Not everyone lost big when the economy went bust in 2008. Scion Capital’s Michael Burry shorted several vulnerable subprime mortgage bonds in 2005. Three years later, his investors hauled away $725 million (with Burry taking home a tidy profit of $100 million himself). Outsiders Charles Ledley and Jaime Mai, who could never make it past a big bank lobby, turned a $15 million investment into $120 million by betting against the highest-rated CDOs (collateralized debt obligations). Outspoken maverick Steve Eisman built a billion dollar fund from the ashes of the American housing market. And raconteur Greg Lippmann walked away with a $47 million check from Deutsche Bank for orchestrating Eisman’s efforts.
BEAVIS AND BUTTHEAD BECOME BROKERS
In most movies, such misfits would be cast as villains profiting off the suffering of millions who lost their jobs and homes in the wake of the economic collapse. In The Big Short – the most critically-acclaimed movie about business in 2015 – they come off as the last honest brokers, whose guts and guile enable them to outmaneuver a rigged system.
Break out the popcorn. The Big Short is among five truly exceptional 2015 flicks that everyone in business should see, if not for their entertainment value, than for the insights and lessons they share into the world of business. Whether you’re a current MBA student, an entrepreneur, or an executive, these five movies, including Steve Jobs and The Intern, are all worthwhile excursions into greed, luck, failure, resiliency, and change-the-world success–everything that makes business the great narrative of our time.
Of them all, The Big Short should be at the top of your list. The financial world, circa 2005, had put the “bull” in “bullish.” Propped up by unwavering optimism – and a penchant for eschewing transparency and recordkeeping for the fast buck – high finance was a snarled mess of conflicting interests and back scratching. In The Big Short, we learned that Beavis and Butthead didn’t become fry cooks. They moved to Florida and donned suits, working as dilettante mortgage brokers who pitched variable rates to anyone with a pulse. Standard & Poor’s was depicted as willfully blind jellyfish, resigned to (ahem) customizing their ratings models to keep customers from choosing other agencies. And government didn’t catch any slack either, with cash-strapped SEC regulators finding themselves in bed with the big banks – literally.
So why couldn’t anyone see what was bound to happen? For one, most lacked imagination, either naively believing the market would never stop growing or figuring they would be rich and retired before the bill came due. For another, they didn’t take a deep dive into what they were selling. During the movie, Burry gained his epiphany from cracking open a CDO. He obsessively compared earnings to mortgage costs, going line-by-line to see how many homeowners were under water or when interest rates would balloon. As a result, he was able to correctly time his forecast. The looming crisis became real to Eisman’s team during a trip to the Miami suburbs, where they found a wasteland of empty McMansions caked in litter and guarded by gators. The characters even visited the American Securities Forum, where they learned just how deluded and relativist moral bankrupt their peers had become. The summit’s Vegas locale only added a gloomy symbolism to their grand discovery. America had devolved from an exporter that created value to a casino where the house played both sides. And mortgages had become a pyramid scheme that increasingly required more unqualified buyers to mask its artificial inflation.
BIG LESSON: GO AGAINST THE GRAIN
What makes The Big Short such a great film is its ability to simplify complex practices, breaking the fourth wall with celebrities like Margot Robbie showing up to explain credit default swaps. The most effective device, however, was using a Jenga tower to explain CDOs, with the Triple B’s at the bottom providing a rotting foundation that eventually tumbles the Triple A’s at the top. The story also benefits from a comedic treatment, a knowing nod that absurdity ultimately produces tragedy. In fact, the characters find little joy in being right. As the reckoning approaches, they watch helplessly as the banks unload their toxic products on investors while claiming ‘everything is fine.’
In the end, nothing really changed. Congress enacted meager reforms and no one went to jail. The masters of the universe came to Washington to argue that no one was really responsible. The meltdown was an improbable, once-in-a-lifetime perfect storm, they claimed. And the biggest irony? They attributed the bubble burst to the best of intentions – helping the poor and immigrants achieve the American middle class dream of home ownership. So the tarp was laid, the bailout money was paid back, and the stock market reached record heights after the dust settled.
No blood, no foul, right?
Maybe, but The Big Short is a primer for business school students. It is a timeless reminder to do your homework, challenge the givens, and avoid mindlessly following the pack. It is a warning for CEOs to stay on top of their market and balance sheets, never forgetting that every return comes with risk – either now or down the road. Even more, the movie reinforces the long-held truth that business has a responsibility to the larger society, not just shareholders. Most important, it is a reminder to check your hubris at the door. As Mark Twain opines in the opening shot of the film, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
The Big Short notched an 87% “Fresh” rating from the critics on Rotten Tomatoes. Here is how some of this year’s other top business movies fared with critics.