FOSTER: THE WOLVES OF WALL STREET.
John Maynard Keynes wasn’t just an economist beloved of the intervening classes, he was a currency speculator. After being wiped out in a wrong-way trade on the Deutschmark, he delivered the immortal words: “The market can stay irrational longer than you can stay solvent.”
That insight stands at the heart of the dramatic tension in The Big Short, a terrific movie based on Michael Lewis’s book of the same name. Since his first book, Liar’s Poker, Lewis has specialized in laying bare the (inevitably unsustainable) absurdities of financial markets and their purported overseers. The Big Short deals with the 2008 U. S. subprime crisis.
One of the most amazing things about the movie is that it is a comedy. Two of its stars, Steve Carell and Christian Bale, were nominated for comedic Golden Globes ( neither won last Sunday), even though their characters’ main traits are frustration and outrage.
The movie’s protagonists, all based on real people, spotted around 2005 that something was spectacularly rotten in the state of Wall Street. In particular, what had started as a seemingly brilliant innovation — packaging dull, reliable mortgages to feed a bond- hungry market — had grown out of control. Soaring demand for the bonds, and their derivatives, promoted a desperate need for more and more mortgages, which were extended to less and less creditworthy — “subprime” — borrowers. The bonds were sliced and diced into complex tranches that fewer and fewer investors understood. But then neither did the ratings agencies, the SEC, or many of the people who were selling them.
Mortgage “originators” cared less and less about to whom they were lending, because they could immediately sell the mortgage to a major institution for packaging into a bond. They might be giving out “NINJA” loans, to people with “no income and no job.” They might be luring borrowers with l oans at “teaser” rates that would inevitably increase to crippling levels, but house prices were going up forever.
How to profit from this extraordinary popular delusion? Dr. Michael Burry, a reclusive former medical doctor with a glass eye and a genius for numbers, played by Bale — who specializes in weird — persuades two banking giants, Goldman Sachs and Deutsche Bank, to create instruments he can buy: credit default swaps, which are really a form of insurance policy that pay off big if the underlying collateral tanks.
Two other groups catch onto the coming cataclysm. One is led by a trader named Mark Baum (played by Steve Carell), based on Steve Eisman, who ran a hedge fund within Morgan Stanley. The other consists of a trio of two neophytes with a trading strategy and an experienced trader dropout ( Brad Pitt) who helps them execute it. Their strategy is based on exploiting the fact that people don’t like to think about bad things happening, so fail to account for them. It was an approach made for the times.
Carell’s Baum is an obses- sive jerk with a deep sense of injustice. His eclectic group has the “deal of the century” brought to them by Jared Vennett, who had learned about Burry’s theory, and his trade with his bank. Vennett is based on Greg Lippman, a real Deutsche Bank bond trader, and played with loveable arrogance by Ryan Gosling.
We already know the ending, but, as Keynes pointed out, there’s no use being right at the wrong time. Hence all three groups find themselves being bled by calls for collateral as the bonds and derivatives fail to tank, which makes for many accusations of rigged markets and fraud.
Director Adam McKay, who is known for his comedies, including Anchorman, does a brilliant job in making comprehensible an issue way more complex than naked greed. One inspiration is to cut to celebrities — in bubble baths, or in kitchens, or at blackjack tables —‑‑ who explain arcane concepts such as subprime mortgages, collateralized debt obligations, and synthetic CDOs. When you hear the world “subprime,” says the gorgeous Margo Robbie from the bubbles where she also drinks bubbly, think “shit.”
Certainly government gets its fair share of blame, but perhaps less than it deserves. The movie doesn’t plumb the fact that providing mortgages to the uncreditworthy was actually U. S. policy, promoted by legislative armtwisting and “governmentsponsored” lenders Fannie Mae and Freddie Mac, and exacerbated by Fed chairman Alan Greenspan’s “stimulative” low interest rates. Carell’s Baum suggests that the powers- that- be in fact knew the cataclysm was coming, but didn’t care because they had the U.S. taxpayer as the sucker of last resort.
There is much talk in the film of the world economy collapsing, and requisite shots of people l i ving in tents, along with stark statistics at the end about jobs and houses lost, but in fact the world didn’t end. Moreover it’s worth pointing out that the film’s “heroes” were all in it for the money. Which is a good thing. The greatest incentive for spotting irrationality is the profit motive. Unfortunately, the greatest promoter of irrationality is bailing out the irrational.
GOVERNMENT GETS ITS FAIR SHARE OF BLAME, BUT PERHAPS LESS THAN IT DESERVES.