THE BIG SHORT: The Danger Of Living In Bubbles & Fooling Ourselves

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The Big Short, directed by Adam McKay, starring Christian Bale, Ryan Gosling, Steve Carell, and Brad Pitt, tells more than the story of the U.S. housing bubble from 2001 to 2005 and the risky advantages taken by mortgage companies, hedge funds, and investment bankers to profit from it. I’m a psychoanalyst not an economist. The housing bubble is one thing. Living in psychological bubbles leads to dangerous behaviors and disastrous consequences, not unlike the 2008 U.S. economic crash. Selina Gomez, at the blackjack table, says it well: “I’m on a winning streak … how could I lose, right?”

Believing Things That “Just Ain’t So”

The Big Short begins with a quote from Mark Twain: It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so. Selena Gomez’ “knowing-for-sure” statement ends with a question that is actually meant to confirm that what she knows she knows. If “right?” was actually a question and left room for other ideas or opinions, those gambling on the housing bubble might have been saved from an abrupt crash back to reality.

Why do some of us need to know things “that just ain’t so?” It’s an important question, since generally such certainties are built on unsound foundations and serve as a psychological defense. Defenses are necessary protections, put in place to guard against something else. Some defenses are better than others. Some, like “knowing for sure,” can create psychological bubbles.

Psychological bubbles happen when we live in only a portion of our internal reality in order not to know about the other. That which is too difficult to know (feelings, memories, unpleasant thoughts or self-perceptions) is generally not conscious. Bubbles can be dangerous and shaky states of mind to live in.

Michael Burry (Christian Bale) knew about a related kind of shakiness in the housing market and set out to prove it. The housing market bubble was propped up on subprime loans given to people with poor credit or low income, hidden in mortgage-backed securities, amidst the good loans. What we hide from ourselves can often be more important than what we think we already know. This is particularly true when we create fantasies we want to believe and disregard realities that need to be seen.

Delusions And Illusions – Fallacies Of Belief

Let’s go back to the blackjack table with Selena Gomez and Richard Thaler, Ph.D., father of Behavioral Economics. Their explanation of synthetic CDO’s provides a good starting point for understanding what motivates delusions, illusions and fallacies of belief.  Here’s what Selena says in the film: “My odds are good. I’m on a winning streak. Everyone wants to get in on the action. How could I lose, right?” Dr.Thaler clarifies: “This is the classic error. In basketball, it’s called the ‘hot hand fallacy.’”

Two things that motivate such fantasies are greed and competitiveness. We certainly see both in The Big Short – in those getting in on the action of shorting the housing market, banks bundling mortgages, Standard and Poor’s Georgia Hale (Melissa Leo) allowing their ratings to be bought, and smaller time brokers selling mortgages.

One Florida mortgage broker said it well: “I write 60 mortgages a month, it used to be 10. No one gets rejected. No income. No job. These people just want homes. Companies don’t verify.” This broker made $2000 on a fixed rate mortgage, but $10,000 on a subprime mortgage and he’d sell to anyone.

No one wants to lose. No one wants to think about things not going the way they want or about bad things happening. The problem is – what we try not to think about can knock us completely off guard. Yet, looking at the whole picture means seeing realities we might not want to see.

Hating Truth

Another quote from The Big Short says an enormous amount about difficulties with reality: Truth is like poetry and most people fucking hate poetry.

Let’s take the housing bubble as an example. As high as housing prices rose were as high as fantasies went. The manic buzz of making a fortune on housing was like a drug. Buy a house, sometimes put only 5% down, and your future was set. Sell subprime mortgages to anyone you could get your hands on, make 10-1 what you’d make on a fixed rate mortgage. Bundle bad loans with good, what did you have to lose? It couldn’t end, could it?

The more excessive the fantasy is, whether housing or anything else, the shakier its foundation. When the fantasy collapses, a harsh reality has to be faced.  Part of that reality is the truth that euphoric highs and grandiose illusions are different than hopeful optimism. When we believe the whole story can only go the way we wish and it turns out not to be so: Truth is a buzz – killer. Psychological bubbles can be broken in other ways.

Undoing Psychological Bubbles

Two characters in The Big Short offer us a window into their inner lives and, for each of them, there’s a reason to stop, to care, to take a close look at what’s going on. This is the benefit of self-awareness, sometimes hard won, as it was for both Mark Baum (Steve Carell) and Michael Burry. Self-awareness, or seeing the whole picture (particularly when it comes to ourselves), can undo the psychological bubbles some of us live in.

Mark Baum couldn’t face his feelings of loss and responsibility for the suicide of his brother, who jumped off a building while Mark, on the phone with him, tried to talk him down. Mark resisted therapy; living with the walls of anger he built around his guilt and grief. With the help of his wife (Marisa Tomei), and his early ability to ask questions (not even taking the Talmud at face value), he was able to let go of his anger and not take that at face value either.

When Mark finally cried, he admitted that his first response to his brother’s confession he had bad thoughts – was to offer him money. Mark came to realize that money doesn’t fix things. Greed tears people apart. Money can’t replace compassion; doesn’t undo human pain; and will never substitute for listening.

Michael Burry also knew what it was to suffer a loss. He lost an eye as a child. Because of this, he had difficulty relating to people. He felt shame. He believed he was an outsider. He was more comfortable alone. Even with his social awkwardness (perhaps Asperger’s) or maybe because of it, he had empathy, a capacity to care, and a wish to help.

In spite of having one glass eye, Michael Burry saw more clearly than most people. As an outsider, he had the perspective and ability to look in. Psychoanalysts, too, do what outsiders in The Big Short did: “What no one else thought to do: They looked.”

The moral of the story of bubbles (psychological, housing, or otherwise) is this: Look. Question absolute certainties. Don’t be swept up in risky undertakings without trying to see both sides. Think about the risks and the gamble in any situation. In the long run, truth is better than illusion, delusion, or fiction. As The Big Short makes clear, defrauding others has adverse consequences. Yet, the deceptions we pull by fooling ourselves might in the end be worse.

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