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By Philip Revzin

NEW YORK, 29 DECEMBER 2015 — Yes, the story this movie tells is true. Yes, it was that bad. Yes, nobody ever went to jail. Yes, it could happen again.

The Big Short is the best evidence yet that it’s possible to tell a compelling and understandable story about mortgage bonds, short-selling, and collateral debt obligations, and that the world’s economy would have been a lot better off had more people been paying closer attention sooner.

The facts are by now familiar. Around the turn of this century, freed from Glass-Steagall restrictions on what they could do, banks and other financial institutions started selling as investments bundles of mortgages, some of which were made to borrowers with less than sterling credit (known as sub-prime), and then derivative bets on whether those investments would remain current or default (known as credit default swaps). All this financial engineering meant that banks and other institutions, - among them Lehman Brothers Holdings Inc., Bear, Stearns & Co., and giant insurer AIG - went from bedrock to basket cases seemingly overnight as the mortgage market tumbled and the economy neared collapse in the fall of 2008, seemingly under the noses of pretty much everybody.

The Big Short recounts the amazing story of a few ragtag traders who read the coming collapse early, couldn’t manage to convince anybody else, including most of the financial press, placed huge bets against the mortgage market (known as shorts), and made billions of dollars on the other side of trades that cost Wall Street similar amounts.

Scene from The Big Short
Photo: Paramount Pictures

Now, to make all this both comprehensible and entertaining it helps to have an ensemble cast including Steve Carrell, Christian Bale, Brad Pitt, and Ryan Gosling, directed by Adam McKay of Anchorman fame, from an underlying book by Michael Lewis. The crew is supplemented by hilarious and instructive cameos by Margot Robbie in a bubble bath explaining mortgage backed securities, Anthony Bourdain likening collateralized debt obligations to fish stew with three-day-old ingredients, and Selena Gomez at a Vegas blackjack table talking about synthetic CDOs. I would imagine this movie sets the record for the number of times the words "collateralized debt obligations" and "credit default swaps" have been uttered from the big screen.

Carell is wonderful as the somewhat rough-edged New York trader Mark Baum (based on the real-life Steve Eisman in the book), as is Bale as Dr. Michael Burry, the head of California-based Scion Capital. John Magaro and Finn Wittrock play small-time fund managers operating from their garage who can’t even get past the lobby of Deutsche Bank, but wind up on the right side of the big short. Pitt plays a reclusive ex-banker who provides key backing. Gosling, who plays the slick trader called Jared Vennett in the movie and is loosely based on Greg Lippmann in the book, serves as narrator, occasionally telling us: Yep, that happened just like this, or we changed this a little bit.

Scene from The Big Short
Photo: Paramount Pictures

There are wonderful set pieces, including our heroes mingling with odious banker types at a Las Vegas convention, Carell speaking truth at a conference to a Wall Street banker who is still bullish on Bear, Stearns, literally as the stock falls out of bed (that really happened to Eisman), and Carell and crew taking the trouble to actually visit a Florida housing development that figures in a mortgage bundle, where they see abandoned houses and a renting family about to lose their home, which convinces them their short bet is right.

Gosling and the other characters also every once in a while exclaim that what they’re seeing has got to be illegal, fraud, or just plain theft. Is it stupidity or fraud, somebody asks Gosling. "If stupidity was illegal, they would arrest my brother-in-law," he replies.

But yeah, it’s fraud, although nobody except a relatively minor player ever went to jail for it. That’s the whole point of the movie: to get us mad about this and to open our eyes. As the movie says at the end, and as my former Bloomberg News colleagues and others have been writing about for some time, fancy financial derivatives are making a comeback, based on shaky auto loans and mortgages and other stuff, and it’s no more regulated now than it was back then.
Given the crystal clear and accessible explanation of the crisis offered by The Big Short, let’s not do it again, okay?

Philip Revzin is an award winning journalist and former editor-at-large for Bloomberg News. Previously, he was a long-time reporter, editor and publisher for The Wall Street Journal Europe in London, Paris and Brussels. Later, Mr. Revzin was named publisher and editor of the Far Eastern Economic Review and the publisher for The Wall Street Journal Asia in Hong Kong. He last wrote on the film 'Spotlight' for Culturekiosque.

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