Ethical Issues In The Big Short Movie

Eight years ago, the world economy crashed. Jobs were lost, families misplaced, hundreds of thousands of people left shocked and confused as they watched the security of their world fall to pieces around them. In, “The Big Short,” a film directed by Adam McKay and based on the book written by Michael Lewis, viewers get an inside perspective on how the financial crisis of 2008 really happened. Viewers learn the truth about the unethical actions and irrational justifications made by those who unwittingly set the world up for failure. Two main ethically tied decisions are brought into question when watching the film: how could anyone conscionably make the decision to mislead investors by misrepresenting mortgage backed securities (MBS), and why

would investors decide to bet against the MBS if it is essentially the backbone for stability of the American economy?
Three storylines are used in “The Big Short”, all intricately connected. The first follows Michael Burry, a socially inept hedge fund manager with intense attention to detail and the ability to comprehend ideas that challenge even the smartest individuals. Burry uncovers the instability of the housing market three years before the crash. After hours of intense research, he discovers that the market everyone believes to be eternally secure is built on a foundation of lies. These lies can be explained with one financial concept: adjustable rate loans. Adjustable rate loans are typically offered to and accepted by individuals who are buying something they can’t afford. In the context of this film, people are buying homes. They are paying for homes via loans that start out at an affordable and reasonable rate (called a “teaser period”), but after a certain period of time the loans are adjusted to a higher rate so the loan recipient fully pays off the loan in the typical 30-year period. Unfortunately, most people are confused by these loans. Financial terminology and the low payment during the teaser period tricks individuals into accepting the loans, and eventually loanees can no longer payments after the teaser period ends and their rate increases. They then end up defaulting on the loan, therefore causing the instability of the MBS’s.
Because his job is to earn money for those invested in his hedge fund, Burry determined his best action is to profit from his discovery of instability and bet that the stock market will crash because of the misrepresented MBS’s. As the first person to discover the fault in the stock market, Burry tries to notify others of his discovery. No one believes Burry and he ignores their blind trust in the stability of the housing market and places his bet anyways.
The second storyline follows Jared Vennett and Mark Baum. Vennett overhears stockbrokers joking the seemingly insane investments made by Burry when he shorted the MBS’s. Vennett considers the possibility that Burry must know something the rest of the world doesn’t and he investigates. Coming to the same conclusion as Burry, Vennett begins to seek out a hedge fund manager crazy enough to take similar action and again bet against the stability of the hosuing market. He convinces Baum, the manager of a hedge fund run under Morgan Stanley, that the instability exists and the potential to profit is immeasurable. Baum and his team are skeptical at first, but eventually agree and place their own bet against the housing market.
The third storyline follows Jamie Shipley and Charlie Geller. These two young investors stumble upon Vennett’s pitch regarding shorting the MBOs and fall into the same understanding as Burry and Baum. Shorting the MBS’s will result in an unthinkably high return on investment when the housing bubble pops in a few short years. The two men take this discovery to their mentor, Ben Rickert, who agrees that the market is unstable and profitable should they place bets against its success. After Rickert’s agreement, Shiply and Geller make their investments.
As the film progresses the three storylines overlap. All three are tied together, and they experience similar character growth. Each storyline financially invests more than they can afford in their bet against the MBS’s, all the while being laughed at by those around them. Time passes, and each investor begins to realize the depth of issues tied to the MBS’s. People are committing fraud and causing confusion at all levels of involvement. Baum discovers that the mortgage consultants loaning funds to people aren’t checking to ensure the loanee can afford the monthly payments. The consultant’s only concern is the bonus they receive after the loan is distributed. Mortgage raters are lying about the quality of the MBS’s because they feel it is their only option. Eventually, even the big banks are lying about the stability of the market. As loanees begin to default on their loans as adjustable rates kick in, the stock market mysteriously reports no evidence of the crumbling foundation upon which it is built.
In the end, loanees begin to default on the loans they can’t afford and the once stable housing marked crashed. All three storylines profit enormously from their bet against the stability of the MBS’s. Even though each protagonist is now rich beyond comprehension, none of them feel pleased with how they earned the money. They understand the ethical implications of their investment. Even more disgusted were they by the unethical actions that led to the economical collapse in the first place.
Without the unethically distributed mortgages, it is possible that the economic collapse would never have occurred.

Individuals like the two young and rambunctious mortgage consultants portrayed in the film gave loans to anyone and everyone that could sign the paper, regardless of the recipient’s ability to pay the loan in full. It is doubtful that all consultants fully understood the ramifications of their actions, but undoubtedly the overall disregard for consequence was the start of the collapse. Mortgage consultants mislead and tricked people into loans they could never afford by playing on their desire to live the American dream. Distributing adjustable rate loans to individuals without jobs, without collateral is unconscionable. Unfortunately, from their perspective they were helping these individuals. In a twisted way, these consultants were acting ethically from a utilitarian point of view. The consultants won because they received utility in the form of a bonus for distributing the loans, and the loanee won because they could now afford the home of their dreams. What the consultants didn’t consider in their calculations were the long term results and utility of their actions, unethically building the flawed foundation of the housing

market.
Further creating instability in the market, mortgage raters consciously misrepresented the quality of the MBS’s comprised of the aforementioned loans. In the film, a mortgage rater talks with Baum’s team about how the MBS’s are rated and why so many received higher ratings than they deserved. The woman, symbolically wearing dark glasses, claims she has no choice but to misrepresent the MBS’s. If she was honest and rated them poorly, she would lose customers as they would take their business to a different mortgage rater willing to provide a high rating. Her justification for the unethical act is sound in her mind, but her glasses symbolize she is blind to the mess created by the fraudulent ratings.
As the investors discover the depth of corruption in the market, the viewer begins to question whether or not bets placed against the MBS’s are ethical in themselves. The group of protagonists are, as pointed out by Rickert, betting against the American Economy. They are profiting off of the lives of those who would be affected by the crash. In a way, the investors were treating humans as a means to an end. Immanuel Kant, ethical theorist, believes treating people as a means to an end is the epitome of unethical actions. No human should suffer at the benefit of another. Both Baum and Rickert were notably plagued by the inevitable economic deficit they predicted throughout the film. Even though they understood the negative moral implications of investing against the market, they still chose to place their profitable bets. By doing so, they acted unethically in the eyes of Kant. At the same time, Baum rationalized his actions by reassuring himself he was screwing the banks just as the banks screwed the people trusting them.
Most all of the people the film’s characters were based on felt the weight of their decisions and left the financial world after they sold their position against MBS’s. In the closing scenes of the movie, words cross the screen surmising that in todays world nothing has changed. After the stock market crashed the US government bailed out big banks while the American people were left struggling to regain their footing. Bankers are still finding ways to confuse and trick people into believing the deals they make are good, even selling MBS’s once more under the guise of a new name. There is a possibility the ethical dilemmas represented in the film, “The Big Short,” will present themselves once more. Ideally, the checks and balances installed by the United States after 2008 will prevent a repeat performance but that is yet to be determined. The true power to prevent this recurrence is in the hands of involved individuals. If those involved make ethically conscious and informed decisions, ideally we will be safe. Unfortunately, blind spots occur, no two definitions of ethical right and wrongs exist, and we cannot predict how individuals will act when presented with an ethical dilemma.