The Big Short

Credit default swaps, collateralized debt obligations, and subprime loans. These things sound like the foundation of a good movie, don’t they?

They are! The Big Short somehow manages to be a fascinating, even funny movie about the machinations of Wall Street that ultimately led to the economic collapse of 2008. Yet, the movie doesn’t minimize the human cost of the games played by the big banks. Through the eyes of hedge fund manager Mark Baum (Steve Carell), we realize this is more than a Wall Street game. It’s real money, and people lost their homes and jobs in the fallout.

The Big Short is based on the non-fiction book by Michael Lewis. The story follows several investors who discover in 2006 that the housing market is unstable. Complex investments are built on bundles of mortgages, so that the banks have lost sight of the health of the underlying loans, and many of these are about to go bad.

The banks laugh at the investors but are nevertheless happy to sell them instruments called credit default swaps to “bet against” the housing market. The investors put up with the disbelief and anger of their own clients, until they realize corrupt ratings agencies are lying about the reliability of the underlying mortgages, leading to a chain of increasingly bigger bets on bad loans. When the house of cards fell, the collapse led to the crisis of 2008.

The cast is a heavyweight one: Christian Bale, Ryan Gosling, Brad Pitt and others do a great job of showing us some of the characters whose idiosyncrasies bring the movie to life. It’s through Steve Carell’s character, though, that we really sense the magnitude of the financial sector’s failure; he’s the one who’s angry about it, and we feel it through him.

None of the main characters are heroes. They all profited, even those who were in shock about the ramifications of Wall Street’s corruption. They aren’t the ones who paid the price.

And as the end of the movie makes clear, the game goes on.

The movie took a dense and technical financial subject and made it real, and amusing (“Here’s world famous chef Anthony Bourdain to explain more about Collateralized Debt Obligations!”). It’s good storytelling, and excellent directing. The Big Short was nominated for several Academy Awards, including Best Picture and Best Director among others.

I think this movie, perhaps along with 99 Homes, should be shown in every business-school program in the country. Because it’s true: this is what people chasing money, and insufficiently regulated markets, do. And it’ll happen again.

Here’s more info on The Big Short website.