The idea here was pretty simple. With “The Big Short” getting some Hollywood love at today’s Oscar nominations — it received nominations for Best Picture, Best Director, and Best Adapted Screenplay — I’d chat up local business/financial columnists and gurus for their impressions of the movie. Impressed, distressed, bored … whatever.
As Paul Krugman, one of the few in the press who foresaw the financial crisis, wrote about the movie: “You don’t want me to play film critic; you want to know whether the movie got the underlying economic, financial and political story right. And the answer is yes, in all the ways that matter.”
Quickly my problem became this: Almost none of the locals had seen it. There’s no law requiring anyone to be a movie buff. But after three weeks on screens all over town and very good to enthusiastic reviews, you’d think people with, presumably, a higher-than-average interest in how The Great Recession went down and who saw it coming would find time and invest $10 in a ticket.
But, whatever, it was pretty much nada. Maybe I should have asked people if they had seen “Star Wars”?
The one outlier among the local mainstream was Ross Levin of Accredited Investors, who wrote a bimonthly column for the Strib’s business pages for 15 years. Levin not only had seen “The Big Short,” but took his entire office of roughly 40 people along with him.
The film is an alternately hilarious and fury-inducing adaptation of Michael Lewis’s eminently readable book, built around a handful of characters who: understood what Wall Street was actually selling in its opaque tranches of “AAA”rated mortgage investments long before the business press and financial experts; and bet — at enormous risk — that the junk would inevitably fail and ended up making a bittersweet fortune.
“I thought it did a nice job of handling the facts of whole event,” says Levin. “The concept of derivatives is not an easy thing to explain, and I was impressed that they did it as well as they did.”
As you might expect, criticism for what is a two-hour piece of popular entertainment has turned on what for some is a too-facile depiction of the meltdown, the notion that these characters alone saw the apocalypse on the horizon and the insistence that this was a case of conscious fraud on the part of the giant banks. That, and that the main characters are to some minds beatified for pocketing enormous profits as millions lost jobs, retirement income and homes. (Here’s such a view from the nakedcapitalism.com blog.)
“I don’t know about that,” said Levin. “I think the movie makes it pretty clear that while there were a lot of black hats out there, there weren’t too many white hats. I mean, I thought one of the most poignant parts of the movie is when Brad Pitt’s characters scolds the two young guys for celebrating their good fortune when so many people are going to be devastated by what’s about to happen.”
I then turned to Andrew Winton, professor and chairman of the Carlson School of Management’s Finance Department. He says, “I haven’t read the book, so I don’t know how close the movie is to the specific reality of the characters,” he said. “But I found a lot of it very real in terms of presenting the subprime speculation that was going on at the time, the way the regulators were, at best, looking the other way, how the ratings agencies rated the stuff out of fear that the banks would take their business somewhere else and how fraud may have played a role in the way some of the big banks sold those products.
“One criticism I would make, and this kind of echoes what I read in the [New York] Times, is that there certainly were others who were talking about and warning about a credit bubble. These characters were not alone. But that said, these people put their money where their mouth was, and made the bet.
“Like so many others at the time, I thought that at worst the inevitable bursting of the bubble would be like the early ’90s again: a bad slump from which would quickly recover. I had no idea it would come as close as it did to taking down the whole financial system. What too few people understood was just how seriously overexposed the banks were. Or put another way: how even the major players didn’t fully understand how deeply exposed everyone else was as well.
“I was also a little surprised the movie didn’t mention John Paulson, who also shorted the market and turned a huge profit. Paulson was clearly a major player. The irony there being that he then turned around and lost a fortune betting on gold, which just goes to show that no one is right all the time.”
“As bad as the movie shows things to have been,” Levin said with a rueful tone, “things, I think, were actually worse.”
Like others who followed the story of the crisis, an event arguably more destructive than the 9/11 attacks, Levin was struck by the movie’s fleeting presentation of major players like Jamie Dimon, CEO of JPMorgan Chase, the country’s largest bank, and the much-vilified Richard Fuld, former CEO of now defunct Lehman Brothers. Images of each man flash by with no onscreen identification. Goldman Sachs’ Lloyd Blankfein isn’t seen at all, although an early scene with Christian Bale’s character proposing his bet to incredulous Goldman staffers is one of several classic moments.
Also glossed over, partly because Lewis lends less credence to their essential impact than the recklessness and groupthink of the overall system of investment banks, ratings agencies and regulators, are the roles of Fannie Mae and Freddie Mac. (The canard about Barney Frank is completely ignored.)
Asked for his impression of how well the business press foresaw the crisis, Winton says, “Well, in the papers I read, The New York Times, The Wall Street Journal and The Economist I recall them writing frequently about excesses in lending prior to the collapse. But as I say, it was very difficult to see just how exposed the system was.”
But that is their job, isn’t it? To know and report on something so enormous and potentially perilous? “Well, you can say that. But I think it’s more a case of there being a lot of guilt to go around. I mean, it’s just very hard for a reporter to learn how exposed a company like Lehman Brothers was.”
Winton says he has modest level of confidence the system has been sufficiently shocked by the experience laid out in “The Big Short” to avoid it … for maybe 10 years. “After that, after a lot of the current players have retired and left the scene, a new generation moves in who believes everything is new and better and doesn’t think anything like it could ever happen to them. It’s human nature.”
Says Levin: “For me, the irony is that the financial products we’re seeing today have actually gotten more complicated, not less. True, the big banks are now required to carry more cash. But if anything the complexity of what they’re selling has increased. You watch the movie and you do wonder how none of the people in authority have been indicted. I mean look at what they did to Martha Stewart. It’s a peculiar situation.”