The Big Short is a film repeatedly invoked across episodes of The Bob Zadek Show as a common reference for the 2008 financial crisis and for the failure of forecasting, rating and regulation that surrounded it. The excerpts do not treat the film as a subject in itself; it appears as an illustration in arguments about the Financial Crisis Inquiry Commission, Austrian economics, central banking and bank supervision.
Wallison and the Financial Crisis Inquiry Commission
In the September 11, 2020 episode on the 2020 election, Bob Zadek introduced Peter Wallison, described as a co-director at AEI and a scholar, by way of the film. Zadek told listeners that for those fond of The Big Short—which he said he had just rewatched—Wallison had published a dissenting point of view to the findings of the Financial Crisis Review Commission, and that Wallison’s piece on that was a companion piece to the movie Will We Know Who the President Is on November 4? (2020). The introduction then turned to Wallison’s more recent writing on the National Popular Vote movement, which Zadek said would get most of the morning’s attention; the excerpt names Wallison’s article “The National Popular Vote: A Threat to Electoral Stability” and describes the movement as seeking to replace the Electoral College with a system in which the candidate who gets 51% of the popular vote becomes president. The film thus served only to establish Wallison’s dissenting stance on the official account of the crisis before the conversation moved to election mechanics.
Austrian Economics and the Limits of Models
The Big Short carries more argumentative weight in the March 7, 2021 episode with Jeff Deist. Deist, discussing the failure of mathematical models, said that in the social sciences human beings are volitional creatures who cannot be studied the same way as the physical world, and that Austrian economics starts from axioms about human action and works deductively. He cited Samuelson’s prediction about the Soviet Union and predictions by Alan Greenspan and others before the housing crisis of 2008 as instances where mathematical models had not served economists well Austrian Economics Triumphs (2021).
Zadek then offered the film as an audiovisual aid. Imagining himself as a student raising a hand, he asked whether The Big Short explained Deist’s point, describing the protagonist as having made several billion without relying on graphs or charts, going out into the field to interview homeowners and looking at tracts of empty houses where people owned three and four of them bought with zero down mortgages. Zadek said the business person and investor carried the day while formula-driven economists were left holding the bag, and suggested the movie could have been titled Austrian Economics Triumphs Austrian Economics Triumphs (2021).
Deist agreed the film was great and used it to introduce a second difference between Austrian economics and much academic practice: how to think about money, how money comes into society and how central banks work. He said that was a huge theme in The Big Short that was less explored—that viewers thought about greed, malinvestment, errors by commercial banks in lending and by Wall Street in cutting up tranches and derivatives wrapped around mortgages soon to be subprime, but that the film did not delve into what underlay it all. Deist argued the mania happened in large part because of central banks. Zadek responded by noting Deist’s earlier activity in Ron Paul’s presidential campaign in 2008 before he went to the Mises Institute to lead it, and observed that Ron Paul and to some degree Rand Paul often raised the existence of central banks as part of the problems of the day, an issue on which many economists had written about the supply of money and the management of interest rates as opposed to letting interest rates find their equilibrium in the marketplace Austrian Economics Triumphs (2021).
Rating Agencies, Twice
The film returns in the March 20, 2023 episode with Arnold Kling, in a discussion of the failure of regulators and rating agencies. Zadek noted that Moody’s rating for Silicon Valley Bank changed from an A to a C overnight, a story he said was mentioned in passing, and said he could not help flashing back to the role rating agencies played during what he called the era of the Big Short. He described the rating agencies as the one thing the 2008 financial crisis had in common with Silicon Valley Bank and maybe First Republic, saying the agencies were again asleep at the switch and were not sounding the clarion call they are theoretically supposed to play. He told listeners to watch The Big Short if they wanted the details, and said the rating agencies are paid by the companies they rate, not by the people who rely on them Arnold Kling: We Just Nationalized the Banking System—Now What? (2023).
Kling took up the point by listing the actors he said were either private-sector or government regulators: the California Home Loan Bank Board, the FDIC, the auditor—whatever their Big Four auditor was, which signed off on everything—and the rating agencies. None of them did anything until the crisis was over, he said, even though there were short sellers who could see it happening. He said the Home Loan Bank Board sent examiners in about a year earlier who said this was a problem, and that anyone who has been a bank regulator knows banks are not supposed to organically triple in size: SVB had $60 billion in deposits in early 2020 and closer to three times that by the end of 2022. Kling said a bank cannot keep management controls operating at that growth rate, that junior managers would be managing four or five times as much money, that new staff would be thrown in the way Putin was throwing untrained soldiers at Ukraine, and that there would be systems problems. The examiners saw that, he said, and also saw the interest rate risk, but did nothing. He added that people think enough regulation will prevent these things, but that while regulators may have stopped a lot that never made headlines, they sure do not stop everything Arnold Kling: We Just Nationalized the Banking System—Now What? (2023).
Across episodes
The excerpts show the film invoked in three episodes—2020 with Peter Wallison, 2021 with Jeff Deist, and 2023 with Arnold Kling—with no development in how it is used. In each case it supplies a shared shorthand for the 2008 crisis: for Wallison’s dissent from the commission’s findings, for Zadek’s contrast between field observation and formula-driven economics, and for the rating agencies’ failure before Silicon Valley Bank. The one guest who extends the reference beyond the crisis itself is Deist, who uses the film to redirect attention to central banks; Kling, in the later episode, uses the same reference to redirect attention to the roster of regulators and auditors. The excerpts do not show either guest responding to the other’s treatment.
What the sources do not cover
The excerpts do not identify the film’s director, writers, cast, release date or studio, nor do they describe its plot beyond the protagonist’s field research and the mortgage-backed securities at issue. They do not state what the Financial Crisis Inquiry Commission concluded, what Wallison’s dissent argued, or the name of any bill or case. They also do not say how the 2008 crisis ended, what became of the rating agencies afterward, or whether any of the speakers’ predictions about Silicon Valley Bank proved correct.