The Big Short Somehow Makes Subprime Mortgages Entertaining
Nothing about The Big Short should add up. It’s a movie about the subprime mortgage crisis of 2008, by the guy who made Anchorman. Yet, it works—and even more weirdly, you walk out understanding the fineries of the situation that kicked off the great recession.
That’s because director Adam McKay, who adapted his movie from Michael Lewis’s book of same name, realized that the economic meltdown happened because people thought they couldn’t understand something they easily could have grokked. “Economics is actually fascinating, it’s the language of power—but somehow we’ve been conditioned to treat it like it’s boring,” McKay says. “I figure if I’m getting into it, and I’m the guy who did Step Brothers, what’s going on here?”
Of course, to understand how a bunch of Wall Street whizzes—Michael Burry (Christian Bale), Mark Baum (Steve Carell), Jared Vennett (Ryan Gosling), and their cohorts—found a way to bet against the American economy, you still have to understand how that economy functions (or doesn’t). To do that, McKay broke a lot of rules, like letting actors address the camera directly—and trusting people to understand things that are explained to them, the way adults are supposed to be able to. “He treats his audience as intelligent,” says Lewis. “Nobody ever goes out and treats their audience as idiots, but when they do it they do it implicitly by refusing to grapple with complicated truths.”
McKay also wrapped those truths in easy-to-swallow packages through interludes presented by folks like Selena Gomez and Anthony Bourdain. The point is to take the things that were distracting us while the financial world was collapsing and use them to tell us what was actually going on. “The premise was that we were going to take this 24-hour pop-culture machine that tells us what Kim Kardashian is up to, and then say, ‘What if that machine told us real information?’” McKay says.
With the movie hitting theaters this Friday, here’s a peek into The Big Short’s best educational moments.
Margot Robbie Explaining Mortgage Bonds in a Bathtub
How Big Short Breaks It Down: So the main thing that lead to the 2008 collapse was the creation and exploitation of mortgage bonds. McKay enlisted Margot Robbie (soon to be Harley Quinn in Suicide Squad) to explain it. In a bathtub. The bonds, as she notes, were good assets for banks in the beginning because they were full of mortgages, which pretty much everyone pays back. However, because there are only so many good home loans to be had out there, banks—still looking to make a buck on the bonds—started filling them with riskier (sub-prime) mortgages (“think ‘shit,’” Robbie says). So to make money once those mortgages began to default, guys like Burry, Baum, and Vennett started to “short” the bonds, “which means to bet against [them],” Robbie notes in the interlude. (They shorted them using what are known as credit default swaps.)
Using Robbie to explain mortgage bonds is a smart move considering she was in The Wolf of Wall Street, but McKay says that connection is mostly “accidental.” Instead, he just wanted an actress who would be able to hold the audience’s attention, and also embody the kind of person that audience was busy focusing on as the nation’s economy was crumbling. “For the Woman in the Bathtub, we didn’t just want a vixen,” he says. “We wanted someone who was actually a good actress, and who was hip.”
Anthony Bourdain Explaining CDOs With Seafood
How Big Short Breaks It Down: A collateralized debt obligation (CDO) collects assets like mortgages and bonds (see above) in a package that is sold to investors. As Anthony Bourdain explains it, CDOs are like stews chefs make with seafood they don’t sell the day before. “It’s not old fish,” he says wryly. “It’s a whole new thing.”
Bourdain was the obvious choice to explain CDOs, McKay says, because that’s exactly where the director got the seafood stew metaphor—the celebrity chef’s book Kitchen Confidential. “He’s got a punk-rock background,” McKay says. “He knew that the banks had really screwed over a lot of people and he was happy to do it.”
Selena Gomez and Richard Thaler Explaining Synthetic CDOs With Blackjack
How Big Short Breaks It Down: The CDOs that Bourdain describes above weren’t that bad at first. They got worse, though, when they started spawning “synthetic” CDOs. In The Big Short’s blackjack metaphor—as explained in a casino by pop star Selena Gomez and behavioral economics professor Richard Thaler—they look like a pretty good bet. And because they were successful for a time, people thought they would continue to be.
Believing CDOs were a sure thing, banks started making secondary CDOs, which took parts of other CDOs to create a new ones. (If you’re keeping track, yes, that’s turning the already-cobbled-together CDOs into a sort of meta, Frankenstein’s-monster version of a CDO. One of the characters refers to it as a “CDO squared.”) Then investment firms started making synthetic CDOs—basically insurance, in the form of credit default swaps, that would payout in the event people defaulted on the loans in the CDOs, which no one thought would happen. Thaler attributes this to the “hot hand fallacy,” which is basically what happens when basketball fans watch Steph Curry hit a string of three-pointers and become convinced he can’t miss. Synthetic CDOs were just bets that Curry would make that next three, and then side-bets on whether that person would win that bet, and so on.
The thing is, every hot streak—whether in basketball or blackjack—eventually turns cold. So once people started defaulting on the mortgages they couldn’t afford to begin with, the CDO house of cards collapsed.
It’s nice to hear all this from Thaler, given that he’s the only actual expert who appears in one of the educational interludes, but the way Gomez buttresses his comments is the true surprise: as she unpacks the nuances of synthetic CDOs while playing blackjack, she’s more like a charming professor than a pop queen. “I wanted someone who would get it, not just someone who would come in and read the lines,” McKay says. “And she got it. I’d heard from people that she was really cool. Sure enough, she was.”