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UMKC’s Bill Black reviews the highlights and holes of the film The Big Short

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JESSICA DESVARIEUX: Welcome back to the Real News Network. I’m your host Jessica Desvarieux coming to you from Baltimore. We’re continuing our conversation about the film The Big Short with our guest Bill Black. Bill is an associate professor of economics and law at the University of Missouri, Kansas City. He’s a white-collar criminologist and a former financial regulator, and author of the book The Best Way to Rob a Bank is to Own One. Thanks so much for being with us again, Bill. BILL BLACK: Thank you. DESVARIEUX: So Bill, let’s pick up our conversation where we left off. I wanted to talk about what the film fails to ask. What questions does it never really address? BLACK: Okay. So the first one. This is a book, and therefore a film, glorifying this group of folks that shorted stock and became billionaires. So the first question is why didn’t they ever go to the president of the United States and try to warn him? Because this didn’t just cause a financial meltdown, this caused $10-plus trillion in losses to regular people, and it cost $9.3 million American jobs that were lost, and another 5 million that normally would have been created that were not. You’ll note that none of these folks even think about trying to stop the crisis and trying to stop the harm. So I’m a founding member of the Bank Whistleblowers United. The other three founding members were, blew the whistle on this crisis, tried to stop it. Think how different the story would be if we made heroes of the people that didn’t try to profit from the crisis, but actually tried to prevent it and lost their jobs because they did the right thing. Second thing. So where was all this fraud–you know, they use the word fraud frequently in the movie. Where is it coming from? Well, the only real examples that they present are all from the little folks, right, these mortgage bankers who, there’s testimony in front of the financial crisis inquiry commission that their typical job prior to becoming a mortgage banker was flipping burgers. Right, that was the most common job before. These are not people that devise fraud schemes, right. These are people who were carefully incentivized by the most elite bankers to inflate appraisals, inflate borrowers’ income, and create a phony record that you could then use to resell these mortgages through phony, which is to say fraudulent, representations and warranties to the secondary market. And who else did they show? An exotic dancer, right. Because, you know, the exotic dancer is so incredibly financially sophisticated and clever that the poor people at Lehman Brothers who start at $250,000 and go up to people who were earning–not earning, but receiving, $25 million, couldn’t figure out that maybe an exotic dancer probably wasn’t, didn’t have an income of $200,000 a year. So the whole creation of the fraud, how they sent the incentive structures through, wasn’t done. The whole thrust of the story, of course, is the brilliance of these quirky folks. But probably viewers would like to know that in fact over 15 years before these guys figured it out, it was figured out by our regulators at the Office of Thrift Supervision in the field, our examiners, the lowest-paid, you know, professionals in the food chain who immediately got it right told us. We looked and said, you’re right, these are inherently fraudulent, these liars’ loans. And they weren’t called liars’ loans then, they were called low-documentation. And drove them out of the savings and loan industry, starting in 1991. So when did the warning on massive appraisal fraud get put–when did they start, the appraisers, doing that? In 1998. When did they put it in writing, in a petition? Public petition? In 2000. You never hear about that in the movie. And people like Dean Baker, that Real News has had on, are folks who deserve particular praise for calling the housing bubble, again, at least five years before these folks who are presented as uniquely brilliant and everyone was stupid, and such. And yes, there were SEC folks that are portrayed as the person wearing the bikini, desperate to get the job with the vampire squid at Goldman Sachs. But there’s a real life SEC attorney. There are a number, a founding member of our group, Gary Aguirre, who took on his bosses. Right, and the bosses not only squashed his investigation, they began destroying all the documents, and they retaliated against him. So you know, yes, there are people like that, the person in the bikini. Yes, the revolving door is a big problem. But there were brave people in many different places, other founding members tried to stop the massive frauds at Citigroup, that’s Richard Bowen, and at Countrywide, and that’s Michael Winston and such. Those stories get lost in a Michael Lewis story because, you know, the focus is always on some quirky group of allegedly uniquely brilliant folks, and the government’s, you know, people are always idiots in the Michael Lewis tales. So it’s a great movie. You should see it. But someday there should be a much better movie, and you should see that as well. A movie that features the whistleblowers of the world telling you the story from the inside. DESVARIEUX: Yeah. And something else, Bill, that I came across. I felt that the film didn’t do enough to really produce any real solutions, if that makes sense. That there wasn’t even a critique of capitalism. It was very much just, you know, there was greed, and this is what happens when people are unethical, but nothing that really challenges the structure of it all. BLACK: Correct. Now, they do show that the system is rigged. They show that it’s rigged in many different ways. So you are correct, they don’t say why. It’s like, well, who rigged it, and why? And their story then implies that the big folks are simply stupid. Which, again, is a Michael Lewis thing. No, right. They devised the perverse incentive structures that caused all of the things you saw in the movie, and they were made spectacularly wealthy by all of those things, and they did so with complete impunity. And therefore–. DESVARIEUX: It’s selfish, but not stupid. BLACK: And therefore they’re starting it again, right. And we, and the Wall Street Journal has reported that what a–and I’m quoting–big money managers, unquote, are trying to bring back liars’ loans. And the Wall Street Journal is telling this creation myth that lenders created liars’ loans to try to help people. And then it was just these people that abuse them, you know, the sort of the exotic dancer, and the poor banks were just helpless putty in the hands of these financial, sophisticated, you know, ultra-sophisticated exotic dancers, and they couldn’t figure out that they, you know, didn’t really have incomes of $200,000 a year, and isn’t it a shame. DESVARIEUX: Yeah, yeah. And there was also another scene where I remember–I can’t remember the actor’s name. But he essentially is doing some investigating about these liar loans and these toxic mortgages, and he goes into a housing development and they’re seeing all of these homes that are for sale. And there’s one in particular he sees is underwater, and he goes to the front door. The person who opens the front door is a renter. And essentially they have been paying their rent, but the person wasn’t paying their mortgage. And then later on in the movie you see that the family is homeless. And I found that to be interesting, too, Bill, because it suggested to me that it was these type of folks that led to people having to resort to being homeless. It wasn’t banks who foreclosing on people’s homes in that story. That wasn’t really portrayed in the film, either. BLACK: Right. It would have been somebody that owned five homes, and the only person presented in the movie as doing that was the exotic dancer. DESVARIEUX: Yeah. Yeah. Really great film, though. As we both said, I think it’s definitely Hollywood’s best attempt at trying to critique what happened in 2008. BLACK: Right. Go see this movie, but then demand that Hollywood make the real movie. DESVARIEUX: I hear you. I hear you, Bill. All right, Bill, always a pleasure having you on the program. Thank you so much for being with us. BLACK: Thank you. DESVARIEUX: And thank you for joining us on the Real News Network.


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