The Big Short and Being Human
Back in the late 80s when I attended UW-Madison, I had a conversation with a fellow student and expressed my opinion that the way we value a nation’s economy is going to have to change – that we can’t continue to measure economic growth largely by how much of its natural resources we’re expending. In essence, I argued that the entire world economy is a one giant Ponzi scheme (though I didn’t know the term Ponzi scheme until Bernie Madoff entered the picture). I still believe this to be the case. After all, a stock’s price is supposedly the present value of all future earnings, but we know that most companies that exist today will one day disappear and be sold for peanuts (Pan Am, Blockbuster, Enron, Woolworths, Tower Records), and the present value of a string of zeros is zero, so we’re really betting on short-term earnings. Even Amazon founder Jeff Bezos who has a rare long view when it comes to business success recognizes that his company will one day be disrupted and perhaps no longer exist (watch 13:20 of this 60 Minutes video).
It’s one thing to have this viewpoint about a system that’s largely on the up and up: that’s run by smart people with good intentions but who sometimes fall short or make mistakes. It’s quite another to discover that the people driving our economy are incompetent, greedy, short-sighted, ruthless criminals. If you’ve seen The Big Short or read the Michael Lewis book upon which the film is based, you’ll likely spend some time rethinking your investment strategy. After all, does it make sense to invest your retirement savings in corporations run by buffoons? The answer: what choice do you have? If you could earn 5% guaranteed in CDs you might do so, but you can’t, so if you’re like me you’ll throw the dice and hope that the pyramid scheme of the U.S. economy can hang in there for a little while longer.
I tried reading The Big Short a few years ago and had some difficulty. It does get complicated. But having a visual helps me enormously, and the film’s director Adam McKay (of Anchorman fame) does a marvelous job of acknowledging the complexity of the movie’s subject while helping the audience along the way. I still left the movie with a few lingering questions (that I hope to answer by giving the book another shot), but generally felt more informed than when I arrived, while still being entertained in between.
No small feat.
Michael Lewis has a terrific piece in the week’s Vanity Fair that describes the minor miracle that any of his books have been made into movies (and successful ones at that: Moneyball, The Blind Side), least of all a film about credit-default swaps and collateralized debt obligations. You’ll also learn what you likely already knew: that incompetence and greed are as prevalent in Hollywood as they are on Wall Street.
If only it ended there. But it doesn’t matter whether it’s Wall Street, Hollywood, government agencies, the Chicago police force, horny priests, Oregon ranchers or religious zealots: we as humans seem to be preprogrammed to abuse power, blur the lines between right and wrong, desire more even when we have enough, sacrifice long-term benefits for short-term gains, and hurt people for our own benefit. So why is it when we read about our brethren behaving badly we feel smug about it and think we would never fall into the same trap despite history telling us otherwise?
There are different schools of thought here. My own viewpoint is that religion – for all its faults – helps ground us in humility and gratitude, two essential ingredients to keep from following our worst instincts. Perhaps the people running our biggest firms would do well to spend more time in the pews or our nation’s religious institutions and less in the office.
But then how do you explain the clergy sex abuse scandal? Yeah, that's tricky. After you see The Big Short go watch the marvelous film Spotlight and then tell me your faith in mankind hasn’t been just a wee bit shaken.