Margin Call

The nature and impact of financial issues

Margin Call

Postby Michael » 22 Jul 2012, 03:32



This is a clip from a very good movie from last year, Margin Call. I watched it with my wife a few weeks ago and we both enjoyed it a lot. It has a very smart script, and is both well directed and very well acted by its all-star cast. The movie is nearly stolen by Paul Bettany, who is given the film's very best lines, in particular the ones in the scene above, where he talks about an issue Dalrymple has regularly talked about, that the blame for the 2008 financial is not a matter of an evil 1% and an innocent 99%, but a complex story of complicity at all levels of society.

I have been reading a lot about finance and markets in the four years since the financial crisis, and I feel the film is the most honest treatment of the causes and consequences of the financial crisis I have ever seen.

I highly recommend it.
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Re: Margin Call

Postby Caleb » 28 Jul 2012, 03:04

Michael: You are right. That clip above is absolutely awesome. It reminds me of this scene in Syriana:



In fact, it inspired me to seek out, and watch, the entire movie. I think a rival scene was this one between Irons and Spacey, at the end of the film.



I thought it was a fantastic movie, and you're right, Bettany pretty much does steal the show, though the rest of the cast are fantastic. Stanley Tucci was of particular note, and I loved how Simon Baker spoke relatively little, but said an enormous amount with his facial expressions and general body language. That guy was sinister.

I know that a lot of people would watch this movie and only be confirmed in their hatred and disgust of people in finance (and there is a lot to hate and be disgusted by), but the question still remains of just how they'd counter what Bettany said in the clip you posted.
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Re: Margin Call

Postby Gavin » 29 Jul 2012, 00:28

The objectionable thing about these people (and about these jobs) seems to be that they do not really create anything, or do anything very constructive. (There is of course Gordon Gekko's speech to this effect - "I create nothing".) They're just gamblers. It's therefore not a life that ever appealed to me, despite the money to be made.

But the point being made here, it seems, is that whatever "evil" there is, is facilitated ultimately by other people. We give the bankers the fuel. People want to live beyond their means, they want high personal finance, and they're made to pay for it.

It's a complex web, but the responsibility certainly doesn't lie entirely with the bankers, that seems to be a fair point to make.

Looks like a good film - I'll have to see it.
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Re: Margin Call

Postby Caleb » 29 Jul 2012, 02:26

Gavin: In a sense, you are right that these guys don't create anything. It's not the way I handle my money (I am of the Graham/Buffett school in this regard).

However, these guys are intermediaries. The entire field of finance is, really. In a sense, they're no different to any other retail outlet that either sells things others have made (i.e. they package investments and sell them on) or creates a place where two parties can come together. Amazon doesn't create 99% of what it sells, yet it offers a useful service. It's easy to look at finance guys and claim what they do is not useful, but upon closer examination, it is. Just like consumers (or even businesses) would have difficulty getting the products they needed if they had to seek out the producers (it would be a very time-consuming and inefficient process), people who want/need capital for their businesses or to buy a house would have great difficulty doing it without financial markets. That is why markets have evolved -- they allow the efficient flow of capital. If people don't think this is true, then they only need look at countries that don't have stock exchanges (including, in a sense, when there are big players in a financial market who collapse). The gears of commerce grind to a halt very quickly.

Then there is the matter of speculation. I believe it's an element of human nature that cannot be eliminated. Any attempts to do so always fail. They fail at a theoretical level because you can't wish away any particular element of human nature and people will just take that underground if necessary in order to fulfill their need. However, they fail at an even more practical level. Wherever there is a lot of money sloshing around (it doesn't matter what that is -- people speculate on everything from mortgages to the future price of wheat to how many books Amazon will sell), there will be people seeking that out. What a lot of pro-regulation people simply don't get is that all that does is create lobbyists for special interest groups who have a lot more time, money and expertise than anyone else to either chip away at regulation or to simply find the loopholes. Any attempt to control the market simply creates distortions in the market that can be taken advantage of. I wonder, in a sense, if the big players actually want market distortions in this regard.

Is the present system crazy? Yes. However, any changes that occur cannot be dramatic and immediate otherwise they would create more turmoil. There's always a ripple effect. I would personally say that there shouldn't be any such thing as "too big to fail", and governments shouldn't be distorting markets in that regard. Doing so never actually causes anyone to change their (bad/unsuccessful) behaviour. However, let's be honest: letting big financial institutions fail would indeed create a lot of pain and suffering throughout all of society. That's what happens whenever there is a market correction. I think that just as some people want to wish away speculative behaviour, they also want to wish away the inevitable corrections and pain. Yet as Jeremy Irons' character correctly points out, there always have been bubbles, and there always will be bubbles. There will always be winners, and there will always be losers. The relative percentages will always be the same. These percentages were probably determined long before anyone even dreamed of financial markets. They were probably determined when we were running around on the plains of East Africa. Those guys were engaging in their own kind of speculation, and there were winners and losers then too. Always will be.
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Re: Margin Call

Postby Gavin » 02 Jan 2013, 18:14

Caleb, it's taken me a little while to reply to this, but I watched Margin Call in full last night. What a well made and well acted film! Gripping, really.

I remain of the view that it's not entirely clear who's guilty in these cases but there are a few things to consider:

  • These people often knowingly make very high risk loans to people/companies who they know may have difficulty repaying. What I mean is, do they not aid and abet "bad behaviour"?
  • Like Mr Entwhistle at the BBC, how can a man like Dick Tuld of Lehman Brothers be paid, in his case, over $480 million for failure? That's what he walked away with when Lehman Bros went under and threw the markets into turmoil.
  • If most of these guys are "not guilty" how come so few of them seem to be very nice? ;)

I'm talking about people who like money so much that they actually work with money in order to make money. I've been around the City of London a fair bit, spent time over at Canary Wharf, been to the clubs and bars. Obviously all are not like this, but let's just say that the culture of over-indulgence, boorishness, and so on, that we see portrayed in films appears to be accurate. A love of money itself doesn't seem very healthy. A love of doing something else, which if done very well, might lead to good money - that seems a little different to me.

On the other hand I appreciate what you say about human nature and the thrill of a gamble. Also that people wish to invest their money and these people take care of that, often assisting other start-ups. Like much that we discuss on the forum, this is no simple business.

Have you seen the film Headhunters? That's highly recommended too and I'll watch it soon.
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Re: Margin Call

Postby Caleb » 07 Jan 2013, 04:54

Gavin wrote:I remain of the view that it's not entirely clear who's guilty in these cases but there are a few things to consider:

  • These people often knowingly make very high risk loans to people/companies who they know may have difficulty repaying. What I mean is, do they not aid and abet "bad behaviour"?


They do. I only find this a problem when there's no downside to that behaviour (i.e. when they get bailed out). People should be allowed to take big risks, but they should be allowed to fail big time too.

  • Like Mr Entwhistle at the BBC, how can a man like Dick Tuld of Lehman Brothers be paid, in his case, over $480 million for failure? That's what he walked away with when Lehman Bros went under and threw the markets into turmoil.


  • It's not just unsavoury. A lot of the time, it's criminal too. It's truly outrageous that so many people walked away from this without so much as a slap on the wrist. Even aside from punishing them (both financially and with jail time), it has done nothing to change the culture within many areas of the financial world. It will happen again.

    I have only one real solution though (which I'll get to below). Government stepping in won't really do much. The corruption runs so deep it's not funny. The U.S. presidential election cost about 2 billion dollars this time, with approximately equal amounts spent by both candidates. Throw in every other politician, and we're talking about staggering amounts of money. Politicians are bought and paid for. Once we acknowledge this, it makes the concept of government regulation completely non-sensical. Even with bureaucrats, those in the ranks of government regularly transition completely smoothly from a career as a "regulator" to an industry "advisor" (and a 20 or 30-fold pay increase). The system is fundamentally broken.

    The only solution is a free market solution. Personally, I think there are really only two questions that need to be asked of corporate managers. Firstly, is their reward structure tied to long-term performance (say, at least five years after the fact), including being on the hook if they lose money? Secondly, do they have skin in the game (i.e. is a large part of their personal wealth tied up in the success of the company)? The second question kind of encompasses the second part of the first question in a sense. It's up to shareholders to ask those questions of companies and simply not support corporate management about whom the answer to both questions is anything but an emphatic "yes".

    Yet we get back to human nature. Shareholders don't do this. Why? Because they're basically irrational (alternately driven by fear and greed), because they have very, very short memories, and because they have a very poor ability to evaluate risk. In the short term, they're lured by big returns, then things blow up (and are explained away as being due to "unforeseen circumstances", which is a cop out), and they get really badly burnt. Yet five or ten years later (if that!) they engage in exactly the same speculation again having learnt nothing. If you ever get interested in this field, I'd recommend reading people such as Benjamin Graham, Nassim Nicholas Taleb, Daniel Kahneman, James Montier and the whole field of behavioural economics.

    People are either critical/sceptical/conservative or they're not, and this applies to how they think about money as much (perhaps more) as anything else. I don't know that there's that much of a way around it, although I think there are obviously some really deep systemic/cultural issues that need to be addressed as all of this is going to have really bad long term consequences for Western civilisation, not the least of which might be a knee-jerk populist response. I don't really know what the solution is, and from all that I've been reading lately, things are going to get a lot worse before they get better.

  • If most of these guys are "not guilty" how come so few of them seem to be very nice? ;)

  • I'm talking about people who like money so much that they actually work with money in order to make money. I've been around the City of London a fair bit, spent time over at Canary Wharf, been to the clubs and bars. Obviously all are not like this, but let's just say that the culture of over-indulgence, boorishness, and so on, that we see portrayed in films appears to be accurate. A love of money itself doesn't seem very healthy. A love of doing something else, which if done very well, might lead to good money - that seems a little different to me.


    Sure, though I think we need to distinguish being nice and being innocent. If you were in a rugby scrum or a boxing match, it might not be very nice, even if people weren't breaking any rules. Competition, and competitive people, are often not nice. If they wanted to be nice, they'd become nurses or kindergarten teachers, but they don't. The business world is ruthless. It's not something I'd really want to be in, but that doesn't necessarily mean people who are in it are doing anything bad or illegal (though many are). Many people in finance are not nice people (I know exactly the kinds of people you mean), though I also personally know a few people who work in the industry and they're really nice (and honest). Again though, their incentive structures are better/more sensible.

    Have you seen the film Headhunters? That's highly recommended too and I'll watch it soon.


    No, I haven't. I'll have a look for it, but unfortunately, it's difficult for me to get many non-English language films here. Everything is subtitled in Chinese.
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