Over ten years later, it can feel like the global market crash never happened. Or it can feel like it just happened yesterday. Watching The Big Short, I wondered how the System could be so greedy, so stupid. But it was. And really, nothing has changed. No regulations. No bankers (except one) went to jail. No banks were broken up. The rigged system continues as before.
While The Big Short is a major downer, it is a well-done look at what happened, through the eyes of three different people or groups of people who saw the demise of the mortgage market before anyone else.
Michael Burry who headed an investment fund took a look at the mortgages included in mortgage-backed securities. What he saw was the collapse of the mortgage market. Most were subprime adjustable mortgages with rates that would soar in 2007. It was a ticking time bomb.
Funny thing was that no one else saw it. No one looked at the numbers. No one believed him. He wanted to bet against these mortgage-backed securities. The only problem was that no instrument existed to do this. So he took the initiative and approached bank after bank about creating a credit default swap on mortgages.
No one bets against mortgages. No one. The inherited wisdom was that mortgages were a sure thing. Well, perhaps in a system run without fraud or corruption. But such a system is not ours.
He was laughed at and ridiculed but bank after bank that he went to gladly created the investment instrument. They were more than happy to take his money. After all, mortgages are a sure thing. You do not bet against them.
Others in the financial industry stumbled across what Burry did and researched it themselves. Jared Vennett, a salesman at Deutsche Bank, reached out to a company but mistakenly got a different company instead—FrontPoint Partners. FrontPoint Partners listened to his offer and started looking into the mortgage and real estate market. The fraud, they discovered, was everywhere. The global economy was set to tank.
Two other investors in a small company, Brownfield Capital, stumbled across Vennett’s pitch to various banks. As small-time players, they couldn’t gain access that would let them invest in the credit swap—until they reached out to an acquaintance who was a former securities trader, Ben Rickert. With his help, they were able to invest and profit off of the 2008 global economic collapse.
None are really portrayed as evil Wall Street villains. They profited off of the villains who created the crisis. Fair enough. There is some truth to that. In the end, many of them closed their funds and got out of the business or downscaled their financial activities.
The movie is partially narrated from Vennett’s point of view. On occasion, the movie stops and shows Vennett talking directly to the camera. In one scene, when the Brownfield Capital guys see Vennett’s proposal about the credit swap on a lobby table at a big investment bank, the actors step out of their roles to talk to the camera and explain that this wasn’t really how they learned about the credit swap. Or at the end, when the hope that bankers go to jail and big banks are broken up is expressed, the movie suddenly stops and rewinds. That is clearly not what happened. No one went to jail. No banks were broken up.
The movie also takes an innovative approach to explaining financial items like CDOs. Famous people like Anthony Bourdain, Richard Thaler, and Selma Gomez appear on camera to explain these concepts through more relatable activities like making fish stew or playing blackjack.
I cannot say that I completely understand what happened to cause the 2008 crash. But the movie helped show some of it through the eyes of various investors as they looked into the mortgage market and learned about CDOs themselves. There is something profoundly disturbing to see people working in investment funds sickened by the practices and lack of ethics around them.