The Big Short

We all know about the collapse of the housing bubble in 2007-2008. We know basically what caused it, or we think we do. But getting into the details is tricky, because it's complicated, and trying to explain it in simpler terms feels like...we're being talked down to; patronized.
“The Big Short” is unafraid to do just that. As in having Margot Robbie, a beautiful actress and model, explain things to us while sitting in a bubble bath drinking champagne. Or having Selena Gomez, a pop music star, explain things to us while sitting at a blackjack table, and making analogies involving her betting on the hand. But the analogies are effective. The characters also stop in mid-sentence and address the camera, which really disrupts the whole “suspension of disbelief” dynamic, but we're not talking about an ordinary movie here. This is really a little economics lesson set in very recent history. The moral? The big boys make millions, the little people get thrown out of their homes.
Pretty cynical, right? Yeah, the whole thing floats on an ocean of cynicism. But what they're saying needs to be heard, even if swathed in scatology.
The story is told from the point of view of the few people who actually figured out in advance that the collapse was going to happen. Christian Bale plays Michael Burry, a hedge fund investor who did the math, and actually figured out that the banks were combining sub-prime mortgages, and bundling them with prime, “safer” mortgages, and selling the whole package to other banks as if they were all prime. This happened because investment houses made a higher commission off the sub-primes, and everybody just assumed that the whole housing market couldn't collapse. But the sub-primes were bound to collapse, when people who were poor risks in the first place were unable to pay their mortgage, and foreclosure was inevitable. And when that happened, the bundles were at risk of default, as well, sending the investment houses into panic, as well as the banks that guaranteed the loans.
Steve Carrell plays Mark Baum, the head of an investment team at Morgan Stanley, and he saw it coming, too, and did the same thing Michael Burry did: sold short, that is, bought financial instruments betting that the collapse would happen, and making money when it did. There's also a small “garage band” hedge fund headed up by two very young guys who also did their homework and saw this coming, and got an assist from a former Wall Streeter (played by Brad Pitt) in order to sell short, also, this time involving European banks, as well.
As we know, the economic setback in the United States affected the rest of the world's economy, as well. The huge international banks were considered “too big to fail”, and our government bailed them out---money which the big boys used to give themselves bonuses, while 6 million Americans lost their homes, and many more had to declare bankruptcy, and many more lost their jobs. Some of those folks never did find comparable work, because in the “new economy” it doesn't exist.
The harrowing part is that it could happen again. What's to guarantee it won't?

Questions For Discussion:
  1. Do know someone who defaulted on a mortgage? What was the aftermath?
  2. Which businesses, do you think, should be considered “too big to fail”?
  3. Yes, there are certain safeguards in place: Fannie Mae, credit ratings companies, the SEC. But who oversees the overseers?

Dr. Ronald P. Salfen is the Supply Pastor, First Presbyterian Church, Mabank, Texas