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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