‘The Big Short,’ Housing Bubbles and Retold Lies

by Paul Krugman,

“The Big Short” is based on the Michael Lewis book of the same name, one of the few real best-sellers to emerge from the financial crisis. I saw an early screening, and I think it does a terrific job of making Wall Street skulduggery entertaining, of exploiting the inherent black humor of how it went down.

The film achieves this feat mainly by personalizing the tale, focusing not on abstractions but on colorful individuals who saw the rot in the system and tried to make money off that realization. Of course, this still requires explaining what it was all about.

I could quibble over a few points: The group of people who recognized that we were experiencing the mother of all housing bubbles, and that this posed big dangers to the real economy, was bigger than the film might lead you to believe. It even included a few (cough) mainstream economists. But it is true that many influential, seemingly authoritative players, from Alan Greenspan on down, insisted not only that there was no bubble but that no bubble was even possible.

And the bubble whose existence they denied really was inflated largely via opaque financial schemes that in many cases amounted to outright fraud — and it is an outrage that basically nobody ended up being punished for those sins aside from innocent bystanders, namely the millions of workers who lost their jobs and the millions of families that lost their homes.

While the movie gets the essentials of the financial crisis right, the true story of what happened is deeply inconvenient to some very rich and powerful people. They and their intellectual hired guns have therefore spent years disseminating an alternative view that the money manager and blogger Barry Ritholtz calls the Big Lie. It’s a view that places all the blame for the financial crisis on — you guessed it — too much government, especially government-sponsored agencies supposedly pushing too many loans on the poor.

Never mind that the supposed evidence for this view has been thoroughly debunked, or that before the crisis some of these same hired guns attacked those agencies not for lending too much to the poor, but for not lending enough. If the historical record runs counter to what powerful interests want you to believe, well, history will just have to be rewritten. And constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.

The thing to remember, when you see such attacks, is why they’re taking place. The truth is that the people who made “The Big Short” should consider the attacks a kind of compliment: The attackers obviously worry that the film is entertaining enough that it will expose a large audience to the truth. Let’s hope that their fears are justified.

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