It's hard to make an entertaining and interesting film about the stock market for the masses, many filmmakers have tried (Margin Call, Rogue Trader, The Wolf of Wall Street, etc.), but most of them failed to attract an average person.
However, it's important to educate the general public about finance, economics and influential historical events such as the 2007 housing market crash which led to the global financial crisis of 2007-2008. That's why Adam McKay and a strong team of producers and screenwriters (Dede Gardner, Jeremy Kleiner, Arnon Milchan, Brad Pitt, Charles Randolph) tried to do so in 2015 when they released “The Big Short” movie.
Our blog is about finance and investing, but occasionally we cover some cultural topics, books, and films that are related to economics. We do that because we don't want to bore readers to death with constant dry financial and economic articles. Our first attempt in this field was the “Rich Dad Poor Dad” book review by Robert Kiyosaki and we hope to continue to produce such reviews from time to time.
Today we'll talk about “The Big Short”, one of the best movies about the stock market that tells the story of the American subprime mortgage crisis.
Table of Contents
The Man Behind the Story
This movie is based on “The Big Short: Inside the Doomsday Machine” book by Michael Lewis, who is a well-recognized writer on the stock market. His other famous works are the Liar's Poker (1989), the Moneyball (2013), and many others. The Moneyball book was also used as a basis for a movie.
Lewis is an educated American (London School of Economics) who worked on Wall Street himself in Salomon Brothers for a few years. After that, he started to write and to disclose some of the things inside the industry that would otherwise stay hidden. Obviously, not everyone cheered Lewis’ revelations, but his work is quite respected. Lewis’ 2014 book “Flash Boys” even caused an investigation after the publication.
Lewis’ books are quite easy to read for an outsider, for someone who has never worked on Wall Street, yet those books are deep and serious, perhaps that was the reason why his work was chosen as a basis for such a big movie (relatively “big”, in terms of the financial movies niche).
What is This Movie About?
The film's plot rotates around two main ideas: the 2007 housing market crash and short selling. “The Big Short” tells stories of four groups of people, strange people, who successfully predicted the crisis and the recession that followed.
Here are our main “heroes” of the story:
- Michael Burry. A weird hedge fund manager beautifully-played by Christian Bale.
- FrontPoint Partners. Eccentric Mark Baum (based on Steve Eisman, played by Steve Carell) and his strange team.
- Jared Vennett. Cool and cocky Deutsche Bank salesman nicely-played by Ryan Gosling.
- Brownfield Capital. Two young dudes Charlie and Jamie who created a successful investment firm.
The movie jumps from one team to another while the story unfolds. One by one it becomes evident for our heroes that the housing market is a bit off, but the rest of the market participants seems to be delusional, or, even worse, fraudulent.
Michael Burry figures everything out first and then he risks almost everything he has to create a new instrument that would allow him to gain profit in a case of a housing market crash and banks happily provide him such a tool. Guys at Brownfield Capital and people at FrontPoint Partners are trying to get a deeper understanding of the real market situation, but Jared Vennett is already convinced that everything is rigged and that the collapse is inevitable, he is the one who came to FrontPoint Partners to propose a deal.
All of the people in the story found out about the alleged bubble on the housing market almost randomly thanks to Michael Burry who started to walk around the town to make huge deals with banks where he bet against the market.
In the end, all of them get rewarded for being able to spot the opportunity early, but the overall situation doesn't look bright as the financial crisis spreading to Europe and then Asia and the whole world's economy is collapsing.
2007 Housing Market Crash
The creators of “The Big Short” dedicated a large portion of the movie on explaining the nature of the subprime mortgage crisis in the United States, however, it still remains unclear to some people.
We'll attempt to explain what happened back then in simplistic terms one more time.
Everyone knows what a mortgage is, a loan given by a bank or another credit organization to purchase a property. Mortgages exist in almost all countries and everywhere they work similarly. As any other type of a loan, a mortgage has an interest rate (a low rate in developed countries and higher rates in others), a mortgage has to be approved by a lender (to make sure that the borrower has and will have enough funds to pay it for a long period of time) and, presumably, the value of the real estate supposed to go up in the future. This last point is a controversial one that many people miss, but both the lender and the borrower would want to have a valuable property at the end of the deal, wouldn't they?
Plus, the area where the property is purchased should have jobs so the borrowers would be able to earn money to pay the debt.
➤ Read also: Real Estate Investing
With all these points in mind and some other important factors about the housing market, we can start to understand what went wrong in America in 2007.
We can clearly see all the issues in the movie:
- Realtors don't check borrowers properly, they even offer a “Ninja Loan” (no job, no income).
- The value of the real estate can't go up forever, there seems to be a bubble.
- Credit agencies, including the major ones, are not evaluating certain investing instruments at their real value.
- The instrument “to play short” (to sell) doesn't even exist yet on this market, it has to be created.
- No one believes that the housing market can go down, it's rock-solid, as some movie characters express it.
- No one checks what exactly is inside every traded investment product (mortgage-backed securities) that represent mortgages.
Those are just some issues our heroes dug up during their separate investigations about the problem, in reality, there were some others.
The core of the problem was that at some point very complicated mortgage-backed securities were invented that included a small portion of “bad” loans at first, but later those bad loans grew in size and got diluted even more as Collateralized Debt Obligations (CDO) got stuck together (CDO of CDOs) to complicate things. It's like hiding the dirt under the mattress: at first, it seems fine and not problematic - an easy solution to the problem, but as you keep doing so everything starts to stink.
At some point, this bubble burst and with that, the value of the property went down, millions of people lost their jobs and the market experienced a significant bear trend for a while. The housing market is not like a market of electronics or a market of corn, the housing market is huge and very important for the whole structure of the economy, its fall is painful.
There are real people behind those virtual traded securities with their real houses and lives that took a strong hit.
Also, in 2008 a huge investment bank Lehman Brothers suffered a collapse and the crisis hit many European and Asian countries as well.
Luckily, after a few years, the economy of the U.S. recovered and experienced steady growth, but many worry that such a crisis can occur again.
It's hard to say who is the main actor in the movie because the film concentrates on those four groups of people equally.
Christian Bale is a titan of Hollywood, but many know him as a strong character he was in The Dark Knight (Bruce Wayne / Batman). Here, however, he plays a very strange individual, an asocial nerd, and a genius.
In this film, Christian Bale showed a very strong performance that pulled up the whole story to the next level.
Ryan Gosling did his acting job quite well too as he played an emotional, but confident Jared Vennett.
Mark Baum is a very important and deep character in the movie who is disappointed in the whole system for a long time, so the role that Steve Carell played was quite critical. Luckily, Steve Carell performed well, however it seems that his personal motivations and the tragedy he experienced could have been unfolded in a more convincing manner, so we, viewers, would better feel his personal pain.
Two guys who played Charlie and Jamie (Finn Wittrock and John Magaro) are not very well-known, but they managed to perform well to show young and successful startup managers who used a prominent financial opportunity for their advantage.
Brad Pitt here is as good as he always is, although his role in this movie is quite small.
It's safe to say that it'd be close to impossible to gather a better team of actors for a financial film.
Budget and Box Office
A budget of $50 million can't be called a small one, but by Hollywood standards and knowing the list of starring actors this number doesn't seem to be that significant. Movies for a massive audience usually have 2x, 3x or larger budgets and this film is kind of on a periphery between the massive one and a film for a small group of people who are into finance, history, and economics.
The film has made $133.4 million which is a moderate result, it could be better and it seems to be expected to be higher by film's creators.
“The Big Short” had a noticeable marketing campaign and at the time it was soon to be released people were talking about it, however most of the people who were excited about the movie were still somehow related to finance or were fans of The Wolf of Wall Street and expected to see something like that, which could be disappointing for them because it's not as crazy and wild as that.
Why is This Film Important?
The story of the global financial crisis of 2007-2008 definitely has to be told because it seems like the general public is still unaware of what exactly happened back then, sadly, even with a great script, top actors and a decent budget, it seems that not many learned the lesson.
The creators were targeting the massive and casual audience, but the message they wanted to deliver was not as simple. It's hard to underestimate how hard it must be for them to figure out the way to tell a complicated story to an average viewer, but they believed that it has to be done one way or another just because the history has to be recorded and to show that not all people in the financial industry are bad and evil.
“The Big Short” is an important movie because it teaches valuable lessons that a person has to follow his/her guts and stay moral even in dark and controversial circumstances and that eventually, the reward for integrity will come to all who deserve it.
Criticism: “Here is Selena Gomes to Explain…”
The biggest part of the film that caused questions and complains was the decision to bring some massively popular personalities so they would speak with casual viewers in “the same language” and explain complicated things in simple terms.
They made a few scenes like that featuring singer Selena Gomez, chef Anthony Bourdain, and a pretty girl Margot Robbie.
The main problem with “Here is Selena Gomes to explain this complex economic thesis” is that Selena Gomes would be the last person on Earth who would people trust regarding their financial education. Critics pointed out that nobody, including “the general public”, would prefer to get their finance degree from hypothetical Selena Gomes's university. People want experts in the field to tell them about the field, and if someone feels that those experts are too boring, it'd be much better to try to make their delivery less boring then to replace them with Kim Kardashian or someone like that.
The authors of the film hit a woman image in general as well, as some feminist commentators mention. They could have created a strong and smart female character as one of the main heroes, instead, they brought a few hot celebrities for a few seconds.
Besides this small part, which fortunately took less than 1% of the screen time, the film is great and hard to criticize.
The Big Short is as much of a drama as it's a documentary.
If you are interested in understanding how Wall Street works and why the 2007 - 2008 Financial Crisis occurred, this is the movie for you.
If I had to rate this movie I would give it a high mark of ★ 8 / 10 ★
This movie is definitely worth watching not only for people in the financial industry but also for everyone else.