Thursday, February 11, 2016

The Big Short

               If there were an Oscar for Best Explanatory Cameo, the pop star Selena Gomez surely would have been nominated for the scene where she sits at a blackjack table and helps demystify a byzantine financial instrument known as a “synthetic CDO.”
Gomez is on a winning streak, so she bets $10 million on her hand—a hand, she explains, that represents a mortgage bond. Then two spectators make an even bigger side bet on her hand. Then two more spectators make an even bigger side bet on that side bet, with heavy odds because Gomez is on such a roll, just as the mortgage market was on a roll before 2008. And then… she busts, just as housing went bust. The dealer wins. Groans all around.


              That’s not a bad introduction to the synthetic CDO, the derivative the movie’s narrator describes as the “atomic bomb” that nuked the global economy. Oscar-nominated director Adam McKay deserves credit for trying to make such complex financial concepts accessible. But since many Americans will be inclined to believe The Big Short’s cinematic version of the mortgage crisis, it’s worth noting that its analysis of what actually happened to the American economy—even down to the virtuosic little explainer asides—doesn't really add up.

             Take that blackjack scene. Why was everyone groaning? A bet is a two-way deal, so shouldn’t the winners of those side bets be cheering? And anyway, why would a bunch of random side bets among consenting adults nuke the economy? Finally, if the dealer is supposed to represent Wall Street, because the house always wins, why did Lehman Brothers and Bear Stearns and so many other Wall Street behemoths lose so badly that their firms collapsed in 2008?
              
              I know, I know. It’s just a movie. I get why so many critics have given it, as Gomez might say, that same old love. But The Big Short is not necessarily, with more apologies to Gomez, good for you, unless you happen to be Bernie Sanders. Its angry take on the financial crisis is misleading and its furious take on financial reform is wrong. It was instructive to see McKay discuss his views on the collapse and its aftermath in an interview with Vox, because despite his ambitious vision for his film, he clearly didn’t know what he was talking about.


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