Saturday, December 26, 2015

Holiday Movie Blogging – The Big Short

I was baffled by the idea of a film adaptation of this book – it doesn’t exactly lend itself to visual storytelling. But my skepticism was unwarranted; I enjoyed it tremendously, and, I have to admit, for a movie where everyone knows the ending going in, it was surprisingly suspenseful.

[Spoilers below the cut - but I'm giving it away now, the world economy collapses in the end]

The Big Short is a fictionalized version of Michael Lewis’s book, told in a disjointed, energetic, fourth-wall breaking manner, that gleefully parodies Wall Street and high finance while making a sincere effort to explain to the uninformed concepts like mortgage-backed securities, CDOs, and credit-default swaps. I don’t know how effective the explanations might really be for someone unfamiliar with the concepts (someday, I’ll have a reason to show it to students and see what they make of it), but the analogies of CDOs to a stew of three-day old halibut, and RMBS to a set of Jenga blocks, were (reasonably) well taken – not to mention hilarious.

 

(Not for nothing but if they ever sell those Jenga blocks, I’m first in line.)

In one rather on-the-nose metaphor, Melissa Leo shows up as a Standard & Poor’s analyst who is literally blindfolded – she’s just been to an optometrist, and came away wearing enormous blackened glasses.

One false note, however, came in the form of Karen Gillan as an SEC staffer who is in bed with Goldman (she dates a trader) in hopes of landing a high-paying job.  I know there's been a lot of debate about the revolving door and whether it harms or benefits federal agencies, but I tend to believe that the dangers come less from agency officials treating potential employers with kid gloves than from officials being coopted into an industry-centric view of what counts as normal or acceptable business practices.

That said, the movie was particularly effective in illustrating the old saw, “the market can stay irrational longer than you can stay solvent.”  Tension builds as CDO prices remain high despite rising mortgage default rates, causing near-panic among the protagonists as the expenses associated with maintaining their short positions mount. Hedge fund manager Michael Burry seeks to placate his investors by telling them “I may have been early, but I’m not wrong” – prompting the investor to shoot back, “It’s the same thing!”

The Big Short ultimately draws the conclusion that prices remained high due to outright fraud on the part of the big banks, who were seeking to avoid acknowledging their own losses. That conclusion is challenged by Greg Ip who, writing in the Wall Street Journal, argues that many insiders had their personal wealth tied to the mortgage market, because they also wrongly assumed that housing prices could never go down.

I don’t pretend to see into the hearts and minds of Wall Street bankers, but my own view has always been along the lines of Upton Sinclair, namely, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” Our legal system categorizes mental states into precise boxes like “intentional,” “reckless,” and “negligent,” but there is a continuum of comprehension, overoptimism, and denial that shades the gaps (a point which another crisis movie, Margin Call, makes beautifully). The question, then, really concerns the costs and benefits of reforming the legal system to recognize – and either criminalize, or make civilly punishable – a more nuanced understanding of intent.

https://lawprofessors.typepad.com/business_law/2015/12/holiday-movie-blogging-the-big-short.html

Ann Lipton | Permalink

Comments

Love the review, and it has incentivized me to see the movie. The clip is super fun, too. And I agree that a more nuanced understanding of intent would be helpful to their legal construct.

Posted by: joanheminway | Dec 27, 2015 9:05:11 AM

Love this! I want the Jenga blocks too! Can I take my entire Real Estate Transactions class to the movie as a field trip, I wonder?

Posted by: Andrea | Dec 28, 2015 12:13:18 PM

Post a comment