While it doesn't tell the whole story, you can learn a lot.
The film, adapted from Michael Lewis' bestselling non-fiction book, stars shows how the work of unscrupulous bankers and others in the financial services industry as well as government regulators, led to a housing bubble, its 2007 implosion, and the widespread home foreclosures that devastated the working poor and middle class. The film uses scathing wit and solid performances from its stars, Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt.
In addition to being an indictment of our political economy, The Big Short is a brilliant character-driven tale that follows a few eccentric, but smart hedge fund guys who bet against the housing bubble and made millions from the crash.
The director, Adam McKay, (Anchorman, Talladega Nights) helps us navigate the film's subject matter by breaking the "fourth wall." Gosling, playing the real life Deutsche Bank trader Greg Lippmann turns directly to the camera and speaks to us like a good teacher. At one point, he explains that Congress bailed out the banks with more than $700 billion in taxpayers' money, while only one banker, Kareem Serageldin, a senior trader at Credit Suisse who was convicted for inflating the value of mortgage bonds, has gone to jail.
The director adds a comedic twist when the beautiful actress Margo Robbie, appearing naked in a bathtub, is asked to clarify subprime loans. Cloaked in bubbles and sipping champagne, Robbie explains that subprime lending is the practice of making loans to people who are unlikely to be able to pay them back. Later Selena Gomez, at a Vegas blackjack table, describes a complex financial derivative known as a synthetic CDO. Gomez, on a winning streak, bets $10 million on her hand, which represents mortgages packed into a bond. Then two spectators make an even bigger side bet on her hand. Then two more spectators willingly make an even larger side bet on that side bet. Gomez keeps making money, just as the mortgage market was on a roll before 2008. When she loses, the scene is supposed to be a metaphor for how complex derivatives led to the housing bust.
Both scenes add to the pleasure of the film. However, the film neither clearly explains subprime mortgages and synthetic derivatives, nor put them in the context of the crash.
By the 1990s, America was experiencing a new Gilded Age. Deregulation of the financial services industry was essential to the efficient running of the free-market system. Debt was good. Greed was great. Soon subprime lenders, who for decades helped working-class families buy homes, no longer worried about affordability and engaged in high-pressure sales practices, relaxed standards, and increased fees. Salesmen began making loans that left customers owing more than the value of their house. Soon came adjustable rate mortgages (ARMs) in which interest rates soared after a few years causing a family's monthly payment to bounce 10 to 25 percent or higher.
The film overstates the complexity of the crisis by making you think it's necessary to comprehend all these complex financial instruments to understand the financial meltdown. The film also wrongly suggests that stupidity, fraud, and evil created the crisis.
They played a role, but here's the thing: Financial crises have been erupting periodically for decades, even centuries before the invention of the current complicated derivatives. Check out the conservative economist Milton Friedman's the Financial History of the US.
Widely shared speculative fantasies caused the Dutch Tulip Bubble of 1637, the savings and loan crisis of the 1980s, and the 2000 Dot.com bubble. The speculative investment obsession that housing values would keep soaring during a period of today's unregulated markets caused the subprime crisis.
When markets turn with each delusion, short-term debt leads lenders to quickly withdraw. Think of margin calls and panic selling followed by more margin calls and panic selling.
My point is that financial crises periodically erupt under unfettered capitalism and did so well before the invention of complicated derivatives. They will again.
When American values like greed take center stage, and power and wealth become concentrated in the hands of a few, and they use their power to lobby the government to deregulate the economic system, the result is always the same; bubbles, busts and suffering by ordinary Americans through no fault of their own.
The good news is that while viewers won't follow all the complicated financial shenanigans, I think after leaving the theater, they will be disgusted and pissed at Wall Street. At that's a good thing.
Atlas is working on a Sundance, Tribeca Film Institute, and PBS/ITVS supported documentary, directed by Reuben Atlas and Sam Pollard, about politics and poverty based on his book about Acorn.