Nearly a decade ago, I wrote an article about how workers in a peculiar American industry were beginning to worry about subprime home loans. They were Wall Street lawyers who specialized in a dark financial art called securitization -- bundling up assets, such as home mortgages, into bonds for sale to investors.
The financial pipeline supplying the loans was beginning to dry up as more and more people fell behind on their mortgages, the lawyers told me.
It was the beginning of a two-year slide that culminated in the failure of Lehman Brothers and brought the American economy to the brink of collapse.
Like most people, and most journalists, I didn’t see it coming. I wrote my story, then unwisely turned to other topics. I had no idea that the entire mortgage industry was wormed through with rot and disease and fraud, that the mortgage bonds that had fueled an unprecedented run of growth and profit were stuffed with adjustable-rate loans doomed to fail.
I didn’t realize that ratings agencies like Standard & Poor’s and Moody’s were bought-and-paid-for tools of the Wall Street banks, and that their supposed oversight of the industry was a complete sham.
I didn’t realize that a multi-trillion-dollar shadow market had emerged that allowed hedge funds and other investors to place wagers on the performance of mortgage bonds in the same way that gamblers in Las Vegas can bet on the outcome of the Super Bowl.
But not everyone was so dumb. A handful of oddball investors, working independently from each other, began to short the housing market -- or bet against it -- in a big way. Michael Lewis, the great nonfiction storyteller, profiled a few of these people for his 2010 book, The Big Short, which has now been made into an improbably compelling movie of the same name.
I saw a screening of the film last week at a theater in Manhattan. Brad Pitt’s production company made the movie, and at a Q&A afterwards, he explained why he felt it was important to tackle a subject as complex as the mortgage crash. “It’s a story that needs to be told because nothing has changed,” he said.
"The Big Short" should be required viewing for every mortgage and banking professional in America, and maybe every high school civics class, too. It is a direct, frontal assault on the bogus claim peddled by Wall Street and conservative media that poor people and irresponsible borrowers were to blame for the housing crash and the resulting chaos.
“It’s a story that needs to be told because nothing has changed.” Brad Pitt
The movie, directed by Adam McKay of "Anchorman" fame, rightly sets its target on a Wall Street culture that prioritized profits and bonuses over long-term sanity. The banks whipped the market to unsustainable heights because it was lucrative for them to do so. They demanded more and more kindling for their fire, and didn’t care that the only way to obtain more mortgages was to push them on an increasing number of people who had no ability to afford them. No one, save a handful of obstinate traders, called bullshit.
One of the traders, played by Christian Bale in the movie, was the head of a small California hedge fund. He did something radical: He actually cracked open the mortgage securities and looked at what was inside. Steve Carell plays a money manager who began to dig into the mortgage market after a caller who dialed the wrong number inadvertently delivered a tip -- starting a chain of events that brings Ryan Gosling, and a needed dose of comic relief, into the story. Pitt is a retired Wall Street trader who helps two young outsiders make a fortune off the failing market.
After Lehman collapsed in the fall of 2008, I spent the next five years writing about the crash and its aftermath. In countless news articles, I tried to unpack alien phrases like “collateralized debt obligation” and “credit default swap.” "The Big Short" handles this daunting task brilliantly, turning over the script to a parade of celebrities who directly address the audience and define key terms.
Actress Margot Robbie explains derivatives while reclining in a bubble bath. Anthony Bourdain breaks down CDOs while cooking in his restaurant. Selena Gomez turns to the camera and explains synthetic CDOs.
In another scene, the filmmakers use a Jenga game to visually explain how mortgage bonds were built, with the supposed safest mortgages piled up on top of subprime loans. Pull a few pieces from the bottom of the pile -- the equivalent, in real world terms, of defaults on these mortgages rising to a certain level -- and the whole tower collapses.
At one point, Carell's character travels to Florida to see firsthand what is happening with the mortgage market. He meets two mortgage brokers who gleefully explain how they are purposely pushing riskier adjustable-rate loans on buyers because those mortgages kick off greater fees. "Why are they confessing?" Carell asks one of his employees, in an aside. They're not confessing, he is told -- they are bragging.
On a tour of a Florida neighborhood, a real estate agent explains that the market is in a little bit of a dip -- as she passes rows of empty, newly-built homes with "for sale" signs in the yard. In a chilling scene at the end of the movie, a family that Carell's crew meets on the trip is shown living out of the back of a car.
I met those families on reporting trips to Florida. Most had taken out what seemed to be sensible loans, and then were caught up in the maelstrom of soaring unemployment and declining home values that followed the crash.
My only complaint with the movie is that the loaded word “fraud” is tossed out without adequately explaining what, in the assemblage of the mortgage disaster, was actually criminal. In the wake of the collapse, Wall Street has argued that greed and stupidity are not crimes, and the movie does not stretch to show how bankers were purposely misleading clients.
It gets close: Near the end of the film, Bale's character accuses Goldman Sachs of refusing to fairly price his bets against the market until the bank had successfully offloaded some of its own failing liabilities onto investors. The movie does not reveal that within Goldman, traders were describing its mortgage offerings as “junk,” “dogs” and “monstrosities,” even as they were congratulating themselves for selling the garbage to clients.
But this is a quibble. "The Big Short" is the defining film about the American financial crisis, and Brad Pitt and his famous friends deserve huge credit for succeeding in making it so watchable.
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