It portrays employees from an investment bank (a veiled reference to Lehman Brothers) being retrenched. Eric Dale (played by Stanley Tucci), who runs risk management was retrenched. He tried to warn the bank that it was taking on too much risk by holding on to mortgage backed securities (MBS) and presumably, he was not popular with the senior management for telling the truth. It was so unjust but true. You cannot fight against the sales department if they have been contributing a lot to the bank's revenue and nothing awry has happened. But it's the risk managers who are the unsung heroes, who try to rein in the risk the traders take. It's like a goalkeeper, a defender or a midfielder. Nobody appreciates the person who made the tackles that results in the goals, or the players who provide the assist. Everybody worships the strikers who score the goals. The CEO usually comes from a profit generating department, e.g. trading, private banking, bond sales, investment banking, corporate banking etc. So the CEO usually leans towards sales, not risk management. It's called "playing with other people's money". All bank employees, including the CEO are paid so much to produce short term profits that they sometimes take too much risk to make those profits. So do the people in the trading team. It's a game of "heads the employees win, tails the clients lose". For the big swinging dicks, there's only upside, big pay packages. The downside is they get fired and leave with a huge package anyway. For clients, the upside is they get their little bit of yield, the downside is they lose their deposits, their mortgages, their homes.
One criticism of risk management though. Using value at risk to measure safety is foolhardy. How could anyone measure tail risk by talking about a 90% probability of an asset price losing an X amount? Black swan events that have never been factored into the sample may occur and render whatever VAR useless.
The decision by management (Jeremy Irons plays CEO John Tuld) was to sell off the toxic debt the next day; To sell it all quickly. Along the way, many great quotes were spoken. Many lessons learned. At some stage, Kevin Spacey argued with his boss not to dump the Mortgage Backed Securities into his counter parties because it would harm his customers and they will never be able to sell anything to their clients again. His boss (Simon Baker) said, "it's just sales, it's simple". Kevin said, "we need to sell something that will keep our clients coming back for more".
This is a movie that every banker, regulator and client should watch. It is about how dark banking can be. Yet, bankers are not all evil. Bankers perform necessary functions in order for the ordinary folks to live well, as epitomised by Paul Bettany (Will Emerson character), " People wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really fuckin' fair really fuckin' 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 wanna, you know, play innocent and pretend they have know idea where it came from. Well, thats more hypocrisy than I'm willing to swallow, so fuck em."
Therefore my advice is to choose your banker / adviser carefully. Choose someone who's lost a lot of money because he / she will understand the pain of losing money and be more careful with yours. Choose someone who's seen many cycles, so they will have the experience to act accordingly at every circumstance. Choose someone who's investing himself, for wealth management is about people who are wealthy seeking advice from people who take trains to work. Finally, choose a banker who's got your interest in mind, a Kevin Spacey type of character. Someone who stays up and night and ponder what it's all about.
For my next entry, I will be writing about what I think we should do in 2012.
http://www.imdb.com/video/imdb/vi1070504985/
http://www.youtube.com/watch?v=uj4QrAcwVi0
Memorable quotes forMargin Call
John Tuld: There are three ways to make a living in this business: be first, be smarter, or cheat.
John Tuld: I don't get any of this stuff.
Will Emerson: Well, that was fucking hideous.
Sam Rogers: It's gonna get worse before it gets better.
Sam Rogers: It's gonna get worse before it gets better.
Eric Dale: I run risk management... it just doesn't seem like a natural place to start cutting.
Seth Bregman: Will?
Will Emerson: Yeah?
Seth Bregman: Did you really make two and half million bucks last year?
Will Emerson: Yeah... I did.
Peter Sullivan: What do you do with all that money?
Will Emerson: I don't know really. It goes pretty quick.
Will Emerson: Well the tax man takes half of it up front. So now you got what... million and a quarter. Mortgage grabs another 300K, I gave 150 to my parents to live off, so now you got what?
Peter Sullivan: Eight hundred.
Will Emerson: I bought two cars last year for 150 total. Probably another 100 eating... 25 on clothes, put 400 away for a rainy day...
Seth Bregman: Smart.
Will Emerson: And what's that?
Peter Sullivan: 125 left.
Will Emerson: I spent 76,520 dollars on booze, dancers, and whores.
Peter Sullivan: 76,520?
Will Emerson: Yeah, kinda shocked me, although I was able to write most of it off as an entertainment expense!
Will Emerson: Yeah?
Seth Bregman: Did you really make two and half million bucks last year?
Will Emerson: Yeah... I did.
Peter Sullivan: What do you do with all that money?
Will Emerson: I don't know really. It goes pretty quick.
Will Emerson: Well the tax man takes half of it up front. So now you got what... million and a quarter. Mortgage grabs another 300K, I gave 150 to my parents to live off, so now you got what?
Peter Sullivan: Eight hundred.
Will Emerson: I bought two cars last year for 150 total. Probably another 100 eating... 25 on clothes, put 400 away for a rainy day...
Seth Bregman: Smart.
Will Emerson: And what's that?
Peter Sullivan: 125 left.
Will Emerson: I spent 76,520 dollars on booze, dancers, and whores.
Peter Sullivan: 76,520?
Will Emerson: Yeah, kinda shocked me, although I was able to write most of it off as an entertainment expense!
Peter Sullivan: Aren't you tired?
Sam Rogers: A little... but I don't work as hard as you do.
Peter Sullivan: That's not true.
Sam Rogers: No it is.
Sam Rogers: A little... but I don't work as hard as you do.
Peter Sullivan: That's not true.
Sam Rogers: No it is.
John Tuld: So you think we might have put a few people out of business today. That its all for naught. You've been doing that everyday for almost forty years Sam. And if this is all for naught then so is everything out there. Its just money; its made up. Pieces of paper with pictures on it so we don't have to kill each other just to get something to eat. It's not wrong. And it's certainly no different today than its ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987-Jesus, didn't that fuck up me up good-92, 97, 2000 and whatever we want to call this. It's all just the same thing over and over; we can't help ourselves. And you and I can't control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong. And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there's ever been. But the percentages-they stay exactly the same.
Will Emerson: Jesus, Seth. Listen, if you really wanna do this with your life you have to believe you're necessary and you are. People wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really fuckin' fair really fuckin' 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 wanna, you know, play innocent and pretend they have know idea where it came from. Well, thats more hypocrisy than I'm willing to swallow, so fuck em. Fuck normal people. You know, the funny thing is, tomorrow if all of this goes tits up they're gonna crucify us for being too reckless but if we're wrong, and everything gets back on track? Well then, the same people are gonna laugh till they piss their pants cause we're gonna all look like the biggest pussies God ever let through the door.
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Sam Rogers: You are panicking.
John Tuld: If you're first out the door, that's not called panicking.
John Tuld: If you're first out the door, that's not called panicking.
Will Emerson: Try not to think about it too much. Some people like a longer commute. Who knows why?
Peter Sullivan: These people have no idea what's about to happen.
Sam Rogers: The real question is: who are we selling this to?
John Tuld: The same people we've been selling it to for the last two years, and whoelse ever would buy it.
Sam Rogers: But John, if you do this, you will kill the market for years. It's over.
[John nods grimly]
Sam Rogers: And you're selling something that you *know* has no value.
John Tuld: We are selling to willing buyers at the current fair market price.
[Sam lowers his gaze]
John Tuld: So that we may survive.
Sam Rogers: You would never sell anything to any of those people ever again.
John Tuld: I understand.
Sam Rogers: Do you?
John Tuld: Do *you*?
John Tuld: [pounding on the desk] This is it! I'm telling you this is it!
John Tuld: The same people we've been selling it to for the last two years, and whoelse ever would buy it.
Sam Rogers: But John, if you do this, you will kill the market for years. It's over.
[John nods grimly]
Sam Rogers: And you're selling something that you *know* has no value.
John Tuld: We are selling to willing buyers at the current fair market price.
[Sam lowers his gaze]
John Tuld: So that we may survive.
Sam Rogers: You would never sell anything to any of those people ever again.
John Tuld: I understand.
Sam Rogers: Do you?
John Tuld: Do *you*?
John Tuld: [pounding on the desk] This is it! I'm telling you this is it!
