By Peter J. Wallison.
The film called The Big Short differs in a significant way from the book of the same name on which it is based, and this difference reveals how the film-makers made it more politically charged in order to blame Wall Street for the financial crisis.
In the book, the Wall Street experts who were approached to bet against the housing market almost all refused.
This showed something that was true, and for that reason interesting: that even people on Wall Street, always on the lookout for a money-making opportunity, could not believe the housing market was in any danger of collapse. In the film, this was demonstrated by the skepticism of the FrontPoint group that was initially approached as investors, as well as the eagerness of the financial firms such as Goldman Sachs and others to take the other side of the bet against the housing market.
In the book, the tension in the narrative was created when the book’s protagonists — the first people to bet against the housing market — had persuaded their investors to place bets against the housing market many months before the coming failures actually became evident. As a result, in the book their financial backers became impatient. The predictions of a collapse did not happen fast enough, and they sought to withdraw their funds. Some of this impatience was present in the film, but the context was changed.
In the film, the collapse actually occurred, but the there was no movement in the market prices of the privately-issued mortgage-backed securities or the credit default swaps that were used to bet against them. This was attributed in the film to a conspiracy among the big banks on Wall Street: they somehow kept the market from moving against them while they sold off their holdings to less informed buyers.
It should be obvious that a conspiracy like this is impossible. There are too many buyers and sellers in the financial markets for something like the price of mortgage-backed securities or credit defaults swaps to be rigged. In reality, as soon as an index of housing defaults began to signal danger, investors fled the market.
