ClandesTime 174 – The Big Short vs Margin Call
The 2008 Wall Street crash has inspired little more than a staccato response from Hollywood, with very few films taking the subject seriously. In this episode I examine and review two of the more prominent movies that cover this topic – The Big Short and Margin Call. I critique the films and their statements about the crash, in particular who or what they blame for what became a worldwide economic slump. I also offer my own thoughts on where the blame lies, and present a few suggestions for what could be done to prevent it happening again.
The financial crash of the 2000s resulted in the greatest economic disruption since the 1930s – a situation from which we still haven’t recovered. So far, nothing has been done to prevent a repeat performance. This is as important as pretty much anything else in the world, with the exception of the possibilities of nuclear war and large-scale, rapid climate change. Those two scenarios could wipe out the human race, and take much of the rest of life on earth with it. For all I loathe the financial system, at least it can’t and won’t do that.
Nonetheless I consider a true economic collapse to be third in the list of possible crises, and for various reasons I think it is somewhat more likely than nuclear war. I am certainly not the only person who thinks like this – I think a majority of people at the least have a nagging doubt in the back of their mind that things are going to be OK. There is a growing sense that our world system is spiralling out of control and that there is no simple or straightforward fix.
It is totally unsurprising that Hollywood has almost entirely failed to address any of these looming crises. Terminator 3 abandoned the notion that there is no fate but what we make for ourselves – the idea we can prevent all out nuclear war – in favour of grim inevitability. Apart from The Day After Tomorrow – a shallow and hyperbolic film at best – there basically are no films about climate change. There are plenty that incorporate a bit of lip service, throwing in dialogue references to our wanton pollution of the planet we depend on to survive, but none that broach the topic in a serious or mature manner.
When it comes to the financial crisis and economic collapse of the 2000s there are a few movies, so today we’re going to compare and contrast two of them: The Big Short and Margin Call. We’ll start with The Big Short.
For those of you who haven’t seen it, The Big Short is a 2015 comedy-drama-biographical movie adapted from a book about the crisis. I have very mixed feelings about the film. I think it’s very well written and directed, the acting is mostly very good too – I especially like Steve Carell, whose performance more than makes up for the presence of Christian Bale. On the other hand, I found the movie to be smug, patronising and overly stylized.
Briefly, it tells the story of three different groups of people at three different investment funds who figured out that the sub-prime mortgage-backed securities market was destined to fail, and bet against it ahead of time. All of them are based on real people and real events. And if that’s all the film set out to do then I’d probably be praising it very highly for telling a story that needed to be told, and doing so in a witty, engaging way.
The problem arises from the fact that the film was trying to do more than that. Basically, it set out to tell its audience how fucking stupid they are for not already understanding all this, when I’m not sure where they were supposed to have learned about it. At several points in the film, high profile celebrities break the fourth wall and speak direct to camera, explaining various aspects of the financial system. Margot Robbie explains what a mortgage-backed security is. Selena Gomez explains how derivatives of mortgage-backed securities work. Anthony Bourdain says something about fish that’s supposed to explain how these securities mix strong, stable mortgages with weak, worthless sub-prime crap and this destabilises the entire security and thus the entire market for these securities.
Again, I’d be ok with all this if the film didn’t have a better way to accomplish the same thing, but it does. The way The Big Short tells it, one fund manager figured this out and started betting against the mortgage-backed securities market and the US housing market, buying over a billion dollars in credit default swaps which would become much more valuable if and when the securities failed. Word of this gets out, so another fund manager started doing the same thing, and trying to sell credit default swaps to his customers, and this is how our third group of parasitic capitalists get involved.
As a result we have the classic fish out of water where the third group go in to see the second guy, and he explains everything to them. This is a time-honoured storytelling technique whereby you need the audience to know something, so you have one character explain it to another. But either the writer/director had so little faith in the audience actually following all this, or so little faith in his own ability to make them understand it, that he said ‘fuck it, let’s just get Selena Gomez to do it’.
But this is not only extremely condescending and an implicit admission of artistic failure, it’s also self-defeating. The sort of people who are likely to go and see a film about the financial crash of 2007-2008 probably already know that a mortgage-backed security is essentially hundreds or thousands of mortgages bundled together. And that you can bet on the value of that security to go up or down in the future, and that people can bet on the value of that bet. And if they didn’t, it wouldn’t take much more time to explain it to them than it just took me, someone with precisely no formal education in economics.
So what’s the purpose of these little sequences? It’s to make the audience feel like they are the smart ones, they are the ones who aren’t so distracted by soap operas and sports that they just don’t get it. When in reality, none of them saw it coming either.
Indeed, if you wanted to tell a story about how Americans were so engrossed in The X-Factor and Paris Hilton (remember her?) that they didn’t care about a looming economic crisis that would make millions of them lose their jobs and homes, then just tell it. Here’s an idea – centre the story on a family who are directly affected by the crash, and maybe even generate some sympathy and compassion for them. Rather than smugly depict them as being so stupid that they probably deserved it. And then profit from doing so.
Because – and here’s the ugly truth no reviewer of The Big Short wanted to admit – the director of this film reinforced the very system of distraction in not only making this film, but making it in the way he did. By telling people that the only way to get them to care about the economy is to have Selena Gomez explain it to them, the film acts as a self-fulfilling prophecy.
But aside from the film’s smug, self-superior position on its subject and its audience, it is still quite a strong, provocative movie. What’s particularly effective is when the characters go to the securities convention in Las Vegas, to see first hand how stupid the people they’re betting against truly are. Stupid is a word that comes up a lot in this movie – the people borrowing the money they can’t pay back are stupid, the mortgage brokers giving loans to people with no income are stupid, the banks combining those mortgages into securities are stupid, the banks buying those securities are stupid, the people betting that the securities will never fail or drop significantly in value are stupid.
And, with some caveats about the word ‘stupid’, The Big Short is right. A lot of stupid decisions were made, by a lot of people.
As the film goes on it starts to discuss the system – the ratings agencies, the analysts who should have noticed the problem, the financial press – and how corrupt and fraudulent they are. Again, the film is right, the system is incredibly corrupt and fraudulent but as long as everyone gets paid, no one cares.
This gets into a question I’ll explore more when discussing Margin Call – what caused the crash? The mechanism is clear – the banks stuck crap mortgages in with good ones and acted as if the resulting bond was a sure thing, a safe bet. In reality it didn’t matter if 90% of people kept paying the good mortgages, it only took a few percent of people not paying the bad mortgages to take down the entire bond. Times that by hundreds and thousands of bonds and suddenly you’ve got trillions of dollars at stake.
But whether it was stupidity or greed or corruption or systemic failure or a conspiracy or some other version of human behaviour is a matter of considerable dispute and disagreement. For most of The Big Short they blame stupidity, then fraud. And from the perspectives of the characters, that makes a lot of sense given what they’re seeing. It’s particularly funny when the mortgages start to fail – defaults go through the roof – but the bonds based on those same mortgages go up in price. For a while in 2007 (popularly referred to as the ‘credit crunch’) this is exactly what was happening.
However, right at the end of the film there’s an about-face. The one trader, Mark Baum, refuses to sell his credit default swaps when everyone else is unloading theirs. He waits it out, partly to see how high the value will go, but also because he’s having serious problems with his conscience because he knows what’s starting to happen and how it will affect people. There’s one great scene where one his colleagues phones him up, telling him they need to sell, and Mark has a moment of clarity.
This is a reference to TARP – the Troubled Asset Relief Program that came out of the last months of the Bush administration. It basically meant that the government bought hundreds of billions of dollars in ‘toxic assets’ i.e. securities that weren’t worth anything anymore. This stopped the banks going under – most of them anyway – and dumped a bunch of bad debt bonds onto the government’s books, and therefore the public’s books.
And in truth, there probably wasn’t anything else the government could have done, except tell the banks to go fuck themselves and wait for the entire economy to go down the shitter. I think Mark is right – the banks knew this would happen, they knew the government would bail them out, so they weren’t stupid, they just didn’t care.
Another film that dealt with the same crash, and also a directorial debut, is Margin Call. But it’s a very different kind of film, less self-conscious, much more human. It takes place over about a day and a half, rather than the months or even years covered by the events in The Big Short.
In essence, a big investment bank sacks a load of its staff, and one of the guys who is fired hands a USB stick to one of his junior colleagues and tells him to take a look at it. The junior guy looks at it, fills in a few blanks in the model and realises that the mortgate-backed securities could be about to nosedive. He calls in his boss and tells him, who then calls his boss, who then calls his boss, and so on. They decide to liquidate billions of dollars in securities that day, thus causing the market to crash.
It’s a truly beautiful, emotionally complex, riveting movie. In my opinion it’s one of the top 10 movies made this decade. The cast includes Paul Bettany and Zachary Quinto, both of whom I love as actors. It’s also got Demi Moore, Kevin Spacey and Jeremy Irons, in a really strong ensemble cast.
It is somewhat less based in real events, comprising elements of what happened at Lehmann Brothers and Goldman Sachs. But it’s a more realistic film, it’s a very believable but largely fictional account of 36 hours in the operations of an investment bank who realise they’re facing a crisis. The people all act like people, not characters in a film, and tonally it’s more like a conspiracy thriller than a corporate drama, which I thoroughly enjoyed.
The fundamental reason why I liked it more than The Big Short is that I like the characters, even as I watch them do something despicable. There’s also a strong element of them considering the consequences of their actions and having moral reservations about how this is going to affect ordinary people. There are some lovely street-level shots of New York, which contrast sharply with the austere opulence of the corporate headquarters where most of the action takes place.
In brief, The Big Short is about the crash of 2008, Margin Call is about capitalism.
The first scene I’d like to look at, mostly just because I love it, is when Peter (the analyst who figures out the problem in the first place), his friend Seth and his boss Will go up to the roof of the building just after revealing everything to the vice president of the company.
I love everything in this scene, particularly the moment that Will considers suicide. Also his explanation of how he spent $2.5 million in a year, saying you spend what’s in your pocket. And we later learn that the boss of the company, the Jeremy Irons character, got $86 million the previous year, which makes Will’s money seem small by comparison.
This is what I mean about the film being about capitalism – it is true that you get used to spending however much you have, because capitalism ensures there’s always something else to buy. Even if a billionaire spent all their time shopping, they’d struggle to spend a billion dollars. In some ways this is capitalism’s success – it does deliver on its promise of creating lots of stuff to buy and lots of money to buy it with. It also guarantees that some people will have vastly more money than others.
Perhaps the best scene in the film takes place in the boardroom, when Jeremy Irons first shows up. But I don’t want to ruin the film, and the scene is best watched in context, so I am not going to play that. Instead we’re going to look at another scene with Will, when he and Seth are driving back to the office on the morning when the firesale is about to start.
Again, I cannot fault Will’s comments here, as an expression of how capitalism works. People do want to have lots of things and for the most part don’t care how the system works as long as they have money to spend and things they like to spend it on. We do all benefit, economically speaking, from living in rich, capitalistic countries and some of the reason you’re paid more as a nurse in the UK than in Poland or Hungary is because the UK is one of the richest countries and has a massive financial sector.
I also think that he’s right that we’re all fucked. I don’t like being pessimistic but the infinite growth model on which our entire economy depends and is predicated, is smashing up against the real world limits to growth. Environmental problems, peak resource production, pollution, instability and unpredictability – this is our present and our future. There’s only so much stuff on the planet, and only so far you can take the model of more people consuming more stuff. Anyone who tells you that the future will see your children be richer than you is lying, or a fool.
The reason this hasn’t led to outright revolt is because we’re still being bribed, paid off by the system so we keep it going. We are all complicit in this to some extent. Sure, the investment bankers hold more responsibility, the big corporations who are poisoning the planet are more to blame than me or you. But we do participate in this and accept the benefits and don’t openly revolt.
This is why I like Margin Call so much. Given the situation they created, the bankers do the only logical thing – sell all the crap to whoever will buy it, let them take most of the hit. It is a zero-sum game, there are going to be winners and losers so it’s better to be one of the winners. Capitalism is a zero-sum game, most of the time, so if you’re going to do it you might as well embrace it. A cynical view, perhaps, but one on which many people operate. The film confronts us with that, somewhat empathetically, but without letting us off the hook for our role in all this. At one point Jeremy Irons says ‘we all fucked this one up pretty good’, and he’s not just talking about the people in the firm.
So, what caused the crash?
This is one of those questions that the two movies answer differently, and plenty of others have weighed in too. The Big Short blames stupidity, then a fraudulent system, then the bankers simply not caring because they knew they’d get bailed out. Margin Call blames human nature, with Jeremy Irons saying it’s something within us, we can’t help ourselves, before listing all the big crashes of the last 200 years.
Then there are those who blame capitalism as a system, not just the particular version of capitalism we have now. These people tend to be Marxists of some stripe or other, and I disagree with them. Aside from inevitably running up against real world limits to growth, there’s nothing inherent about capitalism that guarantees massive crashes. We could run a capitalist system with strong regulation to prevent this sort of thing. You’d still get bubbles and then bubbles bursting but it wouldn’t feed into everything else. It just means some investors go bust and have to find something else to do to make a living.
Whereas the crash of 08 became a global economic meltdown from which we still haven’t recovered, and never will recover. There isn’t enough growth left in the system. Part of the reason it spread so far is that the financial services industry is very globalised, very integrated. It’s the perfect example of chaos theory in practice – a butterfly flaps its wings in Tokyo, the weather in Guangdong is different, a hundred million is wiped off a share price leading to a couple of billion in derivatives suddenly being worth nothing.
This happens continuously, and it’s some measure of the flexibility in the financial industry that it reacts and that butterfly doesn’t cause the entire house of cards to come crashing down. Nonetheless it’s an inherently unstable system, facilitated by the internationalism of the post-WW2 era. Globalisation means that the consequences are often felt far away from the origin of the problem.
Others have blamed some kind of conspiracy of bankers to deliberately cause the crash of 08. This often involves a lot of thinly-veiled antisemitism talking about plans going back hundreds if not thousands of years involving ‘international banksters’ which is always followed by a reference to the Rothschilds, the Warburgs, the Schiffs – basically anyone with a Jewish name who works in banking.
Now, for all I think this sort of explanation is risible and racially motivated, there was a conspiracy of silence about the problem, and still is. There was an implicit conspiracy whereby everyone took ludicrous risks, often knowing how ludicrous they were, and as long as everyone did it the system kept working and everyone made money. But this isn’t part of some plan to usher in a new world order, it’s just the cost of doing business. If we want to live in a consumption-driven society, this is going to happen.
That is not to say the notion of a managed economic decline isn’t in the thinking of people in power – it is. The phrase ‘manage the decline’ turns up in cabinet papers during Thatcher’s government, referring to poor towns and cities, most notably Liverpool, that had suffered greatly under Thatcher. But Thatcher wasn’t Jewish or part of a globalist conspiracy, she was a manager for the capitalist system.
But of course, capitalism isn’t mentioned in the conspiracy world because for one thing that would be too honest and for another it invites accusations of being a commie gay liberal commie who’s probably Jewish. Instead, the conspiracy culture pretends that we don’t live in capitalistic societies and that all the problems are a result of interference in God’s precious free market. This is simply idiocy, which is why the conspiracy culture has nothing to offer in response to the crash of 08 except water filters and dodgy vitamin supplements. Oh, and claims by people like Kevin Schipp of living on an off-the-grid ranch, which mysteriously has an internet connection because he’s always online.
So what is to blame? Greed? Stupidity? Recklessness? A corrupt and fraudulent system? A conspiracy, however implied and informal, of bankers? All of the above and more? I think it’s all of the above and more. I think some of the people involved simply didn’t care, I think some were overcome by greed, I think the system is corrupt and fraudulent and I think a lot of people were stupid enough to believe it would go on forever.
Could it happen again? Yes, and sooner or later it will happen again. And this time it’ll be worse. All the mechanisms used to prevent the slide into total financial and economic oblivion have now been used up. If the same thing happened again now, there’s very little the government or anyone else could do about it. Interest rates are very low, public debt is as high as it has ever been, there’s very little room to maneuver. The high inflation caused by the bail-outs and quantitative easing has squeezed the poor about as far as they can go – any more and we probably would be looking at open revolt.
What could be done about this? In truth, all sorts of things could be done, but I’d be surprised if any of them are actually done. We could introduce legislation separating investment banks from the rest of the economy, so they could burn to the ground without it having any significant economic impact. Instead, we’ve doubled down on the international integration of our economies to ensure that the next crash is even worse. We could cancel a lot of public debt and simply refuse to pay these leeches, and if they want to fuck off to another country then as far as I’m concerned that’s a good thing. We could break up all big businesses, abolish corporate personhood and make the people in these organisations responsible for their actions. We could prosecute those who participated in the fraud – the statute of limitations has not passed. We could separate our economy into multiple currencies, one for saving and storing value, another for everyday purchases.
I could go on about real, pratical things that could actually be done but I’m pretty sure none of them are ever going to happen. If we can’t even come to terms with this stuff through our pop culture then the notion that we’ll develop real political solutions is a joke. But I want to end on something approximating a positive note, so here goes: Sooner or later we’re going to run the global economy off a cliff. At least half of the human population will die in the space of a few years, possibly even faster. There will be political chaos the like of which we’ve never seen before.
But after that, assuming human civilisation hasn’t completely destroyed itself, there’s a chance for a different kind of system to emerge. One that is much more pluralistic, flexible and adaptable. One where consuming as much as possible, as fast as possible is not the accepted norm. One where myths like the free market and rational self-interest are abandoned in favour of appreciating the reality of our situation.
Subscribe to Spy Culture
If you enjoyed this content then keep up with new posts here at Spy Culture by subscribing via email, RSS, Instagram, tumblr or facebook: