January 13, 2016
The Big Short is a movie worth seeing, if only to get a good explanation of CDOs Squared and Synthetic CDOs. There are better reasons. The acting is outstanding. Steve Carell and Christian Bale deserve the widespread praise they have received and the nominations. The depiction of the SEC employee job-seeking from Goldman Sachs in Las Vegas was spot on, as were the corrupt, clueless Miami real estate agents.
The numbers are often wrong. When the script says that $500 billion in private-label RMBS trusts were created in just one year, the real number is over $1 trillion. When the script says there were 6 million foreclosures, the real number is over 10 million. But the movie was not about the numbers. Very few people care about the numbers.
It is easy to say that all subprime mortgages were sh**, because the buyers were unqualified, crooks and liars. But the majority of the borrowers who got subprime mortgages were not unqualified, crooks or liars. The lenders pushed subprime – and often only offered subprime – and often only offered subprime even to borrowers who would have qualified for prime – because they made more money selling subprime than prime. The securities companies and banks wanted subprime mortgages with rates that would adjust to 15% – 18% and that is what they bought and sold.
The movie briefly touches on the tragedy inflicted on millions of hard-working Americans, but the homeowners are represented by a stripper and a very tattooed renter. (For the real story, see Ramin Bahrani’s 99 Homes.) American greed is still glorified. Don’t trust your money with Goldman, or Deutsche or Morgan Stanley, find an offbeat genius like Mark Baum or Dr. Michael Burry or Ben Rickert so you too can earn 497% return on your investments (though you will feel very bad about this).
The Big Short is powerful and compelling, especially for a film that focuses on a few very rich guys.