The Movie Margin Call (2011)

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by Michael S. Rozeff

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Margin Call takes us into the world of an investment bank that has taken on too much risk. Consequently, it is skirting insolvency. The bank doesn’t know this, until a sharp analyst discovers it, because its risk model doesn’t allow for the kind of volatility that the assets actually can experience.

The analyst who is in the process of finding this out has been fired. His successor finds it out. He warns his superiors. The problem then makes its way up the chain of command in one evening and all-nighter. This leads on the following day to the liquidation at fire sale prices of a large portfolio of mortgage-backed securities. The firm survives but the traders lose their stock-in-trade, which is the capacity of the firm to make a market in these securities. The traders lose their jobs, but get bonuses for having liquidated the securities.

The movie focuses on the reactions of many of those involved in this scenario. In so doing, we get a glimpse into how they feel about their high earnings in the bubble years, because this event signals the end of the game when the music stops.

Jeremy Irons almost steals the picture, playing the top man in the company who makes the decision to liquidate and then must motivate his subordinates to deliver this effectively. Kevin Spacey holds his own as the head of the trading floor who has been with the firm 34 years. He comes across as a man "in between" conscience and necessity, who opts to survive. Paul Bettany makes a mark as a middle manager of trading who works with Spacey. Simon Baker scores as an administrator whose knowledge of the trading models and realities is doubtful. Demi Moore plays the "go-along to get-along" risk manager who adopted the risk model that doesn’t work and then failed to heed earlier warnings.

Most all these players in the firm and the market do not have a full grasp of why they have become so highly paid. They doubt their value added. They doubt that finance has a positive payoff for society. Irons has the largest view. He realizes the risk involved, the market uncertainties, and the tendency of markets to lose their liquidity at times. But he also does not fully comprehend why the markets tend to go to extremes at times, or how the real world can suddenly change its capacity to deliver positive returns.

As a study of character, Margin Call to me didn’t seem anything out of the ordinary, but I rate it as somewhat above average for its portrayal of this specialized world. It did this accurately, as far as it went. There was another way out for the firm than liquidation, which was not explored in the screenplay, and that was the BAILOUT. The picture never mentioned going to the Federal Reserve and getting its support for the securities that needed disposal. This is what actually occurred as the crisis of 2007-2008 eventuated. Lehman Bros. was let fail, but only it. After that, the Federal Reserve intervened.

At the end, Irons contemplates making money out of the crash and attempts of other firms to survive, he having steered his firm to be first at liquidating and surviving. He can pick up the pieces. This is true to life. Goldman Sachs did this, with the aid of the Federal Reserve.

Also not explored are two important causes of the speculative market in mortgage-backed securities. These include the government’s push, through Fannie Mae, for below-par housing loans, and the Federal Reserve’s easy money policies. The screenplay didn’t go deep enough in these respects. It would have had to reduce some of the peripheral scenes with so many characters. This was certainly possible. The entire sub-plot with Stanley Tucci getting fired and then replaced by Zachary Quinto was not really necessary to the story, other than to show that the firm had a history of cutting back on positions at times.

If the film had depicted the firm’s survival as depending, not on being first to liquidate, but on making use of the Fed and the too big to fail notion, that would have made the film far more realistic and hard-hitting. As it stands, the movie’s messages about the place of investment banking and the housing boom are at best ambiguous and at worst non-existent. The screenplay focuses instead on the effects of the fall of this investment bank on those working for it. That drama was not particularly gripping because the character arcs were so limited.

Another possible screenplay direction would have been to live up to the title Margin Call, which was not done in the movie. That possibility arises from the real-world case in which JP Morgan initiated contested margin calls on Lehman Bros. That case is discussed at length here.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire: Liberty vs. Domination and the free e-book The U.S. Constitution and Money: Corruption and Decline.

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