“The CDO – collateralized debt obligation – was, in effect, a credit laundering service for the residents of Lower Middle Class America. For Wall Street it was a machine that turned lead into gold.”
― Michael Lewis, The Big Short: Inside the Doomsday Machine
If you are able to sit through a screening of Adam McKay’s outstanding new film The Big Short and not feel, as New York Times critic A.O. Scott says, like “going out to the garage to look for a pitchfork” in order to slay the villains, there is a good chance you are: 1) a partner at Goldman Sachs, 2) a Republican U.S. Senator who has been voting to dismantle the weak financial reforms put in place after the Great Recession, or 3) clueless.
The Big Short, a wildly inventive and superbly acted film that is both comedy and tragedy, joins Spotlight, a morality tale, also superbly acted, in exploring the corruption inherent in absolute power.
Both films show us again that Hollywood, the very essence of America’s unceasing appetite for excess, can – at least once in a while – bring about the self-reflection that is distressingly missing among those wrapped in privilege and pampered by power and money.
Recent History…Already Being Forgotten
McKay’s film, based on the bestselling book by Michael Lewis, focuses on the years immediately before the Great Economic Meltdown of 2008 when a handful of investment “outsiders” detected the inevitable bursting of the housing bubble that ultimately brought the U.S. and world economy to its knees. These outsiders, seeing the interconnecting disaster of sub-prime mortgages, mortgaged backed securities, CDO’s, credit default swaps and billions and billions of dollars, decided to beat the rigged “system” where big banks, credit rating agencies and government regulators quietly (and in some cases ignorantly) allowed massive financial fraud to occur.
These outside guys bet “short,” made billions off the fraudulent system and then watched in disbelief as the high rolling Wall Street banking crowd walked away from the wreckage almost entirely unscathed. Others, of course, were not so fortunate. As the film points out a cool $5 trillion dollars was lost when the housing market finally crashed and took with it pension funds, life savings, 401K investments, and the jobs, homes and futures of people who deserved much better.
In the dying days of the George W. Bush Administration the American taxpayer stepped in and bailed out the banks, with the notable exception of Lehman Brothers. The bankers then used vast amounts of the bailout funds to reward themselves with huge bonuses. As the Times reported in 2009, “At Goldman Sachs, for example, bonuses of more than $1 million went to 953 traders and bankers, and Morgan Stanley awarded seven-figure bonuses to 428 employees. Even at weaker banks like Citigroup and Bank of America, million-dollar awards were distributed to hundreds of workers.”
No harm, no foul, but in fact there were both. There has been virtually no prosecution of the clear fraud that occurred – only one relatively low level banker went to jail – while business quickly returned to normal in the canyons of finance in lower Manhattan. Oh, there were financial penalties for many of the guilty firms, but most were sufficiently small to qualify as “a cost of doing business,” even when the business is built on fraud.
In one of the most chilling scenes in a movie full of startling scenes we look on as one of the “short sellers,” played perfectly by Steve Carell, is quizzing one of the big bank managers about who he really represents as he packages and repackages the mostly worthless mortgages – he knows they are worthless – that he then peddles to his unsuspecting investors.
“Who do you work for,” Carell’s character demands to know. The bank guy smiles and says, “the investors.” That is, of course, the very definition of fraud.
Given our startling short attention span it is probably not surprising that most of the political and economic elite – Bernie Sanders excepted – have moved on from these events of less than a decade ago. Wall Street is busy devising new, esoteric investment devices, many barely regulated and even more minimally understood. Meanwhile, as though it all never happened, Hillary Clinton – and every Republican who can – goes to Wall Street for campaign cash, while promising to be tough on the same people who write the checks. The recently passed federal budget deal included, thanks to lobbying by the financial industry, a provision blocking the Securities and Exchange Commission (SEC) “from taking action on a long-discussed rule requiring publicly owned companies to disclose their political giving.”
Surely They Have Committed a Terrible Crime
As stunning as the lack of fraud prosecutions is the easy return to the status quo for Wall Street. One voice in the wilderness has been U.S. Federal Judge Jed Rakoff who has courageously and indigently refused to sanction several settlement agreements struck by the SEC with the bankers who caused the big collapse. Rakoff has written and spoken widely on the tepid regulatory and prosecutorial response to the Great Meltdown and singlehandedly has shamed regulators into insisting that some banks pay higher fines. But, the judge remains dismayed – as viewers of The Big Short certain will – that individuals who clearly committed fraud are still spending their weekends in the Hamptons.
“You have to be careful,” Rakoff told The Nation in 2014. “It’s easy to descend to scapegoating here. But to this very day, it concerns me that too many people in positions of authority do not realize how, even now, there are so many people suffering as a result of this financial crisis. There are millions of people out there who have lost their jobs, have no prospect of getting any good job, have exhausted their resources and are living lives of destitution and hopelessness. If there are people to blame, surely they have committed a terrible crime.”
Indeed. Go see The Big Short and next time you encounter an elected official who could have done more back then and could still do more now ask them if they are ready to explain the next big crash; the economic turmoil that surely will tumble forth again from the greed and corruption that is so deeply embedded in our financial system.
Spotlight on Corruption in the Catholic Church
The other great Hollywood study in power and corruption this season is the real life journalism drama Spotlight,the story of the Boston Globe’s investigations that exposed the extent of the clergy sex abuse scandal in the Boston Archdiocese. The film is exceptional on several levels. It is the best thing Hollywood has every produced showing how journalism really works, but it resists glorifying the scruffy reporters who miss stories right in front of them, descend into numerous rabbit holes, but still doggedly pursue corruption in high places, in this case all the way to the top – Cardinal Bernard Law.
Tom McCarthy’s movie has generated much Oscar buzz despite or perhaps because, as Rolling Stone critic Peter Travers noted,”there’s not an ounce of Hollywood bullshit in it. Our eyes and ears are the Spotlight team, played by exceptional actors who could not be better or more fully committed.”
At the heart of the church’s ugly and widespread scandal is the sobering fact that so many knew for so long what was happening and still did nothing. Lawyers, priests, bishops, well-heeled Catholics who enjoyed being on a first name basis with the Cardinal simply chose to look away. Few, very few, attempted to confront the power and influence of the Catholic Church, an institution as big in Boston as the Red Sox.
Ultimately, it took a Boston outsider, a Jewish editor in a Irish-Catholic town, Marty Baron, now the executive editor of the Washington Post, to zero in on the obvious issue: where does the real corruption come from? At one point Baron’s reporters are ready to publish a story on abuses by a few priests, but he says no. The story is bigger than just the individuals involved, he thinks. They need to go work some more. Ultimately, this is a story of institutional corruption that goes all the way to the top and the Spotlight team got the story.
A Failure of Accountability
Spotlight also draws into sharp focus the genuine threat to a democratic system from the continuing disappearance of the kind of investigative and accountability reporting that made the Globe’s critical stories possible. Critic David Sims correctly says by not cheerleading the journalist’s efforts, but “by quietly celebrating the work of The Globe’s reporters, McCarthy makes a far more consequential argument for the value of smart reporting and robust local newspapers.”
Still one wonders in the era of “click bait” journalism, shrinking newsrooms and a constant re-definition of news whether in the not-too-distant future big, powerful, corrupt institutions will have little if anything to fear from their local newspaper.
Not unlike the guilty in the financial meltdown featured in The Big Short, Bernard Law mostly walked away from his fraud, the 550 victims of abuse in the Boston archdiocese and the $85 million the church paid to settle abuse claims.
The retired Cardinal was forced to step down in Boston, but now lives comfortably in a modern apartment “in a very nice building,” near the Vatican in Rome. Reporters tried to talk to Law when Spotlight was released, but he was not available to answer questions. He, unlike the victims he failed, seems to have moved on. Law will have to wait for his ultimate accountability, as he must surely know.
Both these stellar films are classic tales of corruption, greed and the corrosive effects of money and power, but perhaps what they most share is the spotlight they turn on our culture’s frequent failure to hold those responsible in such egregious cases truly accountable.
Both these films stop short of preaching and seem instead to suggest that all of us have moral choices to make about the frauds and failures in a society that too often has trouble separating the important from the trivial. If we are content to shrug off the latest outrage then can we ever hope that politicians and church leaders, regulators and bond rating agencies will do a better job exercising their responsibility?
When fraud committing bankers are allowed to walk away from the financial wreckage they created, pockets bulging with seven figure bonuses and when one of the high priests of the Catholic Church seamlessly moves on from what may be the worst failure of accountability in the modern history of the institution one is left to wonder only one thing: how bad will it be next time?