Monday, January 30, 2012

Margin Call: Truth is Stranger than Fiction

I just watched a recently released to DVD movie entitled "Margin Call."   It was about the beginnings of the crash of the housing bubble and the associated financial fallout.    In spite of what follows, I give the movie a "two thumbs up."   It's a very thoughtful film.    Still, it is a film about recent history and to some extent it attempts to re-write that history in a very unusual way.

I am used to Hollywood demonizing big business of all sorts, often in a ham-fisted fashion.   The corporations are very often the bad guys in movie land.   They can be in real life too of course.  Incorporation confers no special virtue on human nature. Indeed, removing personal liability for the actions of a company from its owners and officers might reasonably be expected to reduce their incentive for ethical behavior towards the general populace.  

Still, Hollywood sometimes goes over the top in its depiction of corporate malice.   "Margin Call" did the opposite.   It went "under the top."    That is to say, the questionable ethical behavior exhibited by the financiers in the film did not hold a candle to the amoral and predatory behavior exhibited by their real-life counterparts.

There are some mild spoilers ahead which I think will not greatly detract from the movie, but if you are sensitive to such things and plan to see it, you may wish to stop reading here.

In the film, the firm which is the centerpiece of this story discovers buys mortgages and bundles them into mortgage backed securities and resells them.   It also buys such bundles from other firms and re-packages and sells them.   There is a lag time between the time they acquire these instruments and the moment they offload them to someone else.   What they begin to realize is that these "assets" may be next to worthless and if they are caught with too many of them on the books when the world realizes that, then the firm will be insolvent.   So far, that matches what happened in recent history.

In the film, the moral conflict revolves around how to extricate themselves from this dangerous financial position.    One option is to quit buying and sell all such assets off quickly for whatever you can get for them.   Such a strategy would involve losses, as "fire sales" often do, but those who sell first would take less of a hit than those left holding the toxic "securities."    The sense is that everyone trading these instruments has a vague idea that these things are not worth what they are being traded for, but no firm wants to be the first to end a lucrative business of trading possibly worthless pieces of paper back and forth.    A vulture-like Jeremy Irons plays the suave yet repulsive head of the firm who will make the final call.

I only wish that the worst thing that the high-flying financiers did in all this mess was sell their junk to other willing buyers in the industry at a loss.   The truth is that this action, portrayed as so dark an option in the film, was the picture of innocence compared to what their real-life counterparts did.   Hollywood simply cannot demonize the financial elites.   It lacks the imagination necessary to go beyond their actual villainy.   The film actually humanized them and greatly soft-peddled what actually went down.

The history is that firms like Goldman Sachs sold their toxic assets not just to other firms like themselves, but to their own clients.   And while one part of the operation was selling these things to their clients as a good investment, another part of the firm was making bets that those investments would fail.    Then, when they failed to offload their junk on willing buyers in time, they used their pull with the politicians to make you and me unwilling buyers of those assets through various forms of bank bailouts.  We, via the Federal Reserve and/or the Treasury, now hold a lot of the trash they could not convince anyone else to buy.

Watch the film, and know that the most objectionable and immoral act of even the most unsympathetic character in that movie was nothing at all compared to their real-life counterparts.

5 Comments:

Blogger Mark Moore (Moderator) said...

The more I reflect on this movie the more I think it effectively serves as propaganda for the banksters. Sure it shows them in a sort of bad light, but mostly it shows them as human and conflicted. It even hints that the population is as much at fault because we wanted them to keep the game going.

Sorry, I don't buy the "isn't all of society" to blame bovine scat whether it applies to a hood snatching wallets or predatory international banksters who by political pull tossed off trillions of dollars of their miscalculations unto the backs of the taxpayers against their will.

10:19 AM, January 31, 2012  
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