Latest post on Left Futures

Numb and number: where the Big Short falls short

big-short-the-2015-002-christian-bale-lying-on-floor-ORIGINAL

Christian Bale as perspicacious hedge-fund manager Michael Barry in The Big Short

As this goes to press, global capital markets appear to be stabilizing after another period of intense, and scary stock market volatility. This set the context for the arrival in Britain of Adam McKay’s The Big Short – a film about the American sub-prime mortgage meltdown, based on the book by Michael Lewis.

It could be argued that the movie is late, and even outdated. But it is not in fact. It ends with the systemic failure of the system in 2007-9 – a crisis that has not gone away. On the contrary, it has rolled around from the US sub-prime housing market and Wall St. and on to the Eurozone, where Greece, Cyprus and Portugal were at the eye of the storm. Today financial volatility is centered on ‘emerging’ markets and in particular, China, and has unnerved financial markets around the globe.

That the crisis is ongoing should come as no surprise. That a movie about fraudulent traders and a far-seeing hedge fund manager should still seem relevant is as it should be, because the economic model that encouraged reckless and fraudulent practices in the market of dodgy mortgages is still with us. Indeed the model remains wholly intact. Very little has been done to ‘reform’ or transform the flawed design of an economic architecture that caused destruction of value on a global scale, bankrupted thousands of companies, led to millions of job losses and lowered incomes everywhere. Indeed the model, while still fragile, is more prevalent than it was before. China for example, is the latest adopter of the western model. In January 2016 Chinese banks lent a record 2.51 trillion yuan ($385.40 billion) of new loans, surpassing expectations. Unsurprisingly, the country faces rising levels of unpayable private debts. And worldwide politicians are paying a price as popular discontent plays havoc with established parties.

Encouraged by the fact that little has changed and virtually no financier has been jailed, swaggering bankers and shadow bankers are as bumptious and arrogant as ever. HSBC’s bosses have just strong-armed (or bribed?) Britain’s elected Conservative government to capitulate to their demands. These include the retraction of fiercer regulation, and the sacking of a particularly troublesome regulator. The explanation for this ongoing arrogance is straightforward: the Wall St. and European banks that were bailed out now find themselves backed and protected by taxpayers and central bankers in the US, Germany and Japan. Today’s financial markets are no longer ‘free markets’ (if they ever were) – risky for doughty financiers. Instead these marketeers are Too Big To Fail, Bail and Jail and Too Big to Prosecute. Their losses were largely socialized in the aftermath of the crisis. Since then central bank largesse (guarantees against losses, QE and low interest rates) and political fear of another systemic crash, means that their institutions are now effectively nationalized, even while they continue to privatise gains for shareholders and executives.

I liked the movie. A lot. I laughed – a lot. I also cried inside. The film is that complicated thing, a tragi-comedy. Its co-writer and director, Adam McKay “breaks the fourth wall” of movie-making not just by allowing characters to speak to camera; not just by insisting on ‘telling’ as well as ‘showing’ (which apparently movie schools prohibit) but also by refusing to patronize his audience. Instead his film informs and explains. He makes certain the audience gets it, by using for example a Jenga tower to show how various tranches of mortgage-backed securities (MBS’s) – all held up by fraudulent rating agencies – stacked up, attracted large sums from careless investors, and then toppled.

McKay ridicules Wall St. and its friends in the economics profession. He simultaneously plays to, and then subverts the public’s obsession with celebrity, by getting Selena Gomez to explain synthetic collateralized debt obligations while famously, Margot Robbie pops up in a bubble bath to cheekily define the subprime mortgage bond market. The film mocks patently absurd (and fraudulent) stuff like “interest-only negative-amortizing adjustable-rate subprime mortgages” (i.e. interest-only mortgages very likely to be in default) and “100 percent floating-rate negative-amortizing mortgages” where borrowers can choose not to pay any interest at all – and then very likely default.

These are the ‘assets’ that Wall St. bankers salivated over before the crisis broke. Bankers – or lenders –make big money from reckless borrowers. Careful, risk-averse borrowers are simply not lucrative, and in the run-up to the crisis were best avoided. No, Wall St.’s mortgage salesmen (who feature way down the Wall St. food chain) preferred pole-dancers in dodgy strip clubs to Harvard-educated professionals. The movie’s pole-dancer (Heighlen Boyd) tells Mark Baum (Steve Carrell) that she owned five properties – all purchased on costly, borrowed money. In this respect she is indeed a lender’s wet dream. Another is the not improbable borrower that took out a mortgage in his pet dog’s name, and, while collecting rent from a tenant, defaulted on mortgage repayments – and then evicted the tenant.

Even while laughing at the absurdity of these stories and lamenting the tragedy of evicted families, I groaned at the design flaws in the architecture of the financial system that permitted such excess. Like the structural engineering design flaw that almost wiped out the skyscraper known as Citicorp Center, the economic model that underpins Wall St. excess is what makes otherwise intelligent market participants vulnerable to irrational and fraudulent conduct.

The fact is market people don’t get economics. Just as the people using, or walking under a high-rise building like Citicorp Center don’t get structural engineering. Instead market people book micro trades all and every day and constantly watch for counterparty risk. The bigger picture – the macro picture – was and is the responsibility of often negligent regulators and economists – the ‘structural engineers’ of the system.

And if I have one regret about The Big Short it is just this: while it is both hilarious and tragic watching the conduct of those rocking the Jenga Towers of a flawed and fraudulent system, they are not the finance sector’s real villains. The real villains are the architects of the system, and they are not to be found on Wall St. Instead they are located in the Ivory Towers of universities like Cambridge, Harvard and the Chicago School.

Telling their story might not be easy, but if anyone could do it, it would be Adam McKay.

This article eas first published in the BFI Sight and Sound Magazine

6 Comments

  1. I strongly recommend seeing the film – it is essential watching. The truly scary thing is that the main players in the movie – the bankers who realised that the system was about to collapse – went round telling the top bankers and no one believed them.

    My theory has long been that Thomas Kuhn’s paradigm approach to science can be applied to politics and economics. Thus a paradigm continues in defiance of evidence till there is a breakdown. The film shows the breakdown, but it was not strong enough to prevent a re-emergence of the same behaviour patterns as Ann says.

    But watch the film. This is Hollywood A listers like Brad Pitt and Christian Bale warning us lessons have not been learned. And the lessons are shown in gory detail

    trevor fisher.

  2. gerry says:

    Agreed, it’s a brilliant film, easily understandable and to the point…and in 2016,”with zombie economies the norm, and China’s so called economic miracle no more than smoke and mirrors, fake GDP numbers and a total mirage, no one can say that we were not warned about what “capitalism” has in store for us in the near future.

  3. Carol Wilcox says:

    What ‘they’ still don’t get is the role of the land market. Mortgages – and the vast majority of lending – is secured on landed property. Buildings fall down, need repair – land is different. The most valuable land is in cities and, as housing, is very lightly taxed (£1300 pa for £multi-million properties). Yet that value is not created by the owners – it’s created by local public and private investment. Collect land values for public benefit and you’ll never have another financial crisis.

    You should know, John;o)

  4. gerry says:

    Superb analysis. A brief history of the state we are in!

  5. Bazza says:

    But the left can turn things round if we work with left wing democratic socialist forces in all countries and all pursue similar things.
    State-led public investment, along with windfall taxes on big business (to get our share of the wealth back) plus democratic public ownership of some banks, rail, mail, public utilities, pharma and a global living wage, earlier retirement (and it is interesting how the Neo-Liberals want people to work longer before they retire – capital getting more over time out of working people).
    I think Wolfgang Streekt in the New Left Review summed it up well a few years ago saying QE had only bought off the financial crisis for a few years and that the rich and powerful haven’t a clue what to do.
    But we do; perhaps the answer is staring us all in the face – make solar panels for the World to harness the free energy of the sun helping the poor particularly in hot climates plus addressing climate change, make decent homes and build decent health facilities around the World etc. and in short invest in addressing global human need.
    But Labour in the UK needs to get its act together – I know Jeremy is surrounded by a majority of lumps of wood but we should be focused and try driving the agenda rather than being defensive and reactive.
    We also need to communicate simply and clearly.
    I worry about some of the middle class people around Jeremy and think we need more left wing working class voices, and we also need to think globally.
    I voted for Jeremy and want him to win but perhaps we need to think more ambitiously.
    For example Jeremy hints he may want to leave NATO but why not expand it into a global agency and invite Russia, China, N Korea, Iran etc. in and the World with no ‘enemies’ could spend money on people instead of on killing them or frightening them; of course the arms industry would take a trillion dollar hit but perhaps they could make socially useful things and things that are desperately needed.
    I would not be heartbroken if we scrapped Trident but thinking politically a 95% reduction in the UKs nuclear arsenal may help cause some international movement and reductions amongst the other 9 nuclear countries in the World (out of 187 countries).
    So we need vision and to be focused and perhaps an old saying has never been more true; act local, think global.
    I was recently trying to find a report on the recent LRC Special meeting on 20/2/16 and all I could find were reports by sectarian ‘bourgeois socialist groups’ (with their ready made programmes and banking concept of political education; all they have to do is to deposit their ready made programme into the heads of the working class/working people and then their top down elite leaders will deliver socialism FOR us when many of us believe in left wing democratic socialism WITH the working class/working people).
    So I recall what Rosa Luxemburg once wrote that the best thing we can all bring to the table is our own independent critical thinking.
    Neo-Liberalism’s greatest victory was perhaps stopping the left from dreaming and we need to think critically to turn these dreams into reality.
    Yours in solidarity!

  6. Mervyn Hyde (@mjh0421) says:

    http://www.qe4people.eu/ This is also interesting backing for Jeremy.

    Personally I would prefer to nationalise the Banks.

    Please sign up though and join the campaign, ultimately they want to stop the banks printing money into the economy as debt.

    Government can and should print money to pay for public services, job creation and green investment, that also means nationalisation.

© 2017 Left Futures | Powered by WordPress | theme originated from PrimePress by Ravi Varma