Go Long on the Big Short

Adam McKay’s The Big Short opens with an image of a Salomon Brothers’ bond trading floor in the late seventies. At that time in history, the voiceover explains, working at the bond department of a bank was “downright comatose.” Bankers were no different from accountants. That perception drastically changes with the invention of the mortgage-backed security, a financial innovation that renders bonds sexy. The images on the screen fast-forward thirty years, and suddenly, we see people lining up at a job fair during the 2008 economic crisis. The boring trading floors of the seventies somehow precipitated a financial catastrophe. The voiceover asks, how did this happen? How did a bunch of stodgy traders cause a global meltdown? And what, in heck, is a mortgage-backed security?

The Big Short, based on a Michael Lewis’s book of the same name, plainly answers these questions for the American public. A historical comedy, it tells the story of a bunch of outsiders who foresee and attempt to profit from the financial collapse. As we follow their processes of discovery, we learn how the interconnected financial system—involving banks, regulators, mortgage lenders, and individual homeowners—eventually unraveled.

These outsiders include Dr. Michael Burry (Christian Bale), a heavy metal loving, socially inept hedge fund manager who spots fundamental errors in the mortgage bond market. He acts upon this insight, placing bets against the American economy to the chagrin of his investors, who believe he is throwing their money down the drain. Trader Jared Vennet (Ryan Gosling) catches a whiff of this investment opportunity and unsuccessfully tries to pitch it to other investors. The only person to take the bait is the paranoid hedge fund manager Mark Baum (Steve Carrell) who Vennet mistakenly dials. Mark, hearing the first part of Vennet’s pitch before hanging up, gives him a call back and pursues the investment opportunity. A fourth group of small-change investors led by retired trader Ben Rikert (Brad Pitt) serendipitously finds one of Vennett’s pitch books during a botched big-bank meeting and decides to place bets against—i.e. “short”—the American housing market.

The star-studded cast delivers. Christian Bale excels as the savant and hedge fund manager whose little ticks and social awkwardness render him endearing. He is helped by the strong backstory the movie provides, beginning his story as a child on the football field who is ostracized by the other kids, connecting his unconventional love for autonomy and numbers to his experiences as a child. When investors begin to bail on him, and you witness his ensuing frustration, you will begin to root for him. That is, until you realize that rooting for him is tantamount to rooting for a crisis, and that he has billions of dollars to gain from his outsized bets.

Similarly, Steve Carrell delivers a humor-filled performance as a neurotic and self-hating investor. His curiosity and outrage at what he finds mimics the audience’s own curiosity at learning about the magnitude of the fraud. He despises the very system that he operates in.

The acting is complemented by a strong screenplay and witty dialogue that draws you into the story by keeping you engaged and on your toes. The traders speak in a fast-paced, no-bullshit manner. When Jared Vennett pitches the idea of shorting the housing market to Mark Baum, Vinny, one of Mark’s employees asks, “Why don’t you hate this guy? He is everything you taught us not to trust.” To which Mark responds, “I can’t hate him. He’s so transparent in his self-interest I kind of respect him. Would I buy a car from him? No way. Is he right about the mortgage market? Let’s find out.”

The movie’s primary purpose is to educate viewers about the origins of the financial crisis and it succeeds, mixing tablespoons of comedy with heaps of factual accuracy. One way it makes learning about complicated financial instruments interesting is by interrupting the story to cameo popular celebrities. The celebrities directly address the audience and explain things as college professors might do. Except this time you’ll actually be paying attention and entertained. For example, in one scene, Vennet cuts to a blackjack table where we find Richard Thaler, the father of behavioral economics, and Selena Gomez, the pop star, who explain the concept of a Synthetic Collaterized-Debt Obligation (CDO). McKay uses Vennett, a character in the movie, to prompt these cut scenes and also narrate (he is the voiceover in the beginning of the movie). By breaking down the fourth wall, McKay is able to walk viewers through potentially confusing concepts.

The Big Short is the first comedy about the financial crisis. The film is funny without being disrespectful. It uses humor to outrage the audience rather than belittle the problem, and combines levity with serious moments that provide insights into the stress, greed, and materialistic culture that permeates Wall Street. We need this movie almost a decade after the crash because we still haven’t learned our lesson.

Grade: A. If you don’t know what a subprime mortgage is, then you need to watch this movie.