“The Big Short” Is Required Watching For Credit Union Leaders, Or Should Be

Why the Oscar-nominated Great Recession-era flick strikes a chord, especially for those in financial services.

 
 

Movies can be a great way to escape from the real world and inhabit a better or more exciting one for a period of time.

The Big Short isn’t that kind of movie.

Instead of letting viewers escape this world, it confronts its audience, relentlessly, with its version of the truth of the past decade.

What This Movie Is About

Starring Steve Carell, Christian Bale, Ryan Gosling, and Brad Pitt, The Big Short is based on a book of the same name by journalist Michael Lewis, author of Moneyball and The Blind Side.

But there is no Disney magic spun into this telling of the tale, whose subject material should resonate with today’s credit union leaders.

A high-level synopsis: In 2005, Michael Burry, founder of Scion Capital, discovers the U.S. housing market is based on subprime loans and thus unstable. He predicts the market will collapse in 2007 and seizes on the opportunity to profit by creating a credit default swap market and purchasing more than $1 billion in mortgage-backed securities from a number of big banks.

Meanwhile, other people — in this case, a banker, a hedge fund, and a team of young investors — learn about Burry’s bet against the housing market and follow suit. The meat of the movie follows head fund manager Mark Baum, played by Steve Carrell, in his decision to invest in the credit default swaps and the aftermath.

When Burry approaches the banks with his proposal for a credit default swap market, they barely mask their enthusiasm. They believe housing is safe and agree to sell Burry as much as he is willing to buy. What he “knows” — that the housing market is going to fail, and he tells them as much — they refuse to see.

Although the movie does not paint mortgage brokers in a positive light — in one scene, a team of Florida mortgage brokers "brag" to Baum about the illegal things they do to close loans, such as overlooking low FICO scores, failing to report occupation and income data, and preying on recent immigrants — there is a strong, recurring insinuation that the recklessness of the big banks is as responsible for the Great Recession as the lack of financial understanding among America’s working class.

The movie's characters throw around complex financial concepts — such as credit default swaps and collateralized debt obligations — like Frisbees on a college quad. So the movie uses Ryan Gosling, who speaks directly to the audience, and celebrities like Anthony Bourdain and Selena Gomez to explain what's going on. It’s a clever way to relate to an audience that prefers TMZ to ABC.

No spoiler alert here: The bubble eventually pops. Millions of people lose their homes and jobs. The world economy threatens to collapse.

Why This Movie Is Important

The Great Recession occurred during a formative point in the lives of Gen Y and Z members, and to a certain extent, the fear and uncertainty it caused hasn’t worn off. Couple economic stress with rising student loan debt and it’s easy to see how younger generations might be distrustful of the U.S.'s financial services system.

The Big Short is a reminder that many Americans, and those throughout the world, are still in recovery.

It’s a reminder of how short our collective attention span is and of how little we as a nation understood and understand about banking — what the movie calls the chief industry of the United States.

There’s a scene near the end of the movie where Brad Pitt’s character cashes in on a series of credit default swaps he made for two young investors. It's a huge payday, and the duo asks Pitt why he helped them when he didn’t have to. “Because you said you wanted to get rich,” is his reply.

That’s important. He didn’t help them because it was right or because it would benefit the greater good. He didn’t do it because he was getting anything out of it.

He did it because he could.

In the world of The Big Short, bankers, traders, and fund managers do what they do because they can.  The majority of the population doesn’t care; and if they do, there’s nothing they can do about it.

For most of the movie Baum believes the bankers who own the toxic mortgages and CDOs are oblivious to the consequences of what would happen if and when they fail. By the end he realizes he’s wrong. It’s not that the bankers didn’t know They knew more than they let on. But they were too big to care.

That’s what’s affecting about the movie. It’s not what’s happening on the screen that makes you mad; it’s knowing what comes next.

People and institutions like credit unions, who had nothing to do with the failing of the economy, were and are paying the price — left helping the millions of lives forever changed or destroyed by the bad actions of a few.

 
 

Jan. 21, 2016


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Comments

 
 
 
  • Already did this at our CU in early January, and it was quite valuable. Our people had the option to either see the movie or read the book, and some did both. We followed up with a great formal discussion and many informal conversations. As a credit union in Nevada, for most of us the subject matter was both painful to revisit but an important reminder of the need to continue ensuring we remain true to our core values and have appropriate risk control processes in place that leave nothing to assumption. That applies to all aspects of our business, not just the mortgage arena. The exercise also led to some great education about the mortgage world for a number of our managers and senior leaders who do not regularly interact with that space.
    Wally
     
     
     
  • Most important movie of the year. Candidly it should be required watching for every college student studying business, law or ethics. We can all take good lessons on how to demystify complicated financial terms. No one wins when the member is confused. Excellent write-up Erik.
    Michelle
     
     
     
  • "He did it because he could." That's it in a nutshell...the fundamental difference between for-profit banking and financial cooperatives. "Is it profitable and can we do it?" vs. "Is it good for members and is it the right thing to do?"
    Chris Howard
     
     
     
  • makes me want to see the movie. good editorial.
    Anonymous