The lessons of “Margin Call”

By Felix Salmon
November 23, 2011
Jake Bernstein, in his mash note to Margin Call, is right to see the moral heart of the movie in this speech by Paul Bettany's character, Will Emerson:

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Jake Bernstein, in his mash note to Margin Call, is right to see the moral heart of the movie in a speech by Paul Bettany’s character, Will Emerson. (Warning: both Bernstein’s piece and this blog post contain spoilers.)

If you really want to do this with your life you have to believe that you’re necessary. And you are. People want to live like this in their cars and their big fucking houses that they can’t even pay for? Then you’re necessary. The only reason they all get to continue living like kings is because we’ve got our fingers on the scales in their favor. I take my hand off and the whole world gets really fucking fair really fucking quickly and nobody actually wants that. They say they do but they don’t. They want what we have to give them, but they also want to play innocent and pretend they have no idea where it came from. That’s more hypocrisy than I’m willing to swallow. Fuck them. Fuck normal people.

Bernstein loves the movie on the grounds that it’s “the story of a Wall Street that has evolved from an economic helpmate to an economic predator”. So how does that square with Emerson’s speech? After all, Emerson’s idea, endorsed by Bernstein, is that Wall Street is actually helping the “normal people” to live beyond their natural means.

But the bigger idea, I guess, is that the “normal people” helped by Wall Street are the 1%, and that Wall Street has its “fingers on the scales in their favor”, and that if the scales are tipped towards the 1%, then that means the 99% are the losers. They’re the prey for Wall Street’s predators.

I don’t buy this analysis. I don’t believe that Wall Street is meaningfully improving the lives of the 1%, except insofar as Wall Streeters are the 1%. (Remember that financial professionals make up only 14% of the top 1%, and 18% of the top 0.1%. They’re a large chunk, but by no means the majority.)

In fact, I suspect that the top 1%, if anything, are responsible for a disproportionate share of Wall Street’s income. Wall Street isn’t picking the pockets of the 99% and giving the proceeds to the 1%: it’s picking the pockets of the 1% and giving the proceeds to itself. And Wall Street is taking a whole bunch of money from the 99%, too. But for the 86% of the top 1% who don’t work in finance, I really don’t believe for a minute that Wall Street is helping them out by giving them the hard-earned money of the 99%.

I also don’t believe in some halcyon era when Wall Street was “an economic helpmate” to the 99%. It has always been very good at extracting rents, and very bad at creating wealth for its clients.

Narrowly speaking it’s easy to see where Emerson’s speech is coming from: the housing bubble was certainly instrumental in allowing millions of Americans to live beyond their means. And yes, Wall Street was a necessary part of the machinery of the housing bubble. But of course the Americans who bought beyond their means did not “get to continue living like kings”; instead, they got foreclosure and eviction notices. And Wall Street wasn’t there to help them when that happened.

But I don’t believe that Wall Street has its fingers on any scale. There are wealthy families who have managed to preserve and grow their wealth over many centuries — Italy and Germany both have quite a few of them, the ultimate Black Swan that was World War II notwithstanding. Those families tend to have a lot of real property: income-producing land, if you’re growing things like grapes or trees, is an amazing long-term asset, since the main rents you’re extracting come directly from the Sun. By contrast, the rich families who hire Goldman Sachs to look after their money and end up invested in Global Alpha or pre-IPO Facebook shares tend to be much newer money. They made it quickly, and they’ll probably lose it quite quickly too — it could quite easily all be gone within two or three generations.

This is one of the reasons why I’m less of a fan of Margin Call than Bernstein is. Where he sees “a running joke” that the big bosses don’t understand the nitty-gritty of finance and say things like “just speak to me in English”, I see a clumsy attempt at providing a bit of exegesis for the audience. Where he sees “ultimate irony” in Demi Moore’s defenestration, I see a risk manager who signed off on ever-riskier trades getting her just desserts. And where he sees the bank as an “economic predator”, I see it as a victim of its own greed. Yes, it causes considerable damage outside its own walls in its decision to conduct a fire sale of its toxic assets. But the alternative was for the bank to fail, and then, as we saw with Lehman Brothers, the damage caused would have been greater still.

If there’s a lesson in Margin Call, I think, it’s only the simple and facile one that Wall Street riches don’t make you happy. I do think the trading-room scenes were surprisingly realistic, by Hollywood standards, and Emerson’s patter as he tries to unwind his massive position rings absolutely true to me — it was written by someone with an excellent ear. (Bettany deserves a lot of credit, too: he plays the role perfectly.) But I think the film ducked the opportunity to show the real damage wrought by Wall Street — the way that while profits go to the bank’s employees, losses get socialized on all of the rest of us.

There was no bailout in this movie; indeed, there weren’t even any regulators. When the bank loses lots of money, it just keeps on going: there’s no sign of how it might recapitalize itself, or who the new owners might be, or even that there are any new owners. It’s a magical world where an insolvent bank can realize enormous losses and stay alive under exactly the same management and ownership. You have a mini-breakdown, you bury your dead dog, and you go back to your extremely well-paid job.

In the real world, by contrast, Wall Street eats alive any bank which shows the slightest sign of weakness or potential insolvency. Never mind Lehman: look what happened to Bear Stearns or MF Global, which were toast just because everybody pulled their repo lines simultaneously. When a bank makes an error of this magnitude, it dies — and the aftershocks, for the rest of us, are severe. Margin Call let the bank off easy — and America’s taxpayers, too.


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My understanding of the ‘finger on the scale’ quote was that it referred to borrowers and lenders, rather than rich and poor. Wall Street tipped the scale in borrowers’ favor by obfuscating debt to make it seem less risky to artificially reduce credit spreads. Both rich and poor benefited at the time, and they both have been hurt now that the scale is more balanced. Maybe instead of favoring borrowers over lenders, Wall Street actually tipped the scale in favor of present consumption over future consumption.

Also, it’s ‘just deserts’. I’m guessing you don’t mind a little grammar policing.

Posted by Stevensaysyes | Report as abusive

Ok – spoilers ahead — but while Margin Call was beautifully acted, shot, and staged, it was about as wrong as the Tea Party and pretty much for the same reasons.

Long-standing loyal employee, on the verge of uncovering a major risk, is abrupty fired by the only bad character — an ambitious no-talent scheming bitch. Despite being escorted out the door by security, he hands the key file to brilliant young rocket scientist, who on his own initiative skips a night of partying with his buddies to figure out the key numbers and alerts his friend and boss, both of whom immediately comes back to the office and then stay all night. Everyone up the chain of command also immediately believes the young rocket scientist and they all immediately come back to the office. Never in all my years of working in NYC have I even heard of any firm so full of competent bosses all terribly interested in the work of such a low-level employee. They also go to great lengths to invite the newly-fired worker back into the office for no discernible reason. Everyone then stays up all night to make one simple decision — sell everything immediately, when they have been set up to be one of the major market makers in the world — and although they spend the next day doing this, they unload all the MBS in the world with a 5-45% loss, which tanks no markets, triggers no regulator involvement (indeed even make the news) and has no effect on liquidity. The worst thing that happens is that people get fired, but everyone gets millions in severance pay. Nobody sells, bundles, or buys synthetic derivatives. Nobody ever mentions analysts, ratings agencies, or counterparties (except to note that individual traders may be ruining their personal relationships with traders at their counterparties). The entire thing is a right-wing puff-piece of a fantasy, where Wall Street is a gentlemen’s club ruined only by the presence of women.

skip it and go rent Inside Job.

Posted by eastvillager | Report as abusive

MF Global fell because everyone pulled their repo lines? You should really read Janet Takavoli’s recent report on MF Global, Felix…

Posted by Foppe | Report as abusive

I really enjoyed the film, and I agree that the dealing room atmosphere was very realistic. But surely the whole premise didn’t make sense? Since when did any Wall St trader lose any sleep over dumping his bad position onto another Wall St trader? It’s not immoral in any real sense. It’s how markets work. Bank XXX selling to Citi or whoever at 95 and then to Merrill at 65 is fair game. I don’t understand why the Kevin Spacey character is so worked up over the moral implications. If he didn’t seel, surely someone else would sooner or later beat him to the punch?

Posted by BuyHighSellLow | Report as abusive


I think you’re wrong about this “…Wall Street isn’t picking the pockets of the 99% and giving the proceeds to the 1%: it’s picking the pockets of the 1% and giving the proceeds to itself…”

Actually, I think with the advent of investor handled 401K accounts the “normal” people are the 99%. It may look like Wall Street is just flipping the 1%’s money around in circles but they got my money to play with too. And their fingers are most definitely on the scale continuing to tip my money into their hands where we then pick up your version of the story.


Posted by jcconnor | Report as abusive

I’m in the 1%, and Wall St has extracted a good share of my extremely diversified wealth, in addition to sucking the life out of the 99%’s economy. they are parasites, they add no value – if they did add value, other businesses in the U.S. would be flourishing, but they’re not. They mainly move papers around and contribute nothing to the advancement of society, while extracting their usual rents.

Posted by KenG_CA | Report as abusive

Felix is absolutely wrong when he says that Wall Street is not about moving money from the 99% to the 1%. The entire business of Wall Street is generating income for rich people in “return” for those rich people supplying liquidity to the capital markets. The entire premise of capital markets is that they reward owners and creditors.

In the process, Wall Street dips its hand as deeply into that stream of money as it possibly can and follows an almost inevitable evolution towards self-dealing, corruption and cynicism. The population of what we call “Wall Street” (by which we really mean “the financial community”) is too small and their interests are too closely aligned. Likewise, the 1% is too small and their interests are too closely aligned.

In evolutionary terms, the 1% are a species that was able to carve out a nice niche for itself, but whose very existence is de-stabilizing the financial environment upon which they depend.

Posted by Dlawbailey | Report as abusive

Moving money from one hand to another is work. It is a service, and it requires effort, knowledge, connections, infrastructure, and often capital. If users of capital and providers of capital could and wanted to deal directly with each other efficiently, they would (and often do). In other cases, they use middlemen, for whose effort they pay a percentage of the trade. There is no shortage of financial middlemen willing and able to perform this service, so whatever pricing obtains for these services is not a monopolistic or oligopolistic rent extracted over the objections of the investors and users of capital.

There are many parts of the economy outside of finance where middlemen provide their valuable services without being labeled parasites by the bitter, ignorant, and self-righteous. Perhaps one day Wall Street will rejoin that select company. I do not expect that any time soon.

Posted by EpicureanDeal | Report as abusive

EpicureanDeal, let’s talked private equity, specifically leveraged buyout folks. So they borrow 90% of the cost of a company, often one that is already profitable, and then once they own the company, they have the company borrow money to pay off their loan, with the expectation that the profits will service the loan. But let’s say the profits decline, for whatever reason, maybe not even the new owner’s fault, and the profits are not enough to service the loan, and the the company goes bankrupt. People lose their jobs, and people who unknowingly lent the buyers money lose their money also. The leveraged buyers walk away, not with a profit, but still walk away mostly whole (they still have a job and nice homes and all the trappings they had before their deal failed. Everyone else, they lose.

I’m not bitter or ignorant, or self-righteous, in fact, I’m pretty fortunate and I recognize that every day. But don’t preach to me about how those LBO folks are just doin’ work. A parasite is an organism that extracts resources from a host, while providing nothing in return. These people are parasites, as they add no value to society, and ultimately cause a lot of damage in many cases, while they extract as much wealth as they can.

Selling drugs or weapons, protecting your market by eliminating competitors, and killing informants who threaten your income is still work. it requires effort, knowledge, connections, infrastructure, and often capital. Is that where you’re setting the bar?

Posted by KenG_CA | Report as abusive

Paul Bettany did good – when I heard the speech, I was thinking more along the lines of the US dollar’s exorbitant privilege. For a brief moment, because we had nukes and carriers and a decent open financial system, we became the reserve currency and lived far better than we otherwise would have.

Overall, didn’t love the movie … the crisis was caused by recklessness (leverage), moral hazard (heads-we-win, tails-you-lose, essentially looting), stupidity (normal bad judgment plus the idiots who designed a financial system lacking a robust architecture and a minimum of resiliency).

If you don’t take a stand on the people who made the mess, blame fickle winds of fate, the risk fairy, and normal people just doing their jobs, then wittingly or not, this film is a tool of the people who manufactured the crisis, and now try to blame everyone but themselves.

Posted by Curmudgeonly | Report as abusive

Felix misinterprets Will Emerson’s speech. It was spot-on for the situation in 2007-08: Wall Street was the willing helpmate to the broad middle class and even aspirants who used bubble-enabled home equity loans and refinancing for in-ground jacuzzis and cherrywood kitchen remodels.

The sentence that follows Emerson’s speech is positioned as a tie-in, when in fact it takes us to new territory. “But the bigger idea, I guess, is that the “normal people” helped by Wall Street are the 1%.” The movie was about hard choices and callous institutions, not about bailout nation and heads-I-win-tails-you-lose banking, a good theme to be sure, but another movie.

Posted by GeorgeBitt | Report as abusive

I’ve been in the investment business for 45 years. Wall Street has always been in the business of screwing everyone it can, be it the 1% folks or the 99% folks and I’m not being bitter. It does it mostly by obfuscating the fees it makes plus make you believe in a future that it itself does not believe in (read: IPOs, etc). Remember, Wall Street is in the business of being between buyer and seller and picking up as much as it can in the middle of that transaction; as much as it can! It will do this forever.

Posted by NormanB | Report as abusive

I’m not sure I can agree with this:

“In the real world, by contrast, Wall Street eats alive any bank which shows the slightest sign of weakness or potential insolvency.”

If so, why are B of A and Goldman still alive?

Otherwise, no arguments and well put.

Posted by CarlWeetabix | Report as abusive

Ah! Feel much better. Wall Street eats the bad actors alive! Self-regulation works!

All the CDO’s are in fact not worthless. My house is back up to a Zillion $! The market is back to 1500!

Sheesh. I agree with CarlWeetabix.

Posted by ibilln | Report as abusive

But the bigger idea, I guess, is that the “normal people” helped by Wall Street are the 1%

That’s not how I interpreted it. I thought that was a reference to the relative strength of the US dollar (trade imbalance / cheap imports) and especially to mortgage lenders and credit card lenders, student loans and every other kind of credit product, to chase yield as made manifest in the Working American Consumer.

Posted by stat_arb | Report as abusive