3 Ways “Big Short” Movie Downplays Banker Fraud

"The Big Short" might seem like a thorough critique of Wall Street, but compared with what investment bankers actually did in the build-up to the Financial Crisis, it feels more like a public relations coup for Wall Street, a gift with a bow on it. I don’t like saying this because the movie does many things beautifully—it’s so well acted and written that it’s now the most influential movie we’ve ever had on the Financial Crisis—and I’m a huge fan of Michael Lewis, who wrote the book that the movie is based on, as well as other masterpieces like Liar's Poker and Moneyball. But this movie perpetuates such disturbing misunderstandings of Wall Street fraud that I feel compelled to point out three major problems.

1) The Movie Depicts Bankers As Merely Clueless, Not Frauds.

For roughly the first half of the movie, we are led to believe the bankers only made one rather innocent mistake: they naively believed the mortgage industry would keep going strong, as it had for decades. Bankers at Goldman Sachs and elsewhere laugh at oddball traders like Dr. Burry (Christian Bale) who want to bet against their mortgage securities. In this telling, the bankers just couldn’t see what was coming. They were out of touch, but not crooks. We only get to know one banker who could see the crash coming, Jared Vennett (Ryan Gosling), but he was an exception that proved the movie's rule of banker naivety. He tells the crew for Mark Baum (Steve Carell) that nobody at the banks is paying attention to the worsening mortgages, that they're all asleep at the wheel. When he tries to sound the alarm at his own bank, they dismiss him with insults like“Chicken Little” and “Bubble Boy.”

This depiction of clueless bankers is an outrageous lie of omission, a failure to recognize the proven, legal fact that investment bankers committed systematic acts of fraud that led to the meltdown in 2008. The movie doesn't show that bankers knowingly lied to investors about the rising default rates and debased loan standards on the mortgages inside the bundles they were selling. And these lies weren't a matter of banker naivety, they were illegal acts of financial fraud, like a company advertising that their juice boxes contain 20% "real juice" when they actually contain no juice at all, just water and carcinogens.

The massive, systematic fraud committed by Wall Street banks has been proven over and over again by historic Justice Department settlements for billions of dollars. Just search terms like “bank settlement financial crisis,” and you’ll find loads of articles, such as this one in the Wall Street Journal about the 2014 settlement with Bank of America. The title of the press release for that settlement sums it up: "Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis." The settlement showed that Bank of America lied to investors about the quality of the mortgages they were buying, the same fraud shown in the "$13 Billion Global Settlement with JP Morgan for Misleading Investors About Securities Containing Toxic Mortgages," and the one in which "Citigroup acknowledged it was aware that 'significant percentages' of sample loans did not comply with underwriting guidelines but the bank pooled them into securities anyway."

Unfortunately, though, "The Big Short" only shows oblivious, pleasant bankers at the point of sale who think Burry is crazy, which is like showing friendly car salespeople who haven't talked to the automaker's engineers or middle managers, so they don't realize what defects are inside the cars they're selling and how likely they are to blow up on impact. What a gift to Wall Street.

Moreover, the movie doesn't show how the banks’ fraud played a crucial role in the Crisis. If the banks had not continued to lie to investors about the debased lending standards used on these bundles of mortgages, the investors could have prevented the Crisis by slowing down on their purchases of mortgage securities in 2005-2007, before everything spun out of control in 2008. That’s what they call market discipline, and it was the best chance to prevent the crashnot a guarantee, but a chance. As the film rightly stresses, the government regulators, ratings agencies, and press were ignorant or co-opted, so they were not going to be any help. Yet investors, the last hope, didn't put on the brakes partly because they were given a fake picture of what they were buying—and lucky for Wall Street, the film doesn’t delve into this cause of the Crisis, not even in a cut-away scene with a celebrity.

Obviously the second half of the movie is somewhat different. Main characters throw out many angry accusations about the market prices for bonds being rigged, and together with the long scenes in Vegas, there's an overall feeling that the banks are up to no good. However, even here, the movie is garbled. Our wise guide and host throughout the story, Gosling, repeats what he said in the first half of the film, that the bankers’ problem is stupidity, not fraud. “Yes, some shady shit is going down,” he tells Carell’s angry group,” but trust me, it’s fueled by stupidity.” In a memorable line, Gosling flat out rejects the possibility of identifying fraud when he scoffs, “Tell me the difference between stupid and illegal and I’ll have my wife's brother arrested.”The movie doesn't go on to refute this self-serving, defeatist view; it doesn't show that, no, actually, you can tell when these banks committed fraud, and here's how they did it.

A "Vox" reviewer was therefore right to conclude that the movie's "ultimate villain isn't 'the government' or 'the evil bankers.' No, its ultimate villain is the combination of incompetence and stupidity..." As Ben Hallman of the "Huffington Post" noted, “the loaded word 'fraud’ is tossed out without adequately explaining what…was actually criminal. …[T]he movie does not stretch to show how bankers were purposely misleading clients.” These and other commentators have understood exactly what the screenwriters intended. Co-screenwriter Charles Randolph stated that after doing some reading and talking with a few friends in finance, he concluded that the bankers were clueless, that "no one had any understanding of the real underlying product." The screenwriters did some great work, but it's a shame they got suckered in by this notion of clueless bankers.

2) Bank Fraud Never Gets Embodied in a Central Character

This movie has many compelling characters played by fantastic actors—yet we never get one central character who puts a face on banker fraud. We get a few suggestive, fleeting characters, such as the smug guy that Steve Carell talks to in the restaurant at the Vegas convention, but there is no ongoing, central character shown knowingly lying to an actual investor, or even just someone high up in a bank taking in huge bonuses and fees from clear investor fraud. Director and Co-Screenplay Writer Adam McKay agrees that he never put a human face on banker fraud, but he sees that as a virtuous move, whereas I see it as an egregious omission and missed opportunity to get audiences to understand what went wrong. At least we agree on one thing: this lack of a human face for banker fraud helps explain why McKay's friends in finance loved this movie. As McKay told Terry Gross in a radio interview, “My financial advisor loved the movie. He really loved the movie. I have a cousin who’s in private equities, too, and he’s in private equities, and I had a little conversation with him before I saw it. I go…you know, this movie is not actually targeting bankers. …So we really went out of our way with the movie never to point the finger at any one individual; we really believe it’s a systemic issue. So, so far all the banking and finance people in my life have really enjoyed the movie.”*

Sure, why wouldn’t finance people love this movie? They can safely assume that it will be hard for most of the public to comprehend or focus their anger on an abstract “systemic issue” with no compelling characterization on screen. On top of that, the bankers get to imagine they're Ryan Gosling…

3) Bankers in This Film Are Handsome, Appealing, and Powerful.

Ryan Gosling’s character, the only banker who gets developed into a full character, is not just handsome and smart, he's powerful, decisive, and omniscient. In a major deviation from the book, Gosling’s character becomes our all-knowing narrator and guide through this other world. He can see into the past and the future, with voice-overs and direct addresses to the camera telling us the meaning of what just happened on screen or is about to happen. Sure, he's smug and profit-oriented, but, at a gut level, most viewers won't feel that Gosling's charactera handsome, all-knowing guy who wants to take us under his wingis the villain.

Of course, ultimately viewer reactions will vary, and unconscious feelings about a character are the hardest to identify. But my sense, based on what viewers are saying online, is that rather than seeing Gosling as the villain, the majority come away with continued confusion about what exactly the bankers did wrong, or a vague sense that they’re just too powerful and aggressive and something doesn’t seem right. This bothers me because this movie is one of the only chances we have at getting a wide public to truly understand what Wall Street did wrong.

I'm not asking for a fundamentally different film. Exposing banker fraud would have easily and squarely fit within this film's chosen narrative structure: namely, a story about outsider investors fighting against Wall Street bankers. For example, the film could have dramatized the sections in Michael Lewis's book on Wall Street's role in housing scams going back to the 1990s, as well as the evidence of fraud in the Financial Crisis that Lewis didn't have access to when he published his book in 2010. In fact, adding one nasty, compelling banker who knowingly engaged in investor fraud (instead of or alongside Gosling's character) would have enhanced the story by providing a concrete force for these underdogs to rail against. It would have allowed audiences to root for a classic bad-vs.-good guy story, and to know what exactly made the bad guys bad. At the very least, adding just one more cut-away scene or written epilogue would have gone a long way toward clearing up the movie's obfuscation about banker fraud.


Fun Reading: More Sources Proving Banker Fraud on Mortgage Securities
If you've only got time to read one journalist report about just how much the banks knew they were committing fraud, check out this magazine article about a whistle blower at JP Morgan Chase who witnessed repeated dishonesty and debasing of quality control in the mortgage securities being bundled and sold to investors.

But if you've got more time, check out this comprehensive book on the Crisis by financial reporters Bethany McLean and Joe Nocera, who write: “After the crisis of 2008, a common refrain arose that no one saw it coming. But that was never true. State attorneys general had filed lawsuits [against subprime lenders]. Housing advocates had continually beat the tom-toms.” An executive at one bank, Lehman Brothers, wrote a memo in 1995 describing mortgage company Famco as a “sweat shop” specializing in “high-pressure sales for people who are in a weak state.” Yet just three years later Lehman Brothers sold millions of mortgage-backed-securities for Famco. McLean and Nocera sum up as follows: Did Wall Street know what was going on? You bet it did.”.


*In a separate interview for Variety, McKay clearly states that he believes there was corruption at all levels, but he doesn't include lying to investors in his three different examples of fraud, or comment on how he tried to convey all this in the movie.

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