WALL STREET JOURNAL
What the ‘Big Short’ Movie Gets Right—and Wrong—About the Financial Crisis
by Greg Ip
December 11, 2015
…Viewers get an entertaining lesson in the financial engineering behind the mortgage bubble, such as how mortgage-backed securities are constructed and how vulnerable they were to default. But it is an incomplete picture. By dwelling so intensively on mortgage finance, “The Big Short” underplays the more complex economic forces that produced the bubble and intensified the crisis. By laying the bulk of the blame on Wall Street venality, it brushes off less nefarious but more compelling reasons why so many on and off Wall Street didn’t see it coming….But it never answers the bigger question: how the bubble, and the belief it would never collapse, formed. The reason lies in broader macroeconomic and societal forces that are barely mentioned: low interest rates engineered by the Fed after the Nasdaq bubble’s collapse; the glut of foreign savings from China and elsewhere pouring into the U.S. bond market; the complacency nurtured by years of economic calm; the financial innovations—well beyond mortgages—and lax regulatory standards bred by that calm. READ MORE SUBSCRIPTION CONTENT
Good follow up to The Big Short: Read New York Times journalist Gretchen Morgenson’s Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon to get a better understanding of the roots of the 2008 meltdown, including Fannie Mae’s role.