The Big Short

January 14, 2016
Brad Pitt in 'The Big Short' (2015)
Brad Pitt in 'The Big Short' (2015)

Don’t feel too bad if you fail to understand what a Collateral Debt Obligation (CDO) is, or how it works. Many thousands of investors who bought these packages in the lead-up to the American housing market crash of 2008, had no idea what they were buying. Not many of the Wall Street brokers who were selling CDOs understood them any better than their customers, while the credit ratings agencies that gave them five stars had not the faintest idea.

CDOs were never meant to be understood, they were designed to bamboozle. Composed mostly of triple-B rated subprime mortgage bonds, the CDO was a way of turning worthless assets into billion dollar profits. In the words of rogue investor, Steve Eisman, “this was the engine of doom.”

Eisman appears in Adam McKay’s The Big Short, as the eccentric Mark Baum, head of a small investment company called FrontPoint, who bid against – or ‘shorted’ – the housing market, when the conventional wisdom was that nothing was safer than houses.

We know how it ended, with millions of poor Americans losing their homes, their jobs and their savings, while most of the bankers who brought about the catastrophe lived to defraud another day. The handful of investors that refused to join the party, and profited handsomely from the crash, are the subjects of this movie, based on Michael Lewis’s best-seller of the same name. It covers a period in the finance industry that defied all conventional economic wisdom; when large mortgages were extended to people with no collateral and frequently, no job.

Fortunes were generated from thin air, but it was a magic trick that could not be sustained. This was obvious to the lead characters in this film, but each of them had moments when they doubted their own logic and sanity in the face of the industry’s relentless enthusiasm for the subprime bonanza. As Lewis writes, “the closer you were to the market, the harder it was to perceive its folly.”

McKay is known for screwball comedies, such as the Anchorman series, and probably felt this was the only way to capture the madness of the financial markets. Martin Scorsese led the way with The Wolf of Wall Street (2013), yet the ‘Wolf’, Jordan Belfort, was completely amoral, while the characters in McKay’s film are horrified and amazed by the looming disaster on which they have laid their bets.

Each of these figures was so unusual in real life they required little fictionalisation. Christian Bale’s Dr. Mike Burry is a man with Asberger’s Syndrome, a glass eye and no social skills, who studies the most abstruse economic data while locked in a room with blaring heavy metal music. Steve Carell’s Mark Baum is a brilliantly intuitive investor, but a walking time bomb, incapable of any trace of diplomacy as his righteous contempt for the banks keeps building. Ryan Gosling’s Jared Vennett is a reptilian broker who works for Deutsche Bank, but damns all of Wall Street when coercing backers into his private schemes.

Then there is Brad Pitt’s Ben Rickert, a former Wall Street ace who now takes an apocalyptic view of the finance business and the planet. Ben helps two small, unorthodox investors, Charlie Geller and Jamie Shipley, (John Magaro and Finn Wittrock) in their quest to join the big boys.

The most complicated part of this film is that the action revolves around a set of financial terms and devices that no member of the general public might be expected to comprehend. To make the theory more palatable McKay uses drop-in celebrities. Margot Robbie in a bubble bath explains one term, Anthony Bourdain explains another in terms of cooking fish, while Selena Gomez lays bets at a casino. I’m not sure I learned anything, but it’s a diverting tactic.

McKay is wary of ever letting the action settle. In one scene we are at a glitzy subprime bond brokers convention in Las Vegas, in another, trawling through the desolation of the Florida mortgage belt. Jared Vennett acts as our guide and commentator, occasionally assuring us this stuff actually happened, or didn’t.

All the time the clock is ticking, as doomsday gets closer and closer. We know that when the crash comes this cast of misfits will become absurdly wealthy while millions of ordinary people will be ruined. The full horror is not lost on Mark Baum, who seems to be in a permanent state of indignation; or Mike Burry, who grows depressed watching his investors turn on him while the big banks keep the mortgage packages artificially afloat. His faith in the logic of the markets is replaced by a growing sense of their criminality. The tragedy is clear to Ben Rickert, who reminds his young protegés that their triumph is based on other people’s misery.

One is left feeling dumbfounded by the stupidity and venality of the subprime feeding frenzy. As Mike Burry’s lawyer puts it in the book, this was a fantasy market – “it wasn’t even a real asset.” Wealth was generated on the back of debt, by selling mortgages to those with the smallest possibility of ever making the payments. If that sounds crazy there is nothing in this high-octane horror-comedy to contradict that diagnosis.

The Big Short
Directed by Adam McKay
Written by Charles Randolph & Adam McKay, after a book by Michael Lewis
Starring Christian Bale, Steve Carrell, Ryan Gosling, Brad Pitt, John Magaro, Finn Wittrock, Rafe Spall, Hamish Linklater, Jeremy Strong, Marisa Tomei
USA, rated M, 130 mins

Published in the Australian Financial Review, Saturday 16th January, 2016.