The BIG Short and The Next Financial System Collapse?

The movie, The Big Short adapted from the non-fiction book by Michael Lewis, helps explain the 2008 financial system collapse.

The story reinforces how an individual, Michael Burry can assess the performance of a system, identify weaknesses and opportunities for improvement, benefit from the knowledge and also help raise awareness of the need for systemic change.  It also reinforces that needed improvements to a system have to be supported by “top management”.

Policies identify the aim of “the system” and the system determines 85-100% of the result. In other words, Burry concluded that Federal policies on mortgages and their derivatives that were leveraged and exploited by the banking and investment industry were leading to results that would lead to a financial collapse.  Burry took action that raised awareness on what he believed to be weaknesses in the system by working with the investment bankers to develop a “new product” that he could then buy and use to short the market.  Burry’s observation seemed obvious in hindsight but was oblivious to almost all stakeholders at the time.

Despite the devastation that the collapse of the financial system had on individuals as well as within the country and on global markets, Burry concludes that the needed improvements have yet to be made thus setting the conditions for further catastrophe. Reflections on the Big Short – Interview with Michael Burry – Thinks another financial crisis is looming. 

Author Michael Lewis limited the scope of the Big Short to that of the individuals that worked “in the system”. Lewis’s niche is discovering unique characters such as Michael Burry that take “on the system” and win big.

Criticisms of the book included the fact that the handful of individuals in government, rating companies, and the Federal Reserve were not signaled out for their failures in not “preventing and fixing” the weaknesses in the system that led to the crash and a bailout by the US taxpayers.   The winners were perceived to be the “elites” in the financial and political areas and the “losers” were the investors and U.S. taxpayers.

A Way Ahead

The financial system is interrelated with the political system.  Practical fixes through application of a new model for  Quality Leadership in the political system would also lead to needed repairs in the financial systems.

Managing the Refugee Crisis

In his New York Times article, “Will Merkel Pay for Doing the Right Thing?”, Roger Cohen reinforces the fact that leaders lack a Deming-based application framework that can be applied to successfully address the challenging issues.

Dr. Deming remarked that if he was to reduce his message to just a few words, it all had to do with reducing variation. Dr. Deming “implied” a broader description of variation than what he specifically stated in his books Out of the Crisis and The New Economics which focuses more on a statistical frame of reference regarding variation.

Broader description of variation

In applying the broader description of variation, would you conclude that German chancellor Merkel did the right things in order to reduce variation from the ideal?

I agree with Cohen that chancellor Merkel did the right thing but not in the right ways.  Applying the better Deming-based framework would provide all the key stakeholders with a more common language for addressing all aspects of the issue mentioned in the article in the near, mid and long term.

Follow-up –  29 Feb 2016:  Merkel Doubles Down: ‘I Have No Plan B’ On Migrant Crisis

According to Focus, Mrs Merkel said she was convinced she was doing the right thing, despite well over a million people entering Germany last year thanks to her migration policies. She said she was trying to redistribute as many of them as possible to other European countries – through the compulsory migrant quotas system – and claimed to be addressing the problems causing them to enter Europe in the first place.

A community-based process for addressing the refugee crisis applied in Austria: “How do we deal best with the influx of refugees”