Felix Salmon

The lessons of “Margin Call”

Felix Salmon
Nov 23, 2011 17:03 UTC

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.


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

Inside Job

Felix Salmon
Oct 5, 2010 05:09 UTC

One of my dreams in life has long been to have the opportunity to sit down opposite Larry Summers or Bob Rubin, with video cameras rolling, and ask one of the key players in the financial crisis some tough on-the-record questions about the degree to which he’s responsible for it. This is the kind of interview which can only be done on video, which captures evasions and non-answers and general oily shiftiness in a way that no print journalist ever could.

That’s no longer a dream of mine. Instead, I have a new dream: that Charles Ferguson conduct exactly that interview.

Ferguson is the director of Inside Job, the new documentary about the financial crisis which is a must-see for pretty much everybody. I didn’t have very high hopes for the film: I generally consider that video journalism has acquitted itself very badly over the course of the crisis and I blamed the medium rather than the messengers, many of whom are very smart and well-informed.

It turns out, however, that in expert hands, the medium, at least when it’s under the control of Ferguson, can do a spectacularly good job of presenting what happened and why — better than any newspaper series or magazine article or book or radio show.

What Ferguson has achieved here is an extremely impressive balancing act: while his explanations are clear-eyed and accurate, he’s never content to simply tell us what happened. He also takes pains to constantly remind us that people did this and that nearly all of them are still relaxing in plutocratic comfort even as millions of workers in America and around the world have seen their lives destroyed by the effects of the crisis.

Some of those people he manages to coax in front of the camera. The smart ones — including Summers, Rubin, and Greenspan — all said no, while a handful of academics, including Ric Mishkin and Glenn Hubbard, will forever regret saying yes. They’re hardly the biggest villains of the crisis and they’re not presented that way, but they are great examples of the way in which the financial elite is so used to the please-oh-wise-man-tell-us-what-you-think school of journalism that it’s genuinely shocked when it encounters anything else. (You won’t soon forget the scene where Hubbard, not even bothering to conceal his anger, spits at Ferguson, saying “you have three more minutes. Give it your best shot”; you will barely believe how Marty Feldstein happily says he has “no regrets” about his position on the board of AIG in the run-up to its collapse.)

A great Pixar movie manages to do two things at once: it entertains and delights the kids, while also giving their parents a fresh view of life with a remarkably adult perspective. Inside Job is similar, in a way: if you don’t really understand what happened during the financial crisis, it will explain that to you very clearly. If you do know what happened during the financial crisis, however, it will do something else: it will rekindle the anger and dudgeon that you might well have lost over the past three years of being buried in the financial weeds. Ferguson doesn’t do that Taibbi-style, by calling people names: he’s more effective than that and this film will surely galvanize the anti-Wall Street wings of both the Democratic and the Republican parties.

No financial journalist could have made this film: we were all far too close to the people and events depicted in it, which turn out to have really needed an outsider’s perspective. This is surely the first and last piece of financial journalism that Ferguson will ever make and it’s much more effective for it.

Still, I can’t help but hope that somehow this generation will somehow produce a Ferguson/Summers series of interviews to rival Frost/Nixon. Nixon only appeared, of course, because he was paid by Frost; Summers hardly needs the money, so Ferguson won’t be able to get him that way. But Ferguson has known Summers for many years, and maybe Summers’s legendary appetite for intellectual debate might persuade him to say yes after he leaves the government. Go on, Larry. I dare you.


“We should re-open all these cases and…”
I whole-heartedly agree, but…”we” can’t because “they” call the shots. And, like the last 10 min of the movie demonstrated with Barack’s choices for his key economic posts, no matter whom “we” elect, we soon find out that we elected one of “them”.

Posted by aquacalc | Report as abusive