‘The Big Short’ Has a Big Fat Lie

The film omits major culprits of the financial crisis

“The Big Short” is an entertaining movie about a very complicated subject: how hedge fund managers profited by betting against the housing market in the months before the market collapsed.

The screenplay by Charles Randolph and Adam McKay, who also directed the film, based on the book by Michael Lewis, does a great job of aligning audience sympathies with characters normally portrayed as villains.

The film manages to build a great deal of suspense in showcasing the stories of socially inept and morally bankrupt fund managers anticipating the massive payoffs that would result if millions of people lost their homes. The story is accurate insofar as the facts are not false.

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Telling the truth and omitting lies, however, are not one and the same. Even in its indictment of the financial system and the bankers responsible, the film gives a pass to two major culprits for the collapse. In doing so, the film propagates a big lie while parading around as the truth.

Vulnerability and sympathy
The storyline hinges on its strategic character development.

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Steve Carell plays a fantastically rude and insensitive crusader seeking revenge against financial criminals. Christian Bale masquerades as a socially awkward and unwitting fund manager who discovers the vulnerabilities in the system and subsequently takes advantage of the system.

On the one hand, the film succeeds in humanizing these individuals. So much so that audiences find themselves in the awkward position of wanting them to succeed. It’s no mistake that Bale’s introverted manager has a glass eye nor that Carell has a brother who committed suicide. They characters earn our sympathy. These are, after all, people just like us — people with dreams of making it big one day and earning respect in society.

The Truth is Fair Enough
The film manages very cleverly and concisely to explain the complex financial derivatives that caused the vicious spiral and thrust the economy into the worst recession in decades. It accurately explains that lax underwriting standards made it easy to get mortgages.

Low interest rates from the Federal Reserve enabled money to be borrowed cheaply. That, and no down payment, enabled otherwise unqualified borrowers to secure home loans. Demand exploded and prices rose, creating more demand.

Greedy investors seized the opportunity to cash in on “flipping houses,” with blatant disregard for the fact the adjustable interest rates would spike the value of the loans after a few months. Meanwhile, no one sounded the alarm because bond insurers and the federal government guaranteed everything in case of default.

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However, when adjustable rates kicked in, borrowers couldn’t afford the higher payments and many were forced into default. The mortgage bundles were suddenly worthless. People were forced to sell homes, which drove down prices, making the collateral of a house worth nothing. This led to a massive collapse.

The Big Lie
Actual media coverage since the crisis has been fairly consistent, rightly blaming it on a corrupt and greedy financial system that lacked oversight. The film, however, manages to gloss over critical, longstanding dynamics that preceded the events.

The story, in effect, offers audiences a limited view of the collapse, concentrating its look through the lens of one time period while ignoring the historical context.

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The omission of major culprits — flaws in both government policy and in the personal obligations of homeowners — is a blatant perversion of the truth.

First, the movie neglects to mention why underwriting standards became so lax in the first place.

President Jimmy Carter signed the 1977 Community Reinvestment Act, which forced banks to relax underwriting standards to “make homes more affordable” for minorities. With the stroke of a pen, all of a sudden judging an applicant’s creditworthiness was akin to discrimination.

To say such a policy was short-sighted would be an understatement. Dismissing credit when determining a homeowner’s eligibility was a disastrous policy doomed to fail. It was like a massive snowball rolling down a slope leading straight to hell: Meltdown was imminent.

President Bill Clinton made matters worse during his administration when he repealed the bipartisan Glass-Steagall Law. This removed barriers of cross-ownership between banks, investment banks, and insurance companies and effectively served as the green light for creating the complex financial derivatives that ultimately expedited the collapse.

Republican presidents also enacted policies that contributed to the demise, but nothing as damaging as these Democratic policies. That the film conveniently forgets to mention this back story is not surprising. Nor is the fact that the story distorts the role of homeowners on the road to disaster.

Investors weren’t the only greedy class of citizens. The collapse of the economy was comparable to a leaky faucet whose pipes eventually burst from the pressure. Every homeowner represented a “drip.”

While certainly some homeowners were duped or coerced into getting bad loans, the vast majority were taken out by people who were simply irresponsible. It takes two to tango, and the burden of responsibility also rested on the backs of the men and women who signed the dotted line. Undoubtedly, many homeowners knew they were taking a risk that exceeded their ability to hedge their bets.

The film handily avoids mention of the “little guy,” and the oversight serves to perpetuate the notion that homeowners were victims. In fact, many borrowers were willing participants inside a grand Ponzi scheme, whether they anticipated the ultimate effects or not.

Numbers Game
While it is certainly fair to focus on deliberate maneuvers of the investor class, the decision by the storytellers to withhold vital information about important contributors to the collapse is calculated and devious.

The filmmakers might benefit by considering the very question posed by the fund managers in the movie: “Is it worth pushing away every other aspect of life in the singular pursuit of making money?”

For a movie that attempts to explain premeditated mathematical tactics of a greedy lot, the story’s irony is that it doesn’t exactly add up.

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