I'm sure we all have our own stories from the economic crash of 2008, some of them incredibly sad. My own is relatively benign, but I'll never forget it. It was when my hair stylist told me he was getting out of the hair-cutting business to become a mortgage broker. This was before the crash, when housing prices were rising relentlessly, houses were turning over constantly, and anyone, no matter how little training or experience they had, could make money in real estate. Of course, I didn't recognize that for the warning sign it was, the sign of a bubble that was destined to burst. “The Big Short” is about the financial geniuses who did see the housing crash coming, and who figured out a way to profit from it.
In this film by Adam McKay, it starts with the one-eyed, socially-awkward Michael Burry, MD, a brainiac who left medicine to become a hedge-fund manager. He does something with mortgage-backed securities that no one else is doing: he actually looks at the mortgages behind those securities. He notices that many of them are behind on payments, many are to people with low credit scores, and that many more are adjustable-rate mortgages, with payments likely to rise in 2007. Despite these weaknesses, the banks have packaged these mortgages into bonds that are treated like low-risk investments. Burry sets up some insurance policies called Credit Default Swaps, policies that cost him money in the short term, but will pay off if those mortgage bonds fail. Everyone thinks he is daft, as the accepted wisdom says real estate is a rock-solid investment. Eventually some other financial wizzes notice what he is doing and take out similar policies, betting on the eventual demise of the housing market.
Where things get really messed up is when the banks themselves start buying some of these Credit Default Swaps. They are still selling the mortgage bonds to investors, but they are also betting that those bonds will fail. Eventually, as we know, the whole thing came crashing down, causing a worldwide recession.
“The Big Short” does a nice job dramatizing all of this for people who have at least a passing interest in things like economics and financial markets. It maintains a relatively high geek factor, which will drive away many mainstream moviegoers, but the movie sometimes winks at its own geekiness by having celebrities explain some of the concepts. Christian Bale is excellent as Dr. Burry, as are Steve Carrell as another investment manager and Ryan Gosling as a sleazy bond salesman. Really, the whole cast is excellent, and the film is paced pretty well. Inevitably, given its subject matter, “The Big Short” drags a bit at times, but overall it does an excellent job creating drama out of the ins and outs of bond trading. By the end, you will be mad at the big banks all over again.
3 stars out of 5