How “The Big Short” Shorts Audiences Hoping to Understand the 2008 Financial Crisis

The Big Short, Adam McKay, 2015

The 2008 financial crisis is one of the defining political events of our time. The huge bonuses pocketed by bankers, despite the trillions in government bailout money handed to the financial sector, sparked shock and outrage among the American public. After 30 years of cuts to the welfare state, imposed on the grounds that the country just couldn’t afford social programs, the banks were essentially handed a blank check with no strings attached. Who – or what – is to blame?

Hollywood’s latest post-crisis dramatization of the world of finance, Adam McKay’s The Big Short, is a kind of “2008 Crisis for Dummies.” In the film, mini-lectures by famous celebrities explaining the technical details of how the crisis unfolded punctuate a broader melodramatic exploration of the inner suffering of some of its primary beneficiaries: a group of hedge fund managers who walked away with a fortune.

Based on the book by Michael Lewis, the film tells the story of the 2008 financial crisis though the eyes of fictional hedge fund managers who saw that the bubble was about to burst and found ways of reaping massive profits from it – described in the opening monologue as “a few outsiders and weirdos who saw what no one else could.” The film suggests that the big banks had become rich, corrupt and complacent, unwilling or unable to recognize that the bottom was about to fall out from underneath them.

While initially the major banks laugh at the proposal of hedge fund manager Michael Burry (Christian Bale) to short sell the housing market, later they attempt to stick their heads in the sand by simply refusing to acknowledge that the value of collateralized debt obligations (still highly regarded by ratings agencies dependent on fees from the big banks) was deteriorating as mortgage defaults spread. As it became clearer that the house of cards was collapsing, the banks, too, began hedging, shorting the housing market even as they insisted the hedge funds, which had bet against the market, pay huge premiums (i.e., insisting that the funds had lost the bet), while continuing to sell mortgage-backed securities.

Throughout, the film is at pains to define its protagonists as idiosyncratic, nonconformist outsiders, and to separate them from “the system” they see themselves as taking on. To evoke our compassion for these characters, we are shown how Burry was socially excluded from the time of his childhood, and how Mark Baum (Steve Carrell) was deeply concerned that the banks were ripping off the average Joe through excessive overdraft fees. Baum’s difficulty dealing with his brother’s suicide is also a major focus, a personal tragedy about which he is finally able to open up to his wife (Marisa Tomei) as he places what ended up being $1 billion in bets against the housing market. Yet McKay’s attempts to create sympathetic characters from these hedge fund managers feels contrived and unconvincing – why should we care about the personal turmoil of the super-rich who cashed in on the crisis?

There is no doubt something true about the film’s depiction of the ways in which even the beneficiaries of an increasingly chaotic financialized capitalism are dehumanized through their participation in this system. It would require an inhuman monster indeed – of a kind that could only be imagined in neoclassical economic theory – to make a fortune from the misery of tens of millions of poor and working-class people whose lives were impacted by the financial crisis of 2008 without feeling at least a twinge of guilt.

Most difficult to swallow were the film’s final moments, when Baum gets a phone call from another member of his team – after having refused to cash in his chips as the financial sector collapsed, risking his ability to receive payment on his derivative contracts altogether – indicating that the federal government was bailing out the big banks, and urging him to close out the firm’s positions. At this moment, Baum appears to share the rage felt by the American people over the bailout, and angrily expresses his disbelief – as his fund cashes in $1 billion worth of derivative obligations. As the manager on the phone tells Baum, “We didn’t prey on the American people’s dream of owning a home, they did. Now we get to kick them in the teeth.” Text that flashes up on the screen just before the final credits informs us that Baum “became graceful” after the crisis, “never saying I told you so.”

While the banks are depicted as calcified, stagnant and corrupt bureaucratic structures, the hedge funds are dynamic, innovative and run by super-geniuses. These outcasts constantly rail against the corruption and conformism of “the system”: the big banks and the government regulators and ratings agencies that are under their thumb. In such circumstances, only these ingenious, intrepid and principled fund managers can make the banks pay for callously destroying the economy – even if they feel a little bad about profiting from the collapse.

The fact that Mark Baum’s fund, FrontPoint Partners was owned by Morgan Stanley is easily brushed aside: Sure, they “technically” work for Morgan Stanley, but the film insists on presenting them as outsiders with a healthy disdain for “the system.” In reality, Baum’s fund only existed because it profited one of the big banks that the film and its characters continually rail against. The fact that Goldman Sachs, for example, also hedged its mortgaged-backed assets beginning at least as far back as 2007 – bets from which they profited handsomely – is barely hinted at. This further amplifies the narrative of a few brave souls who weathered the abuse and doubt of others based on the conviction that they were right. And in the end, they are vindicated – however bittersweet this may have been for them personally.

What the film neglects is precisely the ways in which hedge funds and derivatives are part of the system – and in a way, that goes far beyond merely the fact that some are literally within the major banks. Global economic integration has meant that corporations have had to hedge against exchange rate volatility and other risks to ensure they will be able to make a profit when the commodities are actually brought to market. And hedge funds also have the function of increasing competitive discipline on firms’ calculations of value.

But derivatives and the funds that trade them (betting that the existing market valuation of certain assets is not “correct”) also create new dangers, accumulating massive amounts of risk in often irresponsible ways. The costs of bailing out hedge funds, which can easily rack up massive obligations in the event of a crisis (such as the one depicted in the film), can be enormous. The kinds of bets that Baum placed increased the costs of the bailout, since restoring stability to the financial sector meant helping the banks pay their obligations to men like him. The film’s focus on Baum’s rage at the government bailout is thus misplaced indeed.

Although it implicitly proposes breaking up the banks and imposing far-reaching new financial regulations, framing the drama around the emotional turmoil experienced by those who were among the primary beneficiaries of the crisis is a highly questionable one. The film seems keener to support the attempts at self-justification of hedge fund managers than inviting the audience to criticize a system in crisis. The way the film’s narrative is framed leaves it to build support for its surprisingly progressive political agenda by highlighting the moral integrity of a few “good capitalists” – the hedge fund managers we are meant to cheer as they face off against the corrupt bankers.

And while accurate in the details, the film largely blames the crisis on the fraud and corruption of the big banks, the Securities and Exchange Commission (SEC) and the ratings agencies – thus missing that the crisis was rooted in the fundamental irrationalities of capitalism, and specifically the contradictions of the neoliberal restructuring of the past 30 years. The problem, in other words, is not “corruption” that upset the normally harmonious functioning of capitalism, but rather that crisis is an irresolvable part of capitalism. As the balance of class power shifted toward capital with the neoliberal offensive – which included financial deregulation, the marketization of public services, declining wages and significant structural unemployment – people had to accumulate debt to sustain themselves, borrowing against their homes to maintain consumption levels. As purchasing power fell, banks seeking to sell collateralized debt obligations increasingly had to package riskier loans within the tranches they pawned off as highly rated securities.

The true suffering caused by the crisis was visited upon workers and their families, who faced homelessness, poverty, hunger, unemployment, lack of adequate medical care and other such hardships on top of the already immense difficulties that resulted from 45 years of cuts to social welfare programs. Yet these people are totally invisible in the film. Only two working-class homeowners are allowed to speak, one of whom is a stripper clearly taking advantage of the system – having bought five homes with tips – even as it’s clear she was misled about the risks. Nor did any of the protests against Wall Street register in the film at all.

Baum is aware that “immigrants and poor people” will be blamed for the crisis and the same financial structures will be resurrected, yet there seems to be no way to prevent this from happening. It is among the primary tasks of the left to keep alive the idea that another world is possible, and to find creative ways to build isolated moments of popular resistance into a broader political vision – something we obviously should not expect from Hollywood.