ZadekpediaThe Big Short is a film referenced across several episodes of The Bob Zadek Show. In the excerpts, it functions less as a subject of discussion than as a shared cultural reference point for the 2008 financial crisis and its aftermath. Host Bob Zadek describes having rewatched the movie more than once, and guests take up the film as an illustration of their arguments about economics, regulation, and financial prediction.
Peter Wallison and the Financial Crisis Review Commission
In a September 2020 episode on the Electoral College and mail-in voting, Bob Zadek introduces guest Peter Wallison, described as a co-director at AEI and a scholar who has written many important books. Zadek notes that Wallison published a dissenting point of view to the findings of the Financial Crisis Review Commission, and that Wallison’s piece on that subject is a companion piece to The Big Short Will We Know Who the President Is on November 4? (2020). The bulk of that episode concerns the Electoral College, the National Popular Vote movement, and mail-in voting, with Wallison outlining a scenario in which contested results could prevent the seating of Congress and the election of a president before the constitutional deadline of January 20th.
Austrian Economics and the Limits of Models
The Big Short receives its most extended treatment in a March 2021 episode with Jeff Deist on Austrian economics. Deist argues that economics is a social science concerned with volitional human beings rather than atoms or molecules, and that mathematical models have not served economists well. He cites Paul Samuelson’s predictions about the Soviet Union and predictions by Alan Greenspan and others about the housing crisis of 2008 as examples of models failing Austrian Economics Triumphs (2021).
Zadek then offers the film as an illustration. He imagines himself as a student raising a hand to ask whether The Big Short explains Deist’s point, and describes the protagonist as having made several billion without relying on graphs or charts, instead going into the field to interview homeowners and look at tracts of empty houses bought with zero-down mortgages. Zadek says those sitting with graphs and charts were left holding the bag, and suggests the movie could have been titled Austrian Economics Triumphs Austrian Economics Triumphs (2021).
Deist agrees the film is great and says it points to a second difference between Austrian economics and what many professors focus on: how to think about money, how money comes into society, and how central banks work. He notes that the film explored greed, malinvestment, errors in housing markets, commercial bank lending, and Wall Street’s cutting up of tranches and derivatives wrapped around mortgages soon to be subprime, but did not delve into what underlay it all. Deist argues the mania happened in large part because of central banks Austrian Economics Triumphs (2021). Zadek responds by noting Deist’s earlier activity in Ron Paul’s 2008 presidential campaign and at the Mises Institute, and the theme of central banks in the campaigns of Ron Paul and Rand Paul.
Rating Agencies and the 2023 Bank Failures
In a March 2023 episode with Arnold Kling on the nationalization of the banking system, Zadek returns to the film in the context of Silicon Valley Bank. He notes that Moody’s rating for Silicon Valley Bank changed from an A to a C rating overnight, and says he flashed back to the role rating agencies played during what he calls the era of the Big Short. Zadek says the rating agencies were asleep at the switch and were not sounding the clarion call they are theoretically supposed to play, and that they are paid by the companies they rate rather than by the people who rely on them Arnold Kling: We Just Nationalized the Banking System—Now What? (2023).
Kling lists the California Home Loan Bank Board, the FDIC, the auditor, and the rating agencies as entities that did nothing until the crisis was over, even though short sellers could see it happening. He says the Home Loan Bank Board sent examiners in about a year earlier who said it was a problem, and that SVB had $60 billion in deposits in early 2020 and closer to three times that amount by the end of 2022. Kling argues banks are not supposed to organically triple in size, and that such growth produces management control problems, junior managers handling far more money, and systems problems Arnold Kling: We Just Nationalized the Banking System—Now What? (2023).