Received from Russell Lund
Sat, 16 Jan 2016 at 10:41 p.m.
Banks, an accountant once told me, are not your friend. “They lend you an umbrella on a fine day and take it away when it’s raining.” This is the film of the year for anyone who has ever been stiffed by a bank. (Anyone left in the room?)
The Big Short is an adaptation of a book by Michael Lewis, considered one of the greatest living American writers. Amazingly, he achieved this storied status writing non fiction about the financial world, as a result his work is probably not on the radar of the general book buying public.
On the back cover of Lewis’ latest book, Flashboys, one of his competitors wrote:
“I read Michael Lewis for the same reason that I watch Tiger Woods. I will never be as good as him, but every now and then it’s good to be reminded what genius looks like.”
Expectations were very high for this film adaptation. The Big Short explains the origins of the Global Financial Crisis (GFC) and the unlikely band of financial misfits and outcasts that defied the banks, the brokers, the conventional wisdom and the entire industry, and “shorted”, ie bet against the idea that American housing prices were untethered to fundamentals and would continue to rise forever. They all became obscenely wealthy as a result. It’s a David vs Goliath story of biblical proportions.
Steve Carrell gives an Oscar level performance as Steve Eisner, the socially inept hedge fund manager with a social conscience, disgusted by his own industry. Interestingly, even as the hero of the piece Eisner did not allow his name to be used, one gets the idea that the big name cast of Steve Carrell, Brad Pitt, Christian Bale and Ryan Gosling would have almost come to blows over who got to play the egocentric blowhard that is Gregg Lippmann, in charge of creating and selling the toxic mortgage bonds for Deutsche Bank and through whose lens the film is narrated. To give a flavour of Lippmann, without spoiling the treat that awaits viewers, Lewis quotes Lippmann’s boss in the book, “I have nothing bad to say about Gregg…. apart from that he is an effing whack job”….
It is apparent there have been a lot of legal issues around the identity of the main protagonists. Bankers who were happy to fleece and pillage the American public aren’t keen to be named and shamed in the film. This may explain why the film has been so long in coming after the events of 2008. Strangely, this includes a couple of the big shorts who have the (relative) moral high ground. Those who have read the book will see in an instant that Steve Carell is portraying Steve Eisner, renamed as Mark Baum. Ryan Gosling Bale is the alter ego of the splendidly noxious Gregg Lippmann, renamed Gerald Vennerts. The one big short that allowed his name to be used is Dr Michael Burry, who was the first to discover the fraudulent truth about the mortgage bond market, and he emerges from the film with his credibility enhanced.
Fans of The Big Short should be extremely grateful to Brad Pitt. His greatest contribution wasn’t his role as ex banker Ben Rickerts awaiting Armageddon, fine though he is, but that he lent his gravitas and influence (and quite likely his money) to the film as producer. The financing of the film would have had its challenges, one suspects.
Of the film’s many subtle touches is the name Ben Rickerts, a play ‘derivative’ on Jim Rickards, the famously pessimistic financial commentator who wrote The Death of Money: The Coming Collapse of the International Monetary System, in 2012. The best line in the film is Lippmann’s: “I’m standing in front of a burning house and I’m offering you fire insurance.”
The film was not quite able to reproduce the laugh out loud sophistry of the book, but it does an outstanding job of explaining the financial theory behind the madness in a variety of entertaining ways including supermodels, casino tables, Selena Gomez and celebrity chefs. It shows that despite the sophistication of the financial world it is still driven by groupthink herd behaviour at its most basic level.
The most disturbing part of the film is where all the “big shorts” arrive at the same realisation that ALL of the banks and the rating agencies had no compunction in resorting to fraud when the tsunami of mortgage defaults began to rain down upon the bonds they had created. As the legendary investor Warren Buffet says, show me the incentive and I will show you the result. Eisner’s conclusion was that the United States lives in an era of fraud – in all aspects of modern life. His disappointment wasn’t that it was morally wrong (spoken like a true banker) but that for thousands of years, fraud and short-term thinking have never worked. He placed a billion dollar bet against the banking industry on that premise, and won.
While filmgoers might leave the theatre safe in the knowledge that this was an American banking problem and its menacing shadows do not darken our shores, in the parlance of the film, this would be another fraudulent misrepresentation. The activities of the four Australian banks that make up the vast majority of the New Zealand banking industry make the US banks of the film look like amateurs. The list of transgressions includes the BNZ found guilty of tax evasion in 2014 to the NZ Government of around $600M (IRD’s estimated liability of all four Australian banks is estimated at up to 2 billion dollars). Australian banks were active in the global LIBOR price fixing scandal that erupted in 2013. The ANZ recently settled with a group of ripped off NZ farmers for $18M. The ANZ – and other banks – having sold hundreds of millions of interest rate swaps to farmers without explaining what they are and the potential liabilities. These four Australian banks, because of their cosy oligopoly in Australasia, are among the most profitable banks in the western world. How do we know this? Because last year in an announcement ignored by the NZ media, Warren Buffet, America’s most famous and successful multibillionaire “value” investor declared that he really liked what he saw with the Australian banks and would be taking a major multibillion-dollar shareholding in one of the big four – he just hadn’t decided which one yet.
However, the Australian Financial Review in an open letter to Buffet published in July 2015, warned Buffet that the banks are in fact very highly leveraged ($33 of debt to $1 of equity) and highly exposed to the mortgage market. This is between double and triple the leverage of big US Banks like Wells Fargo, in which Buffet also owns large positions.
The IMF has even written that the leverage of the Australian banks is “challenging” in 2015. By IMF standards, this is very blunt.
So remember, when you’re facing that nice mobile mortgage manager who will lend you a million to buy that fixer upper in Grey Lynn…. they are simply servants with no discretion whatsoever, in a business teetering on a pile of overinflated mortgage debt, and when the excrement hits the fan, they will be absolutely ruthless. This is the enduring, priceless message of The Big Short.
The film reserves its best ridicule to a couple of mortgage brokers that specialise in writing adjustable rate “teaser” loans to strippers (“cash rich and no assets”) in the full knowledge they cannot afford the repayments that will rise 200 percent when the true interest rates kick in on their loans. The brokers brag about simply writing up their NINJA loans (no income no job no assets) taking their fee and fleeing. Eisner is sold on the idea that the mortgage industry is fundamentally rotten and fraudulent in one very funny scene where a stripper advises him, while working, that she owns five properties and a condo.
House price bubbles, speculation, irrational confidence, low low interest loans, 30-year mortgages, stagnant incomes…. it all sounds scarily familiar. Surely it couldn’t happen here…. could it?
The answer is in Lewis’ 2011 book, Boomerang. We will have to wait until someone films that, if the ATM machines are still working at that point.
Eisner poses and answers the fundamental question in the film – when incomes are stagnant how do you make poor people feel good – the answer is by lending them cheap money.
Paramount Pictures Nov 23, 2015 | The Big Short Trailer
Paramount Pictures Dec 7, 2015 | The Big Short – “Jenga” Clip
Paramount Pictures Dec 23, 2015 | The Big Short – “The Big Leap” Featurette
█ The film is nominated for five Academy Awards, including Best Picture and Best Director.
Posted by Elizabeth Kerr
*Image (top): pixgood.com – Michael Lewis