Margin Call


The best movie I have ever seen about financial markets is Margin Call.

Unlike anything else set on Wall Street1, the characters feel right. They’re all believable. What they do, and the way they relate to each other, is very realistic. They’re not caricatures, and they are all very different from each other, in realistic ways.

(The one possible exception — and this is important for reasons I will come to — is Jeremy Irons’ CEO. And I’m not so much saying he’s not realistic, as that I have no experience of that level of management at work, so I can’t tell. My other comparisons are from experience).

Great as the movie is — I highly recommend you see it — there’s one huge misunderstanding that nearly everyone has: they think the movie depicts what happened in the 2008 crash.

It has many of the points, but it is not at all what happened. But you can make a good argument that it’s what should have happened.

In real life, nobody panic-sold mortgage derivatives and caused a sudden crash in their prices. Rather, there was a severe sustained decline in their prices over months and months, with occasional bumps and false bottoms.

From the first investment funds based on mortgages going bankrupt, to Bear Stearns failing, was nearly a year. From Bear Stearns to Lehman was another six months. The whole thing happened in slow motion. Margin Call takes place in about 36 hours.

Throughout the whole period, banks were still making the same mortgages, and broker-dealers were still securitizing them and selling them. If a major trading house had panic-sold the derivatives and crashed the market at the beginning of that period, causing the whole crisis to happen sooner, it would have been very much smaller, and the damage would have been very much less.

The drama of the movie is the conflict between Jeremy Irons as the ruthless, heartless CEO who orders the bank to dump everything immediately (“It sure is a hell of a lot easier just to be first”), and head trader Kevin Spacey as the more human, complete man, torn by his relationships with his customers, and the effect of a crash on everyone else. Again, the characters and the acting are first rate.

But from my point of view, having experienced the real history from very close up, Irons is unambiguously the hero, and Spacey is unambiguously the villain. If the Jeremy Irons character had been real, he would quite likely have saved the world. In real life, any time a similar argument came up, the Spacey side must have come out the winner, and so the insanity went on, people continuing to buy and sell what at some level they knew or suspected was worthless, because they couldn’t imagine or couldn’t face bringing it to an end.

The fantasy didn’t end until people at one more remove — the shareholders of the banks and broker-dealers — panicked and dumped the stock. Bear and Lehman didn’t fail because they lost money, they failed because because their stock became worthless and without the confidence that they could raise capital by selling equity, nobody would give them any credit. They couldn’t roll over short-term loans, and died.

Background: I’ve written all this before, on Twitter and elsewhere, in the past. I’m dropping it here now so I have an anchor I can refer to. Incidentally, I’m anonymous, but as I’ve mentioned before, I was there. Any responsibility I bear for what happened is, I would claim, tiny, but then again, who’s wasn’t? It was a collective and structural failure, and I was part of it.

  1. I can’t comment on The Big Short, because I found the style of presentation unwatchable. I liked the book.



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