Wake-up Call: Morals and Market on the Brink of a Financial Disaster
November 16, 2011
The recent investment bank thriller, Margin Call, has invited some interesting commentary in the New Yorker and other quality magazines. But because the film’s topic is so central to sociologists of finance, I invited Olivia Nicole to write her own review on the blog. Olivia knows one thing or two about the topic. She is a PhD candidate in Sociology at Columbia University. Olivia is writing her dissertation on attribution of responsibility for the Great recession by analyzing media excerpts, congressional hearings and interviews to explore the production of – and response to – a discourse of accusation for the crisis. Here’s Olivia’s take on the film, and more.
Wake-up Call: Morals and Market on the Brink of a Financial Disaster
Although the National Bureau of Economic Research locates the beginning of the Great Recession in December 2007, the economic system truly exploded with the fall of Lehman Brothers in September 2008. As hundreds of billions in mortgage-related investments went sour, one of the mighty investment banks that once ruled high finance went bankrupt – the largest bankruptcy in history. But there must have been a moment when investment banks realized that their firms didn’t have enough capital to withstand a dramatic decline in the value of their securities. What happened then? Chandor’s movie Margin Call explores this moment of realization.
The movie tells the story of a night in the life of investment bankers as they try to save their firm. Its 24-hour time frame begins with a shot of New York’s skyline and the sound of Wall Street’s opening bell and quickly moves into the shadowy offices of a major investment bank – a confined space proper to create a constrictive atmosphere. The day starts with a round of layoffs, which terminates 80% of the employees of the floor – among them Eric Dale (Stanley Tucci), ruthlessly ousted from his position as a risk analyst. Before he is escorted to the elevator, he hands to entry-level analyst Peter a flash drive. It contains a bombshell: information that could prove to be the downfall of the firm. The news moves up the corporate ladder in the dead of the night, culminating in a tense strategy meeting including two young analysts, their superiors, and the CEO of the firm. What shall they do? Who is to blame? Who to fire?
The story told doesn’t serve any historical truth, but serves to explore the moral dimension of high finance. It humanizes the perpetrators – and beneficiaries – of the disaster, without going as far as acquitting them. Hence the movie is both in line with and a departure from previous Wall Street movies. It departs and builds from Oliver Stone’s classic Wall Street. Fox (Charlie Sheen) broke the insider-trading laws to get access to the world of the rich and the powerful, the world of Gordon Gekko (Michael Douglas). The paradox is that a movie that was envisioned as a cautionary tale, a damnation of Faust of modern times, became a cult movie in Wall Street. “Greed is good,” indeed. The villain became a hero. Oliver Stone tried to correct his failure with Wall Street 2: Money Never Sleeps. Out of prison but still disgraced by his peers, Gordon Gekko manipulates his future son-in-law, an idealistic stock broker, to rebuild his empire. Greed irrevocably corrupted him.
Margin Call does not present a case of crime and corruption, but still shows the corruptive power of money. All the characters seem to be captive in the gilded prison of easy money and lavish lifestyle. None of them will refuse the deal that is offered to them: Eric Dale, the risk analyst who was unceremoniously fired, will accept to have his silence bought; Sam Rogers (Kevin Spacey), the head of the trading floor, as disgusted as he is, will remain at his job because he “needs the money”; Rogers assuages his traders’ apprehension about selling toxic assets to trusted trading partners with the promise of $2.4 million in bonuses if they succeed; even Peter, the young analyst, will stay and get promoted. Everyone has his price. The movie is also full of references to the Wall Street movies: Sam Rogers’ only friend is indeed his dog, who is slowly dying of a tumor – which also serves as an obvious metaphor for the health of the firm. Nevertheless, in Chandor’s movie, there are no villains or heroes. Peter comes close to being a hero but ends up being corrupted by the power of money, as do all the others. It coldly explores the psychological pressures and ethical choices investment bankers faced when they realized that they were on the brink of a global disaster of their own making. The tone is then in between the frankly apologetic Too Big to Fail and the prosecutorial Inside Job or Capitalism: A Love Story.
The movie is constructed in reference to previous Wall Street movies, as well as the 2008 financial crisis. It is the first blockbuster movie on the crisis. The complexity of the mechanisms that triggered the crisis make it a bold attempt, which in this case is pretty successful – courtesy of the experience of the filmmaker’s father, who was a stock broker at Merrill Lynch for over 40 years. It is intended for a large audience, yet still full of insider’s references to the crisis. The problem is stated in very vague terms, and it generally avoids any financial jargon. I wondered though who in the audience understood the young analyst’s speech, mentioning words such as VAR or MBS – the use of which was actually an astute way of making the audience get a glimpse of the closure and complexity of this world. Although no explicit reference to Lehman is made, the firm is highly recognizable. The CEO of the company is named John Tuld – a direct reference to Dick Fuld. Demi Moore’s character, Sarah Robertson, is an obvious reference to Erin Callan, the former CFO of Lehman, with her high heels and pony tail. Her fate is also the same as Callan’s: she will be the official scapegoat, having been fired first. Another insider’s reference to the crisis is John Tuld speaking about the “music stopping”. It is a direct reference to Chuck Prince’s famous statement: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” More generally though, Margin Call’s ambition is not to depict the 2008 crisis, described in vague terms, but to dissect the world of high finance.
The movie accurately describes the evolution, functioning and lifestyle of high finance. It correctly describes the increasing sophistication of high finance, perceptible in the sophistication of the products and structure of the hierarchy. In the movie, only a young and bright “rocket scientist” with a PhD in engineering from the MIT, is able to truly understand the risk attached to the complex structured-products. “Speak to me like a small child or a golden retriever,” implores the CEO of the company, John Tuld, in a late night meeting. His background is in sales, as well as the head of the trading division, and he might not be able to grasp the intricacies of the models deployed to value the mortgage-backed securities. The contrast in their backgrounds speaks to the evolution of the financial world. It also shows the larger consequences of this evolution for the economy: finance now attracts the best engineering talents with its high compensation schemes and lavish lifestyle. “A rocket scientist, why are you in trading?” Asks John Tuld. For the money, of course. Hence the moral dilemma of the risk manager who just got laid off: an engineer by training, he could be building bridges over the Ohio river and help the real economy, as he did when he was young.
Margin Call also accurately describes the functioning of an investment bank, and gives a sense of the reasons that might have led to a disaster. It shows how status hierarchies, internal conflicts, and structural secrecy might have played a role in the catastrophe. The warning signs provided by the risk analyst – who was part of the first round of layoffs, leaving the company without a risk manager for that trading division – were not taken into account. Risk analysts didn’t have as much status and influence as other functions. However the warning signs that he provided decision makers with were weak and incomplete – it took the combination of his knowledge and a trader’s knowledge to get a full pictures of the risks the company faced. Finally, the movie accurately describes the lifestyle of high finance. The young character, whose presence might at first seem puzzling, is here to ask all the naïve questions of the outsider: How much do you earn? But how could you spend all that money? He still marvels at a lifestyle that others now take for granted.
Margin Call is thus a dissection of the high finance world, not a moral tale – although it also dissects the worldviews of high bankers. There is a brief moment when the youngest character gazes out the window at people who are totally unaware of the gloom and doom that is about to plague their lives. Nevertheless there are very few moments when the bankers actually consider the damage that is going to affect the whole economy. Their main responsibility is to maintain the company alive and to maximize shareholder’s wealth. Some characters display a sense of responsibility to other actors in Wall Street, but no sense of the collective interest of the business community or of society as a whole is displayed. Their only concern is whether selling off all the toxic assets first and hurting their trading partners to save their balance sheet is right – “right for who?” asks Sam Rogers. Tuld does not care for such considerations, for in his amoral calculation, “there are three ways to make a living in this business: be first, be smarter or cheat.” They will be first and smarter, and dump as many toxic assets on the market – which will inevitably trigger a meltdown. The wealth of a few takes precedence over the welfare of many. But the high bankers perceive that they share responsibility for the damage with society as a whole – as Will Emerson (Paul Bettany) states, their contribution to society is to enable ordinary people to spend the money that they don’t have.
David Denby of The New Yorker declared that Margin Call was one of the strongest American films of the year and easily the best Wall Street movie ever made. Opinions will diverge on the aesthetic merits of the movie, but it is absolute must-see for any of us working in sociology of finance.