Show of hands: who understands what happened to cause the financial crisis of 2007-2008 and the subsequent global recession? Okay, now all the liars that have their hands up – do you think you could explain it to a standard movie audience, while still telling an engaging, cinematic story? Well, Adam McKay, famous for creating the Funny or Die website and directing comedies like Anchorman and Step Brothers, has succeeded in this endeavor. McKay’s ridiculous stylistic choices help portray the absurdity of the entire financial system, and instill a sense of incredulity in the audience. As a result, he has crafted a wonderful and funny film with full character arcs, rousing thematic statements, and eye-opening revelations about the world we live in.
The stylistic weirdness of the film is evident almost instantly. The three acts are roughly demarcated with quotations which appear on screen, and we are treated to a fourth-wall breaking first-person narration from one of the more braggadocious characters within the first minute of the film, despite having no idea who he is (we’ll meet him shortly, he promises). Furthermore, the film takes time to literally pause the proceedings and explain the most important financial concepts in ridiculous ways. For example, in order to help the audience understand exactly what is meant by “subprime” loans, the film cuts to Margot Robbie drinking champagne in a bubble bath. She bluntly defines the concept, and the succinctly concludes: when you hear “subprime” think “shit”. With this technique, McKay is able to accomplish two feats simultaneously: 1.) teach the audience what they need to know in order to follow the plot, and 2.) establish the stupidity of the behind-the-scenes dealings by describing them in such a tongue-and-cheek manner. With these helpful checkpoints, we’re ready to jump in.
The Big Short is based on the 2010 book of the same name written by Michael Lewis. It focuses on three different stories surrounding the subprime housing markets and how the over-evaluation of these markets led to the financial crisis. The first of these stories features Michael Burry (Christian Bale), the founder of a hedge fund called Scion Capital. Burry is an ex-neurologist who left medicine to pursue investing full-time. In 2005, he began to focus on the subprime housing market and discovered an opportunity to short the entire market, which he believed was one gigantic bubble. (“Shorting” an investment pays off if the investment goes down in value, but loses money if the investment improves in value). Much of the market was propped up by loans with a variable interest rate, and he reasoned that when the higher rate was realized in Q2 of 2007, the default rate on these loans would skyrocket and compromise the whole housing market (spoiler alert: this is what happened, basically). Burry went to the big banks and essentially asked them to create a Credit Default Swap (CDS) market on these products. Essentially, this boils down to: if the loans do not default, Burry pays the banks a quarterly fee; if the loans do default, he gets a huge payday. Since these types of loans hadn’t defaulted since the 1930s, banks were quick to lap up Burry’s offer.
A professional trader named Jared Vennett (Ryan Gosling – our narrator!) hears of Burry’s activity from a fellow trader and investigates the market himself and comes to the same conclusions as Burry. He discovers that groups of poorly-performing subprime loans are packaged together with higher-graded loans into collateralized debt obligations (CDOs). Since these products appear highly diverse, they are instantly given AAA ratings, despite the fact that they contain many far-riskier loans. He begins buying his own CDSs betting against the CDOs, but has to look for partners because most of his coworkers believe he is being a fool. A wayward phone call to a hedge fund managed by Mark Baum (Steve Carell) gets Vennett in the door, and he presents a Jenga-inspired argument for why these CDSs are guaranteed to fail, complete with many nods to the camera. Baum, a crusader against corrupt systems, is inclined to profit from the stupidity of the big banks, and upon sufficient investigation, he invests money from his fund with Vennett. This group’s investment gets even crazier when they discover the existence of so-called “Synthetic CDOs”, which are an even crazier product created by re-packaging the already re-packaged CDOs. Selena Gomez helps explain, thankfully.
Our last players are more small-fry, but still crucial. Charlie Geller (John Magaro) and Jamie Shipley (Finn Wittrock) manage a start-up fund with an initial investment of only $110,000. Though they have been quite successful growing this fund, they are small players and so do not have the required accreditation to trade with the big boys. Regardless, they discover Jared Vennett’s material on the CDSs (and then instantly talk to camera to explain that this is artistic license – they didn’t actually just find the material in the waiting room of a big bank; in real life they had various discussions with involved players). Unsure of exactly what they have, they enlist the help of retired banker Ben Rickert (Brad Pitt) to look over the data and get them the necessary credentials to actually perform the trades. Eventually, they decide to target a different portion of the CDOs, going after one specific layer – the AA rated loans. They reason that if the lower layers of the CDOs default, then the whole thing may collapse, including the presumably safe AA loans. This has the added benefit (for them, at least) of offering much larger returns on account of the risk associated with the AA loans defaulting.
Jesus Christ, that sounds complicated!
But, it never is. McKay establishes the perfect tone for this film in the first five minutes, and stays true throughout the film. The pacing is precise, never bogging down in number crunching or long stretches of dour discussions. There’s a lightness on the surface of all proceedings as people joke and insult each other, but the film is careful to keep the dismal consequences of the financial collapse in the viewer’s mind. One particularly affecting scene occurs just after Charlie and Jamie successfully purchase their AA CDss, which will offer huge payoffs if they are correct. They start celebrating and dancing until Ben scolds them: if this actually happens, it means total financial collapse; it means people losing money, homes, and jobs. It means people dying. So don’t fucking dance.
Eventually, the strings start to unravel and the system can even keep itself afloat through pure fraud. The big banks start declaring bankruptcy, and our protagonists have to scramble to collect their investments, as many of them were on the books of some of these same banks. The film culminates by remarking that at least many of these bankers went to jail, reforms of the system were implemented, and the economy recovered. Oh wait, none of that. “The people” bailed out the big banks, and much of what happened then is still happening now.
The Big Short succeeds despite lofty aspirations given the complexity of its source material, and always feels surprising and funny with some genuine heart thrown in, to boot. The cast is astounding and the story gripping. And by bringing it all together, Adam McKay has shown that his talent is not relegated to the realm of slapstick. This is a great film, and will remain sadly relevant far into the future.