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How The Big Short Depicts The World

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The Big Short

The entire “you can’t start a fire without a spark” moment in banking came with Lewis Ranieri unveiled his idea for revolutionizing the bond market, what’s portrayed in the movie as being “comatose”. He had created the mortgage-backed security for the housing market, which then through what you would expect, banking slowly became the largest industry in the United States. What I can only assume is that due to Greenspan’s anti-regulatory measures it only added gas to the flame. We can treat the thesis of this film as an entire warping of what Lewis had in mind, what he believed to be a smart bond that would increase profits for banks and investors later became a time bomb.

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The film centers on a small group of insiders, most notably Michael Burry, who was investigating the complexities of a what he viewed as a crumbling housing market, and signs that it will continue and increase. He’s largely an introvert, dedicated to heavy metal (my favorite of what he listens to is Leviathan by Mastadon). What’s important with Michael is that he was initially the one that bets on the “short” on mortgage bonds, essentially naming that if the bonds go belly-up, that his investment in the insurance would grant him the credit from the defaults. Michael runs Scion investment, he has no formal business education, as he is a former Neurologist.

The second of the insiders is Mark Baum, an incredibly abrasive man that believes that bullshit talks and bullshit walks, he just wades through it and forces his clients to prove their moral worth prior to deals he makes; which to the ire of his wife and therapy group make him very opinionated and again, abrasive. Though it’s not essential to the plot, Mark lost his brother to suicide after offering his brother money when his brother called him saying he had “bad swaps”, causing Mark to close himself off emotionally and feeds off of a retribution principle.

The third, and perhaps the most important of the insiders is Jared Vennett, who receives early wind that an investor named Michael Burry has invested hundreds of millions of dollars into credit-default-swaps. Jared Vennett works for Deutsche Bank, and is eager to make a deal with Morgan Stanley but accidentally gets the wrong number and is instead directed to Mark Baum’s firm, and while some refer to it as being “just a wrong number”, Mark is incredibly interested in what Jared is pitching, and begins his investment with a small short of 50 million. This works to the benefit of Jared, as he is in a bit of a pinch with his higher-ups, as he believes he’s struck gold and can “smell money”.

The last of the insiders are a small group of traders from Brownfield Investment out of Colorado. They began on a small equity of $110,000 which was turned into $30 million within a few years. The traders are Jamie Shipley and Charlie Geller, and the duo traveled to New York to seek an ISDA, allowing them seats at the big boys table to make bets on faults which had made them rich in the first place. Unfortunately, an ISDA requires well over a billion dollars so they’re forced to ask their friend Ben Rickert to validate them, which he does. The duo had also came into contact with Jared Vinnetts report, and the two invest in CDO’s, like the others. What the duo did that the others didn’t, was invest in AA tranches, growing convinced during the American Securitization forum that bonds would fail all the way up to the top.

Though it’s not clear in the movie just how much Jamie and Charles invest, they both have the same results as the others. It’s at this same convention where Mark tells the speaker that there is a 0% chance that subprime mortgage losses will stall, and walks out. It’s after this that Mark Baum increases his short to $550 million dollars, second only to Michael Burry, who’s short totaled 1.3 billion dollars. Though all parties where forced to pay premiums for almost 2 years due to the fact that the bonds they betted against where appreciating up until the final moments of the crisis in which Bear Sterns fails while Mark laments that they thought the industry was better than that.

Prior to that however, Michael faces intense scrutiny and later threats from investors after they lock them out of their accounts to pay the premiums they accrue or else face liquidity of the entire firm. This pays off for all parties, because throughout the film the insiders are angered that the ratings agencies do not change their outlook on the bonds that are obviously going bad, and instead turn a blind eye.

Michael nets a total of 2.69 Billion dollars off of a 1.3 billion dollar investment, while Jamie and Charles both receive a little under $50 million a piece for their individual payouts. Mark Baum is the last to sell, following the word that there’s a bail-out. He’s not happy that he’s made money that would be paid for by the American People, and the same realization comes to all other protagonists in the film, excluding Jared Vennett, as he was more profit-driven. Mark clears $200 million personally, with 1 billion total following a $550 million dollar investment.

Fairness?

To be completely honest, the way that the American society is described and portrayed is entirely fair. Minority women and women are portrayed positively, as are minority men, aside from the Asian “quantitative” that Jared makes a point that because he’s “Asian”, he’s right. The movie makes the point that we may not know what “Tranches” or “CBO’s” or “Synthetic-CDO’s” are, because they portray it as being a class based issue. Only those at the top, profiting, should truly have perfect information. But, According to Adam Smith, the “invisible hand” (referenced in Chapter 4) of economics is only efficient when perfect information is known to all parties, which in this case it wasn’t. The sad reality of the film is that these situations are shown to be largely negative. When you have a renter that’s paying their leaser who is late on their mortgage, and you see the man almost in tears as he fears for his child’s well-being and growing accustomed to school; it’s saddening.

But this was true of the crash, everyday people that were blind to the inner workings of the economic system that took advantage of them were the ones that paid the cost; literally twice over. The people that abuse the system are bad, but that’s not to say that the system isn’t either; no capitalist system is inherently bad, but, the ways in which the cycle of credit deviates from the origin frequently puts people on a profit-driven path. Though it’s not mentioned in the movie, the Minsky cycle of credit, if one were to apply it to the crisis prior to the collapse may conclude that the system has become inherently bad. The Minsky cycle being, while simplified; a large displacement creating macro-econ opportunities (Mortgage backed securities), followed by an increase of credit from banks and an increase in the interest rates and velocity of money, all fed by speculation until you reach a point of over-trading, which then those at the top typically unload their stocks or bonds. The tragedy of the Minsky model illustrates that when all is said and done, the private market has no choice but to seek a lender of last resort, in this case, the American people.

Toward the end when Jared Vennett goes on a monologue about the changes that America made (all while Neil Youngs “Rockin’ in the Free World is playing in the background) that made the system better; and then recants and says that none of the ideals happened. These ideals were ones such as, breaking apart the large banks, auditing the Securities and Exchange commission, the imprisonment of top bank/ratings officials who profited off of the crisis, and the regulation of mortgage/derivative industries. Earlier in the film, Jamie, who is talking to his brothers ex-girlfriend who works at the SEC, finds out that she’s floating her resume to big banks, surprised that there is no law or statute that prevents an employee of a ratings agency to work for the banks of which they are supposed to be regulating.

One of my favorite characters in the movie, and the one I found to be a moral compass for Jamie and Charles, was Ben Rickert. He’d previously went out of the banking business because it destroyed the well being of working people, and it screwed too many people over while making too few rich. He helped make Jamie and Charles rich, but had also told them that the correlation between death and unemployment was very high; making it more of a melancholy reception for Jamie and Charles, I feel. They wanted money, so they got money at the expense of all those who lost theirs. Ben I believe to be a realist (Referenced in Chapter 1 thoroughly), and the only true realist in the entire movie. Jared’s ideal is keeping his job by making money for his employer, Baum’s ideal is ripping off the big banks who take advantage of people, Jamie and Charles both want to get rich.

The only character that could maintain an entirely neutral standpoint in regards to idealist vs. realist is Michael Burry. You could argue that he was convinced he was right, therefore making him an idealist, or through educated derivation found that what he was expecting was entirely true; thus making him a realist as well. You can even consider the ratings agencies to be realists, as if they do not give the ratings that the banks want the banks will switch agencies; which is not in the economic best interest of the company, therefore they will continue giving fraudulent ratings in exchange for money.

The Money

In regards to what the film stands to demonstrate, I feel that it demonstrates the vastness of power that a non-government entity can hold, and if not properly controlled for, can lead to to disparage for all but those involved. The film begins with what looks to be the midwest american-dream. A father with his daughter on his shoulders with a quote by Mark Twain: “It aint what you don’t know that gets you into trouble. It’s what you know for sure, that just ain’t so”, this happens sporadically throughout the film, cataloging the progression of greed itself.

Shortly after all protagonists of the film have a foothold in the Credit-default-swap fiasco, you’re given the quote “Truth is like poetry, and most people fucking hate poetry – Overheard at a Washington, DC Bar”. I feel that symbolizes, and foreshadows the realizations all parties have toward the end, and are beginning to have at that point in the movie, which is shortly after Charlie and Jamie pick Ben up from the airport when he agrees to help them get rich. This is also when Mark Baum goes to S&P directly to ask about potential fraud regarding credit ratings, only to come to the realization that they’re in the banks pocket.

So why’s it good?

Plenty of reasons! Firstly, I loved almost how the director split the movie up into 3 seperate “chapters” so to speak, each with a quote, one by Mark Twain, one by an Anonymous personality, and another being “Everyone deep in their hearts, is waiting for the end of the world to come” – Haruki Murakami. The last quote, tying in with my previous paragraph, is what signals that the end of what they considered their ventures with CDO investment. This quote not only foreshadows, but does a good job at symbolically representing both Michael, whose firm is facing liquidity in mounting premium payments due to increased prices of the bonds hes shorting, and Jamie and Charlie. Charlie rushes to call his mother to tell her everything’s going to be okay, and Jamie comes to terms with the fact that the double edged sword, their ISDA, has done far more damage than they’d hoped. For Baum, he’s forced to decide on when to sell his shorts, and the very idea that he’s simply taking bailout money gives him a revelation that his own pursuits at trying to outsmart those who outsmart the American people had only made things worse. To be fair, all of their speculation was damaging. Once Baum knew how large the insurance on bonds market was relative to the bonds market itself, he then should have realized that he was not on the right side of the fence; but neither was anyone else.

I also enjoyed how often the fourth wall was broken, Jared was a permanent narrator, and the celebrity cameos really would have done a good job at teaching those who didn’t know what they were witnessing. It’s almost overblown in the manner they did it, but at the same time, what the finance market does is overblown and if not so horrifying, satirical. Another good move by the director was highlighting the victims of the crash as image stills, as well as demonstrating the blandness of 1970’s banking by using almost a vintage style filter. Pointing out those kind of things are kind of low brow for my analysis I believe.

While earlier I mentioned that Ben Rickert was a moral-compass for Jamie and Charles, I’m going to be critical of his character in this paragraph. While a realist, he agrees to help Jamie and Charles get rich off of what he thinks is a good investment. Down the road a bit, he informs Jamie and Charles that every time unemployment increases by 1%, 40000 people die. I find this to be somewhat crude in Bens character.

Ben had gotten out of the entire business because he felt that it negatively impacted the everyday lives of everyday people, yet he almost acts as a father figure to Jamie and Charles, and in this sequence of scenes, it’s almost like a lesson that didn’t need to be learned first-hand. Maybe Ben would have hoped it would have drove them out of investment, but if it had have done that, then Ben wouldn’t have advocated their investment on AA tranches later on in the movie. I feel that his realist approach to investment, and his positioning with Charles and Jamie make him no better than Charles and Jamie. While he maintains his only reason for helping Jamie and Charles was to “make them rich”, this seems to me to be a farce; getting an ISDA and assisting two young investors who you’d befriended on accident make millions unconditionally makes little sense to me. I don’t see why Ben would do this other than personal reasons; therefore I can’t say Ben was a protagonist, and I can’t say the same about Jamie or Charles either as they were only in it for the same reason Jared was in it – profit-drive. So to me, Ben represents a morally jumbled character. But, let’s just have common sense regarding this; why would he help them only knowing that his help would result in more damage? He’s not free from blame, yet he carries himself as though he’s the alpha-male who can do no wrong. To be fair; he did teach them a lesson, as Jamie and Charles are standing in Bear HQ I believe they realized it fully, but he’s also the only reason why they had that enlightening and made any money at all on this.

So to finalize this, I can’t say any of the characters were the good guys. Mark thought he was, but when he learned of the bailout he too came to the same conclusion that his actions didn’t benefit anyone; his vendetta was in his own self-interest, profit driven or not. Michael Burry was a profit-driven character as well, though not through his own interests but rather through those of his investors. Finally, Jared Vennett is kind of just an asshole. The “I told you so” asshole of the film, the typical Rand egoist, who at the end of the day was just that.

Optimism, or Pessimism or a sprinkle of both?

I do not see this film casting an overly negative pessimistic view of the world, nor do I see it being optimistic. It’s a pretty real representation of how the financial sector works. It’s ugly, it’s harsh, and it shakes the fibers of the characters it involves. If anything, the movie casts a sullen view of the world; blaming of immigrants, poor people, and teachers is a pretty disheartening way for special-interests to cast blame that they, themselves, were wrong. Even though I have kind of zig-zagged around the questions needed for the assignment, the final questions regarding whether or not this is a “Vehicle or social change” still stands to answer. The answer to this is yes, but it would require collective action (Chapter 3, Why Government?). We have seen this through this past election cycle, the Sanders movement was incredible, the idea that the ideals established by Jared at the end of the movie coming true could have been a reality for future crises if that could have spread further. Unfortunately, this election is a clown car; and Sanders is no clown. He’s not finished, his movement is not finished, but it’s sad that this reality is the one we collectively chose for ourselves. It was a good vehicle for issues, Bernie incorporated many good vehicles, such as this, and launched a campaign centered around the fringes of the political realm; today he’s being booed by his own supporters for supporting the lesser of the great evils. She’s said she’d break up the big banks, among other things discussed at the end of the movie, but for someone who was paid by these entities for speaking at events; I find it to be a farce, we will see what lies ahead.

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