The Big Short, directed by Adam McKay and based on Michael Lewis’s bestselling book, is a film that depicts one of the most catastrophic events in the history of the economy through an accessible, yet hard-hitting story. The well-known film stands out in its ability to unravel the mechanics behind the housing market collapse in an engaging manner. But how well does the film capture the true essence of the economics behind the crisis? And is it successful in presenting the key elements of financial markets in a way that makes sense for viewers?
A Tale of Greed and Ignorance
The movie revolves around a handful of outsiders who “bet” against the U.S. housing market, predicting that its instability and overexpansion would lead to its eventual collapse. Christian Bale, Steve Carell, Ryan Gosling, and Brad Pitt play the roles of financial analysts and fund managers who discover a fundamental flaw in the system—a housing bubble caused by risky, low-quality loans and bad, corrupted financial practices.
While the narrative of the story mainly revolves around each group of characters’ investment and journey, the broader historical background and economic themes delve into systematic greed, unregulated financial institutions, and a market prioritizing short-term gains over long-term stability. In doing so, the movie touches on the notion of the subprime mortgage bubble. The word subprime indicates that the mortgage loans issued are below the ideal, “prime” conditions, signaling that those loans are granted at higher yearly rates to conventionally less desired borrowers with low credit ratings.
Oftentimes, these loans were packaged together in bundles called mortgage-backed securities, or simply MBS, which were later sold to investors as safe, AAA-rated products. As the film reveals, many of these products were far from the ratings they received from agencies, failing when the housing market crashed. This setting is intended to highlight the dangers of excessive risk-taking and the blind faith placed in markets to self-regulate.
Economic Themes in Focus
From an economic standpoint, The Big Short touches on several key concepts that played a crucial role in the 2008 crisis. The issue of the mispricing of risk that came with another highly-problematic financial instrument—collateralized debt obligation (CDO)—which, similar to but slightly different from MBS, bundles different types of supposedly safer bonds with mortgages. With the highly complex nature of the product, it was extremely difficult for even skilled investors to properly understand and assess its true value, allowing banks to sell these volatile assets as secure investments.
The movie also discusses the incentives that made such risky economic behavior so prevalent. Real estate agents, mortgage brokers, and bankers were all incentivized to push as many loans as possible, regardless of whether the borrowers could repay them. This led to the infamous “ninja loans”—loans granted to people with no income, no job, and no assets—the concept referred to during the meeting with mortgage brokers in Florida.
As an example, the movie depicts the story of a dancer in Florida, who mentions—after her discussions with Mark Baum—that she owns five houses as well as a condo unit, revealing the ease in getting loans without much financial credentials to be proven. And ultimately the movie attempts to emphasize one of the fundamental economic principles: when incentives are misaligned, the market becomes distorted, often with disastrous consequences.
Furthermore, The Big Short sheds light upon the failure of regulatory institutions like the Securities and Exchange Commission (SEC) in terms of their responsibility to check on the financial industry. During Jamie’s encounter with his brother’s ex-girlfriend who works for the SEC, she explains that the Commission does not investigate mortgage bonds due to a budget cut.
Whether this statement is completely fact-based or not, it provides an insight into the regulatory environment behind the 2008 financial crisis. The SEC was criticized for its lack of oversight, specifically regarding certain instruments such as mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), which together played a central role in the collapse.
Unfortunately, private rating agencies such as were no different in regard to this issue. For example, the agencies responsible for rating financial products—such as Moody’s and Standard & Poor’s—continued to grant high, satisfactory ratings to unsafe assets because their profits depended on maintaining good relationships with the banks that paid fees to them, as mentioned in the film. This conflict of interest is a critique of how greedy, unchecked capitalism can cause grave corruption in the economic and financial system.
Breaking Down the Complex
It is quite incredible to see how the film simplifies the complexities of the financial world for a general audience. It uses creative methods, such as having Margot Robbie explain mortgage-backed securities while resting in a bathtub, or Anthony Bourdain using a cooking metaphor to describe how CDOs work. These scenes serve as a means to communicate key economic concepts discussed in the plot to the audience, ensuring that the viewers are not overwhelmed by financial jargon.
The admirable blend of humor and education is one of the film’s most successful elements. Economics might feel dry and inaccessible to certain members of our society. However, The Big Short does extremely well in terms of both entertainment and information. Maintaining the economic lessons enjoyable without undermining their importance or accuracy, the film is also intended to provoke outrage for the audience, with the realization that the very institutions we trust with our money were gambling with our futures—and profiting while doing so.
A Call for Accountability
Ultimately, The Big Short is a moral tale of the twenty-first century. By the film’s conclusion, it is unfortunate yet apparent that the financial world has learned very little from the crisis. While some individual bankers and financiers in New York made millions from this historical event, countless ordinary people all over the world lost their homes, their jobs, and their hopes for a brighter future. This critique is the film’s most significant contribution. Through such an engaging and easily understandable story, The Big Short successfully brings viewers’ attention to the uncomfortable truths about capitalism, regulation, and human nature, reminding them that the mistake will be repeated, in the absence of accountability.
Critical Reception
Despite the aforementioned positive aspects of the film, some economists argue that the film simplifies the narrative too much—placing most of the blame on some greedy bankers and corrupted rating agencies without presenting the big picture. As a result, the film fails to acknowledge the systemic issues behind the crisis. The focus is on the symptoms of the problem—such as the risky mortgage-backed securities—rather than the underlying causes, such as the political and social push for deregulation. In the end, we have a movie with a limited point of view, focused on individual greed, rather than the structural flaws that made the crisis inevitable.
Conclusion
The Big Short itself is an extraordinary piece. The film successfully illustrates the human cost of the financial crisis, criticizing both the greed and the regulatory failures that allowed it to happen. Despite the failure to cast a full economic analysis of the crisis, its call for accountability and transparency in finance remains relevant and critical, making The Big Short a must-watch for anyone seeking to understand the dark side of modern capitalism.
By: Seokwon Jeon
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