Call it a busman’s holiday, but I went to see “The Big Short” over the holidays. It’s a Hollywood movie about the housing market collapse. It is clever, entertaining, and perhaps most daring for a movie seeking to make money, it is informative.
The thing that struck me most about the movie was the connection of the macro level of economic activity with the micro level. Mostly the movie dealt with the vast economic forces
Credit: 99u.com/Scott Belsky
that created the housing crisis (see the movie for more about that). But the way that the people portrayed in the movie figured out the impending crisis was by looking at the micro level. They dug into mortgage-backed securities and looked at the underlying loans. They looked at factors like the proportion of subprime and conventional mortgages and at credit scores of the borrowers. This allowed them to get a handle on the macro forces, spot the coming crisis and set out to make money by “shorting” the mortgage market.
Through storytelling, the movie described the gears that connect the individual loan to the housing market crisis. From my work in foreclosure mediation, I had learned about how individual mortgages connected first to the lenders, through servicers and eventually to investors. But this movie deepened my understanding of the many additional layers of context that make up the housing market.
Why do we mediators and dispute system designers care about the macro level if we are trying to resolve cases at the micro level? Maybe this micro-macro relationship and all the intervening gears and cogs are especially interesting to me because foreclosure mediations take place at the
Credit: Sonny Absemis
quintessential micro level, case by case, home by home, but they take place in the context of immense complexity at the macro level. It helps to understand the level of complexity surrounding the mediation systems. I have heard lawyers, judges, mediators, bankers and others oversimplify the foreclosure situation with statements such as “the banks just want to take away homes” or “the banks don’t want to own those houses.” (I’ve probably said the latter.) The take-home message is that it is not just about what “the banks” want. There are so many players – cogs with their own needs and interests – and most of them are not at the mediation table.
The Big Short demonstrated how complicated economic forces are, and I don’t expect they will simplify any time soon. So, those of us who design and implement systems to resolve large numbers of financial disputes at the micro level need to keep in mind that there are many layers of complexity driving the behaviors of everyone involved. We may not see them, but they are there.
Tags: financial crisis, foreclosure, macro, micro, the big short
