Screenosophy: What ethical theories are reflected in “The Big Short”?

“Greed,” says a reptilian Michael Douglas, as Gordon Gekko in Oliver Stone’s Wall Street (1987), “is good.” He is speaking to a room of shareholders, those who have invested in a paper company, Teldar, they had expected to make them a healthy return. As a fellow investor and corporate raider, Gekko is less than pleased with Teldar’s performance.

After lambasting Teldar’s executives, Gekko continues to woo his fellow stockholders. “Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.”

The words emerge from Douglas’s mouth slowly, each an act of creation, as if reality has been, thereby, produced. He might as well have finished with Genesis: “God saw all that He had made, and it was good.” Such is the power of ideas.

Some ideas seem really good — and maybe, if manifested well in action, are. At various times, for example, the U.S. government has generated policy to encourage people to home ownership. Everyone should have the American dream and the security it brings. It’s a nice idea, a really good idea — except for the details, which include the processes for mortgage approval and the mortgages’ subsequent status as a commodity to be traded in the stock market. Two things happened in the 1990s and early 2000s that destroyed that dream for hundreds of thousands of U.S. citizens: 1) mortgages were approved for buyers who were not in a financial position to sustain their payments, and 2) banks bundled and sold these mortgages as if they were a solid investment — as if there would be no defaulting on the loans made to purchase the homes.

Combine these two problems with the fact that stock market trading is, arguably, a form of gambling, and you have a recipe for the sort of economic disaster from which some people will never recover. U.S. citizens lost as much as 5 trillion dollars; 6 million people lost their homes; and 8 million lost their jobs.[1] “Lost,” as in gone and nowhere to be found. “Lost,” as in dead, as in the euphemism we use when someone has died. People don’t lose their lives, they don’t die and then start searching for what they lost. They’re just dead. End of story. That’s pretty much how it was for the people who went to work every day to make mortgage payments, to make their lives better, and to make it possible for their children to do even better than they did. What happened next everybody knows: we then agreed to bail out the banks and other financial institutions that had screwed us once already.

It’s one thing if you know that’s what’s happening and what you’re getting into. It’s another if the game is rigged. How is it rigged, and how does it ultimately fall apart? The Big Short (2015) is Adam McKay’s answer to that question. Adapted from Michael Lewis’s best-selling book of the same name,[2] it’s seen through the eyes of some of the individuals who foresaw and then profited from the 2007 housing market collapse — no easy feat, given how well hidden was its shaky foundation. In the movie, there are several references to just how opaque, how needlessly complicated are the financial “instruments” that packaged dubious mortgages as quality investments. This sort of shenanigan is no accident. Sleight of hand succeeds only if the mark’s attention is directed elsewhere, and, for all but a few, it was. These few bet that the market would fail, the so-called housing bubble would burst. They won.

“They” are Mike Burry (Christian Bale), who trained as a neurologist and operates his own wildly successful hedge fund in northern California. An introvert by way of Asperger’s, Burry studies the numbers and sees patterns. He’s what Rain Man would be with some (but not much) better social aptitude and conditioning. There’s Jared Vennett (Ryan Gosling), based on Deutsche Bank trader Greg Lippman. Vennett doesn’t see the problem coming the way that Burry did — heck, apparently, nobody did — but when he hears about it, he knows this big loser is going to make him a big winner. Among others, he approaches Mark Baum (Steve Carrell playing a character based on Steve Eisman), a hedge fund manager working under the auspices of a behemoth bank, but a man still angry at the corruption of the very industry from which he makes his living. He wants, in a sense, to burn the monastery down from within. Lastly, there’s Jamie Shipley (Finn Wittrock) and Charlie Geller (John Magaro), two young investors based on Jamie Mai and Charlie Ledley, Berkeley kids who started investment fund Cornwall Capital Management, which focused on the housing market. They involve their mentor, the now-reclusive Ben Rickert (Brad Pitt) who made a bundle on Wall Street before decamping to a life of colonics and gardening in Colorado. Based on the Cornwall Capital Management partner, Ben Hockett, Rickert reluctantly agrees to help his protégés enter the big leagues.

The film’s frenetic pace, its frequent breaking of the fourth wall and many scenes set up to make us feel we’re eavesdropping (often shot through a long lens, i.e. from far away, through board room windows) all combine to make us feel like we’re party to something, complicit, not merely observing. And McKay is right. We were all party to it somehow.

As critic A.O. Scott points out, The Big Short is “a trip. At the end, your brain hurts and you feel sick to your stomach, as can happen when too much adrenaline has been surging through your system. But that queasy, empty feeling is the point: This is a terrifically enjoyable movie that leaves you in a state of rage, nausea and despair. What is to be done with those feelings is the great moral and political challenge Mr. McKay has set for the audience, which I hope is vast and various.” One question that arises is, “Which morality are we talking about?” Still another is, “What does morality have to do with capitalism?”

Perhaps we should begin by returning to our old friend, Gordon Gekko. Michael Douglas’s character can be interpreted as representing the ethical view known as ethical egoism. It’s not simply a matter of greed, which is defined as “excessive or rapacious desire, especially for wealth or possessions.”[3] Instead, ethical egoism is the view that, we should do what is in our own self-interest, and we identify our self-interest with satisfying our desire for material wealth. Consequently, when bankers bundled and sold sub-prime mortgages, they were, at least on the face of it, acting in what they perceived to be their own best self-interest. Indeed, in ethical egoism, an action that maximizes that self-interest — being greedy — is good, rather than something to be tempered or otherwise suppressed.

In this view, others’ interests are not factored into the moral equation. We can imagine someone like the shepherd in Plato’s Ring of Gyges[4] myth, for example. Here, a lowly shepherd finds a ring that he soon learns can make him invisible. Delighted with the possibilities such a ring offers, the shepherd proceeds to murder the king and marry the queen. He gets everything he wants, and he doesn’t have to “pay” for it. Now, the larger context of the story is a search for the meaning of justice, and the story’s aim is to illustrate the argument that, if someone can be unjust and get away with it, they will.

Some ethical egoists will say this is not what their view endorses. Instead, they will say that acting in one’s own self-interest actually creates duties to others. After all, they say, I need the cooperation of others in order to achieve my own ends. There are problems with this view, of course. One is that it does not account for those who are not in a position to cooperate. Consider in The Big Short, for example, the poor guy one of Baum’s team meets in Florida. He’s renting a house, diligently paying his monthly nut. The only problem is that his landlord is not, in turn, paying his own mortgage. The renter isn’t in a position to cooperate with the landlord in the way the ethical egoist has in mind, and so he does not get the same sort of consideration as someone who can. (We later see him and his family, having been tossed out of their home because of their landlord’s actions, living out of their car.)

As we learn from the movie, the loans underlying the traded securities, were, unfortunately, increasingly bad. Baum and his team find this out firsthand when they take that trip to Florida to investigate the rumors they’ve been hearing. There they meet two mortgage “consultants” who epitomize the spectacular ignorance and arrogance of the culture — it’s ethical egoism combined with stunning, smug obtuseness. In one scene, they brag about how they sell significant subprime mortgages to people with no jobs or other income source — in short (ha ha), there’s no way the people buying these mortgages will be able to make the mortgage payments. Worse yet, the bank lends the money for interest-only mortgages that will end with the homeowner’s eviction. Meanwhile, the banker and mortgage consultant “earn” huge commissions and move on to the next poor sod who dreams of owning a home.

A bit of ethical egoism is also at work in the scene between Mark, one of his associates, Vinnie (Jeremy Strong) and a Standard & Poor’s (S&P) executive, Georgia (Melissa Leo). When confronted by Mark, Georgia grudgingly explains why they give banks triple-A ratings, despite the fact that their products are faltering. “If we don’t give them the ratings, they’ll go to Moody’s…If we don’t work with them, they will go to our competitors. Not our fault, simply the way the world works.” Disgusted, Baum presses her about her responsibility for “doing shitty and illegal things.” Her response is telling. “I wonder what your incentives might be. Is it maybe in your best interest to have the ratings change? Is it, perhaps?”

Of course, Georgia misses the point. It may indeed be in his best interests for the ratings to change — he’ll make a bundle of money if they do, given the domino effect it will trigger — but the point is that S&P is supposed to rate credit based on the worth of a bank’s assets, not on what the bankers will pay them, since that rating is effectively an endorsement on which investors rely. There’s not supposed to be any sort of “pay to play” going on. As Baum points out, the fact that he will benefit from a ratings change “doesn’t make me wrong.” Georgia’s response? “No. It just makes you a hypocrite.”

This rejoinder stings because it’s at least partly true. Or is it? There is no doubt that one of the causes of Baum and his team making an obscene amount of money will be that the market collapses, which also means that a lot of innocent people’s lives will be devastated. The film makes clear, however, that Baum’s intention is not to hurt these people but instead to stick it to the banks. He’s long been on a mission to use the banking’s own system against it. So, what do we make of this morally complicated situation?

Immanuel Kant[5] has an answer. First, let’s assume that Baum is doing the right thing by criticizing S&P and the banking industry, and more specifically, expecting them to follow the rules laid out in law or in their own policies. Any unfortunate consequences that follow from, say, a revised credit rating would not be morally relevant. As Kant tells us, the morality of an act is determined by the intention of the agent, not its consequences. But just what sort of intention is Kant talking about?

According to Kant, one must always “Act in such a way that you always treat humanity, whether in your own person or in the person of any other, never simply as a means, but always at the same time as an end.”[6] For Kant, morality is rooted in human rationality — it’s a component, if you will, of what it is to be a rational being. There are ways in which we can be rational without being moral, like when we make judgments about which is the most efficient way to get to the store, but we can never be moral without being rational. Moreover, being moral reflects substantial respect for ourselves as rational beings. Consequently, for Kant, using people as “mere means,” degrades their rationality, which is to say, their inherent dignity. It is this idea that seems to underlie a scene in which Brad Pitt’s character becomes frustrated with his protégés, Shipley and Geller.

After securing the last of their investments during a financial industry conference in Las Vegas, Shipley (Wittrock) and Geller (Magaro) break into some happy dancing on a casino floor. This celebration is short lived, as Rickert (Pitt) interrupts Shipley and Geller’s exuberance. “Stop!” he says forcefully. The young men are baffled. “Do you have any idea what you just did?” Rickert asks.

“Come on!” Charlie protests. “We just made the deal of our lifetimes. We should celebrate.”

Without missing a beat, Rickert counters, “You just bet against the American economy.” The boys don’t get it, so Rickert continues, “Which means, if we’re right, people lose homes, people lose jobs, people lose retirement savings, people lose pensions. You know what I hate about fucking banking? It reduces people to numbers. Here’s a number: every one percent unemployment goes up, forty-thousand people die, did you know that?”

We know that, for Kant, morality has nothing to do with the consequences of our actions. Rather, it is the right sort of intentions, and the attempt to implement them, that makes an action moral. The “right” sort of intention is one that respects, or follows from, the moral law. The moral law, in turn, is a rational principle he calls the categorical imperative. The formulation to which Rickert refers is the one that commands us never to treat other people as mere means but also always as ends in themselves. In other words, we may use other people as means when we make a transaction at a store (or trade a stock), but we do not reduce the value of that individual to that means. That’s because each human being is also an end in himself — he or she has inherent worth, and as such cannot be reduced to a number in the way that Rickert abhors.

It must be said that Rickert is not simply saying that using people as mere means is wrong in itself, as Kant would have it — in this case, reducing them to numbers from which massive profits can be made. Rickert is also pointing to another ethical view, Utilitarianism, which is conceptually opposed to Kantian deontology (or duty-based ethics). We do this sort of thing a lot, namely conflate or confuse distinct theories, so it’s worth trying to take a stab to see where the Kantian interpretation ends and the Utilitarian one begins.

The Utilitarian view, and particularly the one promoted by J.S. Mill,[7] is that happiness is the ultimate value, which means all our efforts should be seen as promoting the greatest happiness for the greatest number. Here, the moral view includes hedonism but also consequentialism, which tells us that the moral worth of an action is determined by its consequences. Although in The Big Short the short term benefit to a few was good (for them), the long-term effects to a great many people were so negative as to obviate any small happiness those few shared. This is the worry that plagues Baum throughout the film. A crusader of sorts against corporate greed, he is partly conflicted about the fact that he’ll benefit when a lot of people get hurt. He does think, however, that the banks will hurt significantly more, thereby finally get what’s coming to them. Too bad he was wrong about that.

There is no question that, given the complicated nature of the investments, people made enormous amounts of money off the backs of the average U.S. taxpayer by largely deceitful means. Caveat emptor does not apply, since a buyer has to be in a position to know what she’s buying in order to beware. If someone in a supposed position of authority or expertise tells you that you can own your own home, and then the details of the resulting mortgage are difficult for anyone to understand, excepting perhaps lawyers trained in contract law, then they’re making it all but impossible for you to conduct the due diligence any potential homebuyer should. Worse yet, when people’s mortgages are sold off to investors under the pretense of a solid rating from one of the three most prestigious credit rating agencies in the world — and sold as a safe investment — one can reasonably expect to get what one pays for. The problem is, a bunch of people weren’t playing by the rules. But does capitalism really have any rules?

A lot of people would say, no. Capitalism is an economic system of exchange based on supply and demand. The market determines the monetary value of things; capitalism, they insist, is fundamentally amoral. Adam Smith, considered the father of modern economics, would disagree. In two great works, An Inquiry into the Nature and Causes of The Wealth of Nations[8] and Moral Sentiments[9], Smith makes clear that morality is integrated into everything we do. So, since capitalism is a human contrivance, a human means of producing wealth, it is shot through with moral considerations.

The Big Short almost ends on a note of righteousness when Gosling’s Vennett briefly presents an alternate reality in which the bad guys got theirs: “bankers and ratings agency executives went to prison, the SEC was overhauled, and Congress broke up the big banks and instituted regulations on the mortgage and derivatives industries.” But seriously, we all know what really happened.

At least we’ve seen the rise of so-called ethical investing in recent years. It began long before the bubble grew, let alone burst. Micro-lending, companies whose missions emphasize social goods over profits — or at least in tandem with them — and companies that reinvest in employees, rather than seeing them as mere commodities, have become increasingly popular. Still, these steps forward may be seen by many as too little, too slowly, and the real Burry doesn’t think we’re out of the woods. The Big Short even includes a title card at the end suggesting that banks are again selling the same kind of bad investments that got them into trouble in 2008.

The Big Short tells the story of the tension between our moral views and our typical thinking about capitalism; its characters live out the messiness that results from this tension. Ethical egoism butts up against Kantian duty-based ethics and Utilitarian hedonism, while Smith’s theory of capitalism anticipates or incorporates elements of each — and there is much more to be explored on these and other philosophical fronts, to be sure.

The Big Short does not seem to take a stand on any one philosophical point of view, but this is a good thing, for rather than hammer away patronizingly at one theory, it allows us the mental space to think about what are very difficult things. The film does, however, make the unequivocal point that, in the Big Short of 2008, the American people were the ones who really got shorted. The so-called invisible hand of the market is, ultimately, an exclusive bunch of hands that make choices which dramatically affect people’s lives. Such is the message of the aforementioned scene in which the renter from Florida is seen rushing to stop his small child from running into traffic because he and his family no longer have a home and instead live in their car.

Those in power are not invisible, like Plato’s shepherd. Eventually, as the saying goes, “the truth will out.”[10] They will be seen. They may presently be protected and feel immune to repercussions for their actions, but the less privileged aren’t stupid. As the film makes clear, they can understand the basics of the over-complicated workings of the volatile derivative-infested markets — and they know what all that implies. Meanwhile, we must hope that those guiding the future of our country have more in mind than their own immediate, individual self-interest. We all want the American dream, or at least to believe that dream could still be possible.

[1] These numbers are generally accepted. Any Internet search will provide you with reputable sources for them. They are also provided at the end of Jim McKay’s film, The Big Short (2015).

[2] The Big Short: Inside the Doomsday Machine, W.W. Norton & Co. (2011). Lewis has written a number of successful nonfiction books, including two that were adapted on the screen: Moneyball: The Art of Winning an Unfair Game, W.W. Norton & Co. (2004) and The Blind Side, W.W. Norton & Co. (2007).


[4] Plato, The Republic (Book II).

[5] See Kant’s Groundwork of the Metaphysics of Morals, edited by Mary Gregor and Jens Timmerman, Cambridge University Press (2012).

[6] This is the second of four formulae in the Groundwork, commonly known as the Formula of Ends or Humanity Formula. These express Kant’s notion of a categorical imperative: what must always be done. The first is known as the Formula of the Universal Law of Nature: “Act only on that maxim by which you can at the same time will that it should become a universal law.” The third is the Kingdom of Ends formula: “Therefore, every rational being must so act as if he were through his maxim always a legislating member in the universal kingdom of ends.” Lastly, the Autonomy Formula asserts “the Idea of the will of every rational being as a will that legislates universal law.”

[7] See Utilitarianism, 2nd edition, edited by George Sher, Hackett Publishing (2002).

[8] Edited by Edwin Cannan, University of Chicago Press (1976).

[9] Edited by D.D. Raphael and A.L. Macfie, Oxford University Press (1976).

[10] See Shakespeare, “The Merchant of Venice”.