Movie Review: Margin Call

A 2011 film about the financial crisis is the best finance movie ever made.

I’ve had some writer’s block recently and haven’t been blogging like I used to. This can become a self-reinforcing cycle. So today I figured I’d knock off the rust by ranting a bit about one of my favorite movies of all time, Margin Call.

Margin Call is a very talky drama; the main action of the movie is a series of conversations in rooms. That can make it sound boring, but it’s really, really not. The movie is held up by a raft of amazing performances: Zachary Quinto, Kevin Spacey (pre-scandal), and Paul Bettany drive most of the movie. But there’s also a couple great scenes with Stanley Tucci, Demi Moore is solid, and Jeremy Irons steals the entire fucking movie in two scenes.

The film is set over a 24-hour period, as an unnamed investment bank discovers, overnight, that it has a very serious problem with the mortgage-backed securities (MBS) that it owns, and scrambles to get ahead of the problem. You should really watch the whole movie, of course, but I’ll just embed my favorite scenes here so if you want to just see the highlights, here they are.

After a round of layoffs sees the head of risk management for the MBS desk, Eric Dale (Tucci), sacked, one of the last risk analysts on the floor, Peter Sullivan (Quinto), tries to figure out what had Dale so worked up on his last day. He realizes the bank is in deep trouble, and calls in the head of trading in MBS, Will Emmerson (Bettany).

Emmerson is worried enough that he calls in the big-wigs to review Sullivan’s work. They see what he sees, and shit a brick. (Note how everyone in the room gives Demi Moore a dirty look whenever it’s mentioned that Eric Dale was fired. She clearly knifed him in some petty office rivalry, and everyone hates her for it. It’s so nicely understated).

The CEO, John Tuld (Irons), is called in. He arrives by helicopter in the middle of the night, and they have an emergency meeting at 4am to decide what to do. This is the best scene in the movie, please do watch it.

Having decided to dump their MBS portfolio, the head of the MBS desk, Sam Rogers (Spacey), tells the MBS traders that they need to sell everything, immediately.

They do so, and everyone else on Wall Street gets increasingly panicked as they realize what is happening.

They succeed in selling off their position. But Sam is disgusted by the day’s work, and goes to resign. Tuld rejects his resignation, with a “What are you resigning for? This is just capitalism, baby.” And Sam stays on, because he needs the money.

And that’s the movie. I’m leaving plenty of nice bits out, like Stanley Tucci’s monologue about how he used to build bridges and the heads of risk management (Demi Moore) and trading strategy (Simon Baker) trying to shift the blame to the other (Demi Moore loses, taking the fall for the aggressive money-making strategy she’d been warning against for over a year). So you should watch the whole thing. But these are the main beats.

If you’ve seen one movie about the global financial crisis, it’s probably The Big Short. That’s a pretty good adaptation of the Michael Lewis book on which it was based, but it’s trying to tell a heroes-and-villains story that never really makes sense. In The Big Short, the villains are the big banks, and the heroes are the hedge fund traders taking it to the big banks. But why are the banks bad, and why are the hedge funders good? It’s not because the banks are greedy when the hedge funders aren’t. The hedge funders are incredibly greedy! They outsmart the banks, and that feels fun to watch. But really, it’s one group of traders outsmarting another group of traders. One guy won and one guy lost; that doesn’t amount to a moral case for one side or the other.

The most coherent case against the banks in The Big Short is that the banks were committing fraud. Mortgages were defaulting, but the price of credit default swaps on mortgage-backed securities wasn’t going up when they really should have been. (Credit default swaps are insurance against default. They should become more valuable as the risk of default increases.) Michael Burry (Christian Bale) gets very angry about this and rants at the bankers on the other end of the line about this, and they offer mealy-mouthed non-explanations. “The prices are what they are, and this is all very complicated.” This “fraud” ends when Burry gets a call from someone from Goldman who is now very interested in buying Burry’s credit default swaps. Burry correctly deduces that this is because Goldman has sold off its mortgage-backed securities, and are now valuing those swaps much more highly.

It’s important that Burry gets a call from Goldman asking to buy his credit default swaps. This is important because, in real life, Goldman was the one to call Burry to ask to buy his swaps. But it’s also important because this is the key to understanding what’s happening in Margin Call.

The bank in Margin Call is never named. The CEO’s name is “Tuld,” which sounds a lot like “Fuld,” the head of Lehman when it went bankrupt. So lots of people have naively assumed that Margin Call is about the fall of Lehman in August of 2008. But anyone who thinks that clearly isn’t paying attention to what’s happening in the movie. Margin Call isn’t about Lehman in August. It’s about Goldman in April. This isn’t about the investment bank that was last to worry about mortgage backed securities. It’s about the bank that was first to worry. The key line in the movie is (of course) from Irons: “There are three ways to make a living in this business. Be first. Be smarter. Or cheat. Now, I don’t cheat. And although I like to think we have some pretty smart people in this building, it sure is a hell of a lot easier to just be first.” Goldman was first. Margin Call is the story of how Goldman realized that Michael Burry was right all along, and started the ball rolling on the global financial crisis.

And it’s not a story of fraud. Burry was right that defaults on mortgages would drive up the price of credit default swaps on mortgage-backed securities. But that is a multi-step process. First mortgages would have to collapse. Then that would have to drag down the price of mortgage-backed securities. And then that would drive up the price of credit default swaps. That process takes a bit of time; it doesn’t happen automatically. How long does it take? Well, as long as it takes for the right people at the right banks to put 2 and 2 together and realize what’s happening. But everyone on Wall Street had been making so damn much money on MBS, and no one wanted to believe that the party was over. And everyone assumed housing prices would go up forever with little-to-no risk of default, and it took a while to update their models to handle more pessimistic assumptions.

The argument of The Big Short is that Wall Street banks knew that mortgage-backed securities were huge losers, but they kept on pretending that they weren’t for as long as possible in order to shaft Steve Carell and Christian Bale. The argument of Margin Call — which I find much more plausible — is that investing in MBS was like playing a game of musical chairs. When the music’s playing, you gotta dance, because you make a ton of money that way. But when the music stops, you gotta sit down or else you’ll be out. The problem is that the music is faint, and it’s very obvious whether or not everyone is dancing. So everyone just had their eyes on one another, and everyone was dancing, so they all kept dancing even though the music had stopped a little while ago. Then Goldman plunked itself down into a chair, and the room erupted in chaos as everyone else started diving for chairs themselves. That’s not fraud. It’s just how things work sometimes.

So is Margin Call a defense of Wall Street? Yes… and no. Eric Dale built bridges that made people’s lives better. Peter Sullivan was a rocket scientist. They quit those jobs to go to Wall Street, because that’s where the money is. That’s not great. But as Will Emmerson points out in another little speech that I didn’t embed here (just watch the movie), all of this housing financialization is how people were able to buy homes with cheap loans for so long. So is that a net positive or net negative for society? Who knows? Sam tells the traders during his pep talk that their work has all been for the greater good, yet he clearly doesn’t believe it. He quits in disgust afterwards. But what’s he disgusted by, really? He has no grand moral indictment of the banking system. He’s just pissed that he played an active role in blowing up the market he’d been making money in for decades. If he had his way, Goldman would never have stopped dancing. Tuld calls him on his bullshit:

When did you start feeling so sorry for yourself? It’s unbearable. What, so you think we might have put a few people out of business today? That it’s all for naught? But you've been doing that, every day, for almost forty years, Sam. And if this is all for naught then so is everything out there. Its just money; its made up. Pieces of paper with pictures on it so we don't have to kill each other just to get something to eat. It's not wrong. And it's certainly no different today than its ever been. 1637. 1797. 1819, ‘37, ‘57, ‘84. 1901, ‘07, ‘29. 1937, 1974, 1987 — Jesus, didn't that fucker fuck up me up good! ‘92, ‘97, 2000, and whatever we want to call this. It's all just the same thing over and over; we can't help ourselves. And you and I can't control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong. And there have always been, and there always will be, the same percentage of winners and losers, happy foxes and sad sacks, fat cats and starving dogs in this world. Yeah, there may be more of us today than there's ever been. But the percentages — they stay exactly the same.

We might dream of a world where there are no losers, and only winners. But that world remains a dream, at least for now. Some people work to make that dream a reality. Others try to get ahead in the only ways they can: be first, be smarter, or cheat. Margin Call isn’t a story about banks that cheat. It’s a story about the bank that got ahead by being a little smarter and by being first. Is that a defense of Wall Street, or an indictment? Margin Call leaves that up to you.