The year 2008. Our small, niche ad agency is barely into its first financial quarter, and our biggest and most loyal client of over two decades sent us a mail cancelling all the ads committed for the rest of the year. We said we had already made bookings. Never mind, we will pay the cancellation charges, was the reply. We didn’t know what hit us. We thought we have been through ups and downs and we will weather this one. We tightened our girdles and went about looking for new clients. Forget new clients, even our old clients in the IT sector started cutting down on their recruitment ads, which were our bread and butter those days. And so it went on for 3 years in the face of our indomitable optimism, forcing us to close the agency eventually in 2011.
We did not know it at first, but eventually we learnt that our misfortunes, and similar or worse misfortune of millions of others, were caused by the housing market crash in the USA. Now comes a brilliant film directed by Adam McKay based on the best-selling non-fiction book by Michael Lewis to help us make sense of what really happened.
So let us start from the start. In the beginning there were mortgages. Boring. Low-yield. Low risk. Then someone created an instrument called Mortgaged Backed Securities and started selling them. The yields were much higher but the risk was still low, because as the sutradhar of the film, Jared Vennet (played by Ryan Gosling) says, who doesn’t pay one’s mortgage? There was no shortage of buyers and the money just started pouring in. ‘That’s when the bankers moved from country clubs to strip clubs.’ Then we hit something called Subprime Loans. No, this time we do not hear it from the sutradhar. Instead it is the lovely Margot Robbie in a bubble bath with a wine glass in hand who explains it to us: To keep the wheel rolling and the money flowing one needs more mortgages. But there are only so many buyers. So they started giving loans without income or job verifications. Therese were known as Sub-prime Loans. “ In other words when you think Sub-prime, think shit’, she concludes. There are more alphabet soups, more acronyms to be explained – CDO, ISDA … and so on. We have the celebrity chef …explaining CDO to us (it is something like his fish stew) and Selena Gomez along with Richard Thaler, Father of the Behavourial Economics explaining Synthetic CDO in a casino in Las Vegas. We have texts on the screen. We have characters talking to the camera. There are hip-hop dancers. In other words, it is anything but boring. It is a dizzying ride where, as one reviewer put it, “the performances, the script and the camera itself seem to be running on a cocktail of Red Bull, Adderall and mescaline”. And I haven’t even come to the crackling and compelling narrative itself that propels the films along.
And for that we have to meet the shoeless, air-drumming, death-metal-fan, doctor-turned-money manager named Michael Burry played by Christian Bale, who does ‘not know how to be sarcastic, doesn’t know how to be funny, doesn’t know how to work people; but only knows how to read numbers’. He asks a potential recruit, ‘Do you think it is odd that when the dotcom bust happened in 2001, the home market in Silicon Valley, the tech capital world was actually going up?. And then he asks the young man to get him all the mortgages of the top 20 mortgage funds. ‘You want me to get the names of the top 20 mortgage funds?” ‘No, I want the details of all the mortgages of the top 20 mortgage funds’. ‘Do you know each of these funds deal with thousands of mortgages?’ ‘Yeah,’ says Burry with an animal chuckle which only Christian Bale can come up with. So Murry looks at the numbers and sees defaults galore and knows the bubble is going to burst soon. So he goes to one of the biggest banks and goes ‘short’, or he bets against the housing market, making them create an instrument called Credit Default Swaps. The female executive at the bank incredulously asks, “Are you for real” But she also adds, “This is Wall Street and we will take the money if someone offers it.” They create the instrument (Credit Default Swap) which did not exist and agree to accept a swap of 5 million. “Can you make it 100 million?” Burry sheepishly asks. The secret of his confidence? He looked, while the rest of them – the bankers, the rating agencies, the government regulators – were sleeping at the wheel.
Burry’s investments come to Vennett’s attention and he brings this financial opportunity to the attention of Mark Baum (Steve Carell) in a presentation with Jenga blocks that demonstrates the inevitability of the crash with chilling simplicity. And there are the two young indie upstarts who wants to play at the big table and stumble upon Burry’s write-up on his investment strategy while in New York. Retired Wall Street trader Ben Rickert (Brad Pitt) helps the kids do it, but it is he who points out at the cost their winning the bet against the housing bonds was exacting: Millions will lose their homes, millions will lose their jobs, and millions will have their savings evaporate.
The crash takes sometime in coming because the whole system is rigged and a giant fraud is being pulled off. But it does happen as it was bound to and it takes the biggest of them like the Lehman Brothers down. So the victory that Burry and Baum achieve cannot leave a great taste in the mouth.
And what about we the audience? If we have any sense of justice and fair play we should feel an uncontrollable outrage which should want us to go out and smash something. Because after a fraud and dereliction of duty at this scale, only one man went to jail, and the banks were bailed out with taxpayers’ money.
Things that we have seen roll in our head. When Baum confronts the Standard and Poor executive with the question, “Have you ever refused to give a bank a Triple A rating that they asked for a particular CDO ?” she replies , “If we do not give them they will go to Moody’s across the street.” We have seen young bank executives sanction NINJA (No Income No Jobs) loans over a weekend because of the obscene bonuses they earn. We have seen a stripper with loans for five homes, hoping to service them by selling the properties when the prices go up.
So is there any hope for capitalism? Not if you see the lessons learnt or not learnt almost 8 years after the worst financial crisis to hit the world. Has anything changed? Is there any guarantee that won’t happen again? And the culprits responsible won’t go scot free? Not if you have heard the rant of Goldman Sachs CEO against Bernie Sanders. As Elizabeth Warren put it, ““When Blankfein says that criticizing those who break the rules is dangerous to the economy, then he’s just repeating another variation of ‘too big to fail,’ ‘too big to jail,’ ‘too big even to prosecute,’” she said.
So what should you should really try to smash if you feel the outrage that I felt after seeing the film? Maybe the system .
- A Real Scarefest