Movie Doubles - 'Spotlight' & 'The Big Short'

American Tragedies

It's cool when stars get together and appear in a morally righteous movie. The omnibus casting in both of these films is something to behold. The All-Star lineup in 'Spotlight' makes for an interesting ensemble while the split narrative of 'The Big Short' demands a distribution of war power across three narrative threads.

Both these films deal with a tragedy that came about because nobody thought to question a big institution. People had way too much faith in the Catholic Church, and they had too much trust in banks. Both the Catholic Church and the banks ended up making a lot of people look very foolish for their faith and trust; and delivered devastating consequences for that misplaced faith and trust.

We live in amazing times when you think about it. The revelation that the Catholic Church was covering up for paedophile priests was an apocryphal joke for a long time. The fact that we got any proper investigation that has led to global uncovering of such activities would have been unthinkable not so long ago. Similarly, the notion that banks through their greed and stupidity could manufacture the condition for the greatest financial crisis since the Great Depression was unthinkable right up until it happened. Both topics deserve some kind of narrative reconstruction to get a sense of how these things came about. These stories are at their core, remarkably alike.

And so... here's the usual spoiler alert. Don't read on if you hate spoilers.



The Tradition Of Investigation

Both these films have long roots that reach out from beyond the screen. 'Spotlight' actually has many echoes of the other great newspaper movie, 'All The President's Men' where Robert Redford and Dustin Hoffman playing Woodford and Bernstein went in hard against the authoritarian Nixon Administration which was trying to cover up its criminal tracks. Similarly, 'Spotlight' shows four news reporters going after the Catholic Church that indulges in systematic coverup of paedophile priests. If you are into even more interesting connections between these two films, the editor at The Washington Post who backed Woodford and Bernstein during the Watergate investigations was Ben Bradlee. The editor at The Boston Globe presiding over the Spotlight investigations into the Catholic Church was his son Ben Bradlee Jr. Rachel McAdam follows her performance from 'State of Play', another film that tried to capture the newspaper news room dynamic.

'The Big Short' is actually based on the book of the same title by Michael Lewis. Lewis was able to navigate the complex world of Wall Street banking because he himself was once a Wall Street banker and penned the great tome 'Liar's Poker' which explained the invention of mortgage bonds. We are enlightened of the strangeness and incongruous opacity of banking terminology thanks to Lewis' abilities as an investigative writer and part-insider to the world of Wall Street investment banking. The pedigree of this film carries previous Michael Lewis adaptations which include 'The Blind Side' and 'Moneyball', and we even have Brad Pitt playing a role in one of the narratives.

Both these films are thus built on accounts and testimonies from the very frontline of fact-collecting.  Because both these films go to great lengths to explain the problems of exposing or capitalising on the issue at hand, we are given tremendous insight into America as an immensely complicated society.

Too Big To Scrutinise

In the wake of the Global Financial Crisis, we were made to understand the term "too big to fail". It was a terrible thing that we had to suffer the GFC because of these big institutions. Once the crisis as underway, we discovered that they had racked such astronomical sums of money in debt, had we let them fail it would have taken the world economy with them. And so we let these bastards continue to just be these very same bastards. As it turns out in the telling of 'The Big Short', an alarming few people scrutinised the situation where there was a combination of subprime mortgage bonds, a property bubble, credit-rating agencies that simply rubber-stamped credit ratings, and very greedy and stupid people throwing money around.

The Catholic Church too is a monolithic entity. The closer one's faith resides with the Catholic Church, the more moral authority the church takes on to the point here it has absolute control over the discourse. This allows conditions of absolute unilateral power to be exercised against the faithful when needed - something that dates back to medieval thinking on authority - but also silence issues. Again, investigations revealed that the church had known it had a problem with paedophile priests as early as 1962, but opted to suppress the information and with it the scrutiny.

In both instances the lack of third party scrutiny allowed the problem to snowball. The lack of scrutiny came from the fact that the institutions - the Church and Financial institutions - were deemed too big to tackle. In most instances that would be factually correct, but also place these institutions in a space of utter moral hazard because of it. The fraudulence of the church covering up paedophile priests is in fact the same fraudulence of selling subprime outage bonds rubber-stamped as AAA. They're doing it because they can pull the wool over the average punter's eyes, and comes from a space of contempt so deep it's hard to contemplate the depth of that evil.

The Pompous Appeal To Normalcy

It's also interesting that in both films, the institutions resepctively resort to what can only be called the 'pompous defence'. When the Catholic Church is challenged and the defenders of the Church try to convince the investigators to drop the story, they mount a particularly pompous defence trying to categorise the victim's accusations as somehow a minor irritant or a minority crank position. At every turn, the people who want it not to be true put on the air that because the Catholic Church is too important an institution, the allegations can't possibly be credible.

Similarly, at the climactic moment of the Bears Sterns collapse during the GFC, a banker gets up at a conference and says everything is fine and any attempt to categorise the critical situation as exactly that, is somehow misguided and a crank. Of course in one of the great ironies, Bears Sterns bank collapsed that very day as he was speaking. In both instances the pompous appeal is made to the public to present and pretend that everything going on is normal.

Perhaps these responses are natural. It's a bit like being confronted by bad news and you go into the grief cycle. Given the horrible evidence presented, some go straight to the denial stage - and when doing so, do look stupid and pompous defending the indefensible in public. For the Church the allegations turned out to be all too real with repercussions around the world, and for banking too the repercussions became the Global Financial Crisis. Maybe when the scale of the problem is so huge, people have to pretend the threat is nothing and thus the pomposity comes to the fore.

Institutional Evil Is Institutional Stupidity

In each instance the films reveal something very interesting about institutional malfeasance, and it is that it relies greatly on the stupidity others not to notice what is going on. The people who uncover the great mass of subprime mortgages that are fed into high end mortgage bonds were the people who actually undertook proper due diligence. In a sense, the great fraud of the mortgage bonds based subprime loans relied on the stupidity of people not to admit they did not know what was going on and to go looking for facts. It seems simple enough, yet so many bankers and lawyers let these mortgage bonds written in complicated language, make them stupid and not do due diligence.

Equally, the Roman Catholic Church had insiders warning the Church for decades and instead of heeding the warnings, opted to go for the cover up. Once again, the coverup relied on people opting to be stupid by not noticing a pattern that was carried out in the roster of priests. The evidence was right there on public record if people could put the pieces together. Equally, the press failed to follow up when given evidence earlier because they too opted to be stupid and not look into the evidence being presented. The deep regret from the press in 'Spotlight' is the acknowledgment that it too forms part of the circle of institutional stupid that allowed the institutional evil to flourish.

The pairing of institutional stupidity with institutional evil is right around us. Take Australia's stance on asylum seekers. It relies entirely on making sure that people cannot carry out due diligence to make sure human rights are not violated. In the face of many allegations Peter Dutton pompously pretends that nothing untoward is going in places like Manus Island and Nauru. The middle part of the electorate is now opting to go with stupid silence and back both major parties because it cannot exercise the due diligence an discover the problems going on. Thus we're setting up the scenes for The Great Embarrassment that will surely follow the events on Manus Island and Nauru.

With Great Power Comes Great Corruption

At the end of the day both major institutions were avaricious to the point of disaster. The Roman Catholic Church sought to limit the financial damages as much as possible. The pattern we see in 'Spotlight' where they paid off people who alleged these crimes and sent them away with tens of thousands instead of incurring millions in damages was repeated elsewhere around the globe. We know this from the recent Royal Commission that Cardinal Pell himself was part of the institutional evil by playing the institutional stupid card very hard to secure his own promotion. In the mean time they sewed up the mouths of victims and lawyers with confidentiality clauses in these private settlements. Those in the public who sought public redress received a great amount of harassment and vitriol - another pattern that was repeated around the globe.

Banking, equally brought itself to the knees through excessive greed. Yet, the most telling part in 'The Big Short' is when Mark Baum realises that the banks knew fun well they would be bailed out because they were too big to fail, And so the moral hazard had always been there right form the beginning. The collusive nature of those who investigate banks and those who work for banks also made it very hard to stop the endemic fraudulence. And the scale of the fraudulence being so endemic was such that it looked like this situation was normal to many onlookers. This is the genuinely crazy part of the story. People like the Federal Reserve Bank Chairman Ben Bernanke couldn't see the GFC coming. US Treasurer - and former Goldman Sachs banker - Hank Paulson couldn't understand what was unfolding and why. It gave rise to the massive effort known as Quantitative Easing to shore up asset prices, just to save the bacon of so many ordinary investors.

Worse still, in the wake of the GFC, none of the remedial actions had taken place and so it is clear we have set ourselves up for yet another GFC if only we could sell these subprime-pimped mortgage loans to a greater fool, for it is the greater fool who gives rise to the great power to corrupt so greatly.

As for the Vatican, things seem to have moved towards reforming their practices under Pope Francis; yet, if celibacy gives rise to 6% paedophile priests and only 50% who actually manage to practice the celibacy, then the biggest reform they could carry out might be to acknowledge celibacy is bullshit.

Iceland, O Iceland

Michael Lewis Writes Again!

This time he's penned a piece on that litarery nation that has gone bankrupt.

An entire nation without immediate experience or even distant memory of high finance had gazed upon the example of Wall Street and said, “We can do that.” For a brief moment it appeared that they could. In 2003, Iceland’s three biggest banks had assets of only a few billion dollars, about 100 percent of its gross domestic product. Over the next three and a half years they grew to over $140 billion and were so much greater than Iceland’s G.D.P. that it made no sense to calculate the percentage of it they accounted for. It was, as one economist put it to me, “the most rapid expansion of a banking system in the history of mankind.”

At the same time, in part because the banks were also lending Icelanders money to buy stocks and real estate, the value of Icelandic stocks and real estate went through the roof. From 2003 to 2007, while the U.S. stock market was doubling, the Icelandic stock market multiplied by nine times. Reykjavík real-estate prices tripled. By 2006 the average Icelandic family was three times as wealthy as it had been in 2003, and virtually all of this new wealth was one way or another tied to the new investment-banking industry. “Everyone was learning Black-Scholes” (the option-pricing model), says Ragnar Arnason, a professor of fishing economics at the University of Iceland, who watched students flee the economics of fishing for the economics of money. “The schools of engineering and math were offering courses on financial engineering. We had hundreds and hundreds of people studying finance.” This in a country the size of Kentucky, but with fewer citizens than greater Peoria, Illinois. Peoria, Illinois, doesn’t have global financial institutions, or a university devoting itself to training many hundreds of financiers, or its own currency. And yet the world was taking Iceland seriously. (March 2006 Bloomberg News headline: iceland’s billionaire tycoon “thor” braves u.s. with hedge fund.)

Global financial ambition turned out to have a downside. When their three brand-new global-size banks collapsed, last October, Iceland’s 300,000 citizens found that they bore some kind of responsibility for $100 billion of banking losses—which works out to roughly $330,000 for every Icelandic man, woman, and child. On top of that they had tens of billions of dollars in personal losses from their own bizarre private foreign-currency speculations, and even more from the 85 percent collapse in the Icelandic stock market. The exact dollar amount of Iceland’s financial hole was essentially unknowable, as it depended on the value of the generally stable Icelandic krona, which had also crashed and was removed from the market by the Icelandic government. But it was a lot.

Iceland instantly became the only nation on earth that Americans could point to and say, “Well, at least we didn’t do that.” In the end, Icelanders amassed debts amounting to 850 percent of their G.D.P. (The debt-drowned United States has reached just 350 percent.) As absurdly big and important as Wall Street became in the U.S. economy, it never grew so large that the rest of the population could not, in a pinch, bail it out. Any one of the three Icelandic banks suffered losses too large for the nation to bear; taken together they were so ridiculously out of proportion that, within weeks of the collapse, a third of the population told pollsters that they were considering emigration.

It's one hell of a ride. The crux of it is here:

I spoke to another hedge fund in London so perplexed by the many bad LBOs Icelandic banks were financing that it hired private investigators to figure out what was going on in the Icelandic financial system. The investigators produced a chart detailing a byzantine web of interlinked entities that boiled down to this: A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets—the banks, soccer teams, etc. Since the entire world’s assets were rising—thanks in part to people like these Icelandic lunatics paying crazy prices for them—they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets. “They created fake capital by trading assets amongst themselves at inflated values,” says a London hedge-fund manager. “This was how the banks and investment companies grew and grew. But they were lightweights in the international markets.”

It sure makes you wonder just how they were allowed into the door of the lenders in the first place. Anyway, Michael Lewis amazingly lands on gender as the distinction - that is to say, Icelandic males really are testosterone charged, ornery and mad - and reading through the article, one gets the feeling that as politically incorrect as it sounds, he might just be right.

There's a Q&A over here.

Michael Lewis Rides Again

The End Of Wall Street Dreams


Walk-Off HBP sent in this link. It's a piece written by Michael Lewis, famed author of 'Liar's Poker' and 'Moneyball' on portfolio.com.

When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they’d be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn’t expect was that any future reader would look on my experience and say, “How quaint.”

I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar’s Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

Gerry Harvey of the Harvey Norman chain recently complained that he didn't see the point of why there were short-sellers. Nobody could explain why they existed. He needs to read this bit, because this bit just got me:

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

This particular dinner was hosted by Deutsche Bank, whose head trader, Greg Lippman, was the fellow who had introduced Eisman to the subprime bond market. Eisman went and found Lippman, pointed back to his own dinner companion, and said, “I want to short him.” Lippman thought he was joking; he wasn’t. “Greg, I want to short his paper,” Eisman repeated. “Sight unseen.”

Eisman started out running a $60 million equity fund but was now short around $600 million of various ­subprime-related securities. In the spring of 2007, the market strengthened. But, says Eisman, “credit quality always gets better in March and April. And the reason it always gets better in March and April is that people get their tax refunds. You would think people in the securitization world would know this. We just thought that was moronic.” .

As you read on, it gets better and better. You come to realise that the ratings Agencies were totally lying and being arbitrary as to what exactly was AAA or BBB. It bears thinking about because the current NSW government won't allow itself to go into deficit to fund projects because these very same ratings agencies might downgrade the state of NSW to AA from AAA. Well excuse me, but that would not affect the state in any real way if the money was invested properly into important projects. The fact is, these ratings agencies don't know what the fuck they are talking about, which is clearly evinced by the events we have seen in the last 15months. Nathan Rees (or for that matter Barry O'Farrell when he gets elected) would do well to borrow the money and spend it big. The state needs it and the people of NSW are good for it. A downgrade from a AA rating by these schmucks is nothing to fear. It just doesn't matter, because they have no credibility left.

I have to confess that the two books written by Michael Lewis that I mention above have changed the way I look at Wall Street and baseball - and while neither of those industries are places I'll ever work, I've managed to take away a kernel of understanding about the world from his work in a way that is totally unlike any other author's work. You'll have to read the entier 9 page article to get a feel for his writing.