave score), is effective, pulsing beneath the frenetic wheeling and dealing, slowing the senses, often carrying an appropriate sense of approaching danger.

The good thing about The Big Short is that the revelations at its heart are wrapped in a watchable, entertaining package.  Many many more viewers will see it, and talk about it, than would a somber, didactic documentary.  The bad thing is the same: because it is entertainment the lessons will soon fade into the background with all other entertainment, the characters merging with other likable rogues like Butch Cassidy and the Sundance Kid or any of dozens of engaging folk-heroes who do well for themselves while those around them get hammered.  The film does not arouse anger but amusement.

To their credit the producers have put up on the official site of the film has some very nice additional features, including a round table discussion with financial experts, and a what can you do piece.

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Movies Too Big To FailSeveral other movies or documentaries have been made about the 2008 implosion. The HBO movie, Too Big To Fail, directed by Curtis Hanson and based on Andrew Ross Sorkin’s insider-sourced book by the same name does an excellent job of mixing docu-drama acting with real-time video clips [Ronald Reagan, Bill Clinton, Alan Greenspan…] to show the sequence of events, the behind-the-scenes high tension and raw emotion of a few weeks (looking like a few days) of that September.  With some remarkable casting and make-up the major players are acted by near look-alikes.  Henry Paulson, Treasury Secretary (William Hurt), Timothy Geithner [Billy Crudup], and Ben Bernanke (Paul Giamatti)  try to stay ahead of the cascade of events; they browbeat, beg and threaten the big investment bank chiefs, including  Richard Fuld [James Woods,] Lehman Brothers, and Lloyd Blankfein [Evan Handler,] Goldman Sachs and several others as the ticking of the doomsday clock grows louder. The inability or unwillingness of the CEOs to see that, sound or not, their own banks are all threatened, and therefore the entire US and global economy, will not improve anyone’s idea of their mental, or moral, prowess.  A few jabs are taken at Secretary Paulson for his role as a former Goldman Sachs CEO but the full extent of his and Timothy Geithner’s and Ben Bernanke’s responsibility for the catastrophe (de-regulation in the 1980s being the tip of the wounding spear) are not discussed much.  As Paulson says at one point in the film — you want to talk responsibility? Fine.  But we have only hours to do something, now, before the entire financial system is in ruins.

For a more pointed look at that responsibility and the years preceding the spring of 2008, the documentary Inside Job (2010) by Charles Ferguson would be a good start.

Bill Moyers has six favorite films about the financial crisis,  MetaCritic a list of twelve, and  Market Place its own five.  All before the release of The Big Short.  All like Too Big To Fail.

 

See the movies to whet your interest. Read the books to sharpen your understanding.

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With Michael Bloomberg’s renewed expression of interest in the 2016 presidential race it is worth asking what he understands about the 2008 collapse.  Not, it turns out, what Lewis and McKay believe.  Like others from the financial sector and those lodged inextricably in the right-wing, Bloomberg blames….da dah! The government.

It’s also interesting to read other takes on the book, film and crisis.  Here are a few, all financially informed:

Fortune Magazine — laudatory but that the crisis was not purely domestic. More attention to gobal forces, please!

Knowledge/Insead –– mostly praise, but pointing to loosening of restrictions on interstate banking as opening the doors, and to Goldman Sachs greater culpability than portrayed.

Politico – Michael Grunwald — the film, and book, make the failure too complex; it was much like other financial panics (read Tulips;) that McKay has a political agenda that sees evil as more responsible than ignorance for the crash, and that his Bernie Sanders solutions going forward are wrong-headed.

The Roosevelt Institute –– Bullish on the movie and book, Bearish on Poltico and Grunwald.

Vox — an Interview with director McKay.

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