I admit (maybe with a bit of guilt), I wholeheartedly enjoyed the recently released film The Big Short, starring Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt, and co-written and directed by Adam McKay, based on the book of the same name written by Michael Lewis. For folks in the financial services industry, the plot is well known and easy to follow. However, for those not in the financial services industry, the movie ingeniously and entertainingly explains the intricate workings of mortgage-backed securities, the housing market, collateralized debt obligations and credit default swaps so that arcane financial terms and structures are not a hindrance to enjoyment of the movie (think: bubble baths and fine dining). Basically, the film tells the story of how one hedge fund manager, Michael Burry (played by Mr. Bale), postulated in 2005 that the value of MBSs would begin to substantially collapse during 2007 because of weaknesses in the US housing market. He convinced a number of investment banks to issue him CDSs to take advantage of his calculations. Other investors and traders including Jared Vennett (Mr. Gosling), Mark Baum (Mr. Carell) and Ben Rickert (Mr. Pitt) directly or indirectly learned of Mr. Burry’s investments and took similar market positions when they too reflected upon the tenuous condition of MBSs and CDOs supported by the housing market. After the CDSs initially failed to generate the expected results when the housing market began tanking in 2007, the instruments ultimately behaved as Mr. Burry predicted, and the four investors all achieved fantastic returns. At the same time, many investment banks ended up failing, were merged out of existence and/or were supported by a massive US government and taxpayer bail-out. The film clearly intends not to present a flattering portrayal of Wall Street. However, I left the theater wondering why, if some in the private sector through hard work or otherwise could so readily see the housing bubble and the impending collapse of MBSs and CDOs beginning in 2007, why could not the Board of Governors of the Federal Reserve System and other financial regulators responsible for safeguarding our markets and overseeing the financial services industry forecast the same impending storm? Moreover, afterwards, why were concerns regarding the lack of transparency in over-the-counter markets and too many so-called “too big to fail” investment banks addressed not only by the adoption of measures to increase market transparency and to enhance the financial resiliency of such firms, but by mandating the concentration of derivatives risk in fewer (but different) private entities (i.e., clearinghouses) ultimately backed by the same investment banks? To me this seemed, and still does seem, counterintuitive. But I guess that will be addressed in The Big Short’s sequel—can’t wait to see it! But until then, go see The Big Shortand enjoy.