“The Big Short,” a star-studded, behind-the-scenes account of the 2008 mortgage meltdown, is one of the leading contenders in the Academy Awards race for best picture.
If you haven’t seen it yet, do yourself a favor. It’s smart, funny and entertaining. But brace yourself: What The Big Short reveals about Wall Street and the financial industry may tick you off royally. And it should.
The film centers around hedge fund managers Mark Baum (Steve Carell) and Michael Burry (Christian Bale), an eccentric genius who does something none of Wall Street’s supposed watchdogs had bothered to do: He takes a magnifying glass to collateralized debt obligations, or CDOs.
Leading up to the 2008 real estate collapse, CDOs were making a fortune for the firms that had concocted them. The instruments were marketed as low-risk bundles of mortgage debt, but as Burry discovered, they were frequently jam-packed with mortgages that were teetering on the brink of default. Put simply, CDOs were time bombs.
CDOs bore stamps of approval from the big, trusted rating agencies that had supposedly audited them. No wonder—if the rating agencies hadn’t signed off, the investment firms that created the investments would have taken their lucrative business elsewhere. The regulators also turned a blind eye. So did The Wall Street Journal.
If you’re starting to get the idea that there’s an incestuous intersection between Wall Street and the institutions that are supposed to keep it from going astray, you’re absolutely right. “The Big Short” is an important film because it reveals, in unsparing detail, the greed and conflicts of interest that make Wall Street run.
You already know how the movie ends. The mortgage market implodes, as do the CDOs. Burry and Baum wind up making a fortune by betting against the entire housing sector. Oh, and the Wall Street wizards behind CDOs and similar products make a killing as well.
The losers? You know who they are as well: the families who lost their homes and, in the recession that followed the mortgage mess, their livelihoods. The rank-and-file workers who were thrown into the street when Lehman Brothers collapsed and other financial businesses had their own near-death experiences. And of course, the countless investors who trusted their Wall Street brokers enough to buy what turned out to be fraudulent mortgage investments.
One of the lessons of “The Big Short” is that when Wall Street wins, the consumer too often loses. By now, this is no secret. In the wake of the mortgage crash and the global financial crisis that it triggered, government regulators have sought to impose a fiduciary standard of client care on the big brokerage firms. The fiduciary standard would legally require these firms to avoid or clearly disclose conflicts of interest, and it would compel them to put their clients’ interests first.
To absolutely no one’s surprise, Wall Street firms have fought tooth and nail against the fiduciary standard. It’s easy to see why: A fiduciary standard would bring their money train to a screeching halt.
It you think all of this is nuts, we agree. At AdvicePeriod, we don’t look at consumers as sheep to be sheared. Our mission—and we consider it revolutionary—is to provide objective advice across investments, tax and financial planning, all while minimizing conflicts. We are built upon the fiduciary standard – and not the adaptation that allows firms to bury disclosures of egregious conflicts such that they can claim they adhere to the Standard. We are committed to transparency, simplicity and client advocacy.
If you’d like to learn more about Wall Street’s hidden agendas and conflicts of interest—as well as what makes fiduciary firms like AdvicePeriod different, we invite you to read “Get Wise to Your Advisor,” a clear, straightforward consumer empowerment guide.
And please do see “The Big Short”. You might think some of what the movie depicts is too outrageous to be true. If only that were the case. When it comes to doing business with Wall Street, caveat emptor.