Film review: Margin Call

Margin Call (2011) is a first-rate film.

It deals with what ensues in a large unnamed investment bank when a junior analyst discovers late one evening in 2008 that the value of the bank’s holdings of mortgage-backed securities has wandered dangerously outside the range of mathematical models of the values that it should have, and that the size of the potential losses is so huge that it could bankrupt the entire institution.

The film tracks events over the next twenty-four hours as this information goes up the chain of command all the way to the chief executive, triggering a series of meetings at higher and higher levels that run through the night and into the dawn, as everyone tries to figure out what to do before the news of this disaster becomes widely known in the financial industry and destroys the company.

In the process, it reveals the thinking and mode of operation of the various players in investment banks, from the junior to the highest levels, the role of money, how people’s allegiance and silence is bought, and how some people are ruthlessly sacrificed so that others may profit, all done calmly and urbanely.

This world is unknown to me since I have never worked in such institutions but I have to say that from what I have read on the financial crises and kinds of people involved, the story and characters seem utterly plausible.

The film keeps you intensely interested even though there is little physical action or even any shouting. It is all talk, low-key and understated, but it shows how a film can deal with serious issues and still be engrossing. What it takes is that it be well-written, well-directed, and well-acted.

Here’s the trailer.


  1. 'Tis Himself, OM. says

    I don’t know how I missed this movie. I’m an economist who used to specialize in financial market regulation. This movie is about what I used to do for a living.* I know what movie I’m going to look for the next time I’m at the video store.

    Since I haven’t seen the movie I’m guessing, however I believe the company involved in the real-life meltdown was AIG, the largest insurance company in the world. The following is a tl;dr description of the subprime fiasco.

    Sub-prime mortgages were home loans given to people who were high-risk and couldn’t reasonably afford them. During the 1990s and earl 2000s, banks had a lot more money to lend after a worldwide economic boom resulted in more money being deposited in banks. This put sales pressure on lenders and lending standards dropped. Borrowers and lenders thought property was safe anyway as “house prices always go up.” Many of the bad mortgages were grouped together with good mortgages and sold as a single investment for other banks and organisations to buy. These were called Collateralised Debt Obligations (CDOs)

    Credit rating agencies were paid to put artificially high ratings on these investments to make them appear safer, and easier to sell. Then the housing bubble burst, property prices fell, and mortgage defaults increased. Companies like AIG insured the CDOs but did not allow for such a catastrophic collapse in their value – they simply could not afford to pay out their insurance claims. Many banks and other financial organizations collapsed or lost money on the back of the flawed CDO investments.

    Basically, money was cheap. Like any good or service, the price of money goes up and down depending on how much there is compared with how much money people want. This price is the interest rate you pay at the bank. As mentioned, there was a lot of money in supply which drove the price down.

    The US Federal Reserve had also tamed the inflation problems which prevailed since the 1960s and could afford to drop their interest rate and encourage more spending. When the “dotcom bubble” burst in 2000, banks cut interest rates further to avoid an expected recession. Investors looked for safer investments than the share market and turned to property.

    Two things followed in 2001 that further fueled the property boom – the 9/11 terrorist attack, which led to further interest rate cuts to avoid a fall in confidence; and Bush’s promised tax cuts. The amount required for a deposit was also less because banks were willing to lend so much. All in all, money was available and cheap, and property was safe. Or so they thought.

    Banks and mortgage companies did not keep the risky loans themselves, called “on book.” Instead, they sold them on to other, mostly larger, banks to invest in or sell to others. This is “securitization” and it works like this: An investor, the larger bank or a pension fund, put their money into an investment backed by assets, in this case houses. The interest paid on the home loans was the income for the investor. These investments were called the infamous Collateralized Debt Obligations or CDOs.

    These investments were assigned different levels of risk depending on the standard of the borrowers. The investor was paid a return reflecting the risk; at the risky end, often around 12%. The problem was that the actual risk was often much higher than the stated risk, which is why credit ratings agencies have come under so much scrutiny since the crisis. These agencies claim they were paid to make the CDOs appear less risky. This is so they could meet the investment criteria of the various funds.

    The crucial assumption made was that the assets backing such investments, e.g. houses, would not only maintain, but increase their value – the idea that property always goes up. Which is why, at the front end of the chain, banks were willing to lend money to an otherwise dubious group of customers known as NINJAs, short for “no income, no job, no assets.” The assumption was that if the person borrowing the money walked away from their house, the bank would still have an asset worth more than what it was when they lent the money out. Then, the housing boom turned into a bubble, the bubble burst and the asset values collapsed. So the property was worth less than the amount the bank loaned on it. The investor found they were not getting a 12% return on a risky asset, and not only that, but also they couldn’t get their money back due to the drop in property values.

    AIG insured many of these investments using financial instruments called “swaps,” providing investors with a back-up. However, greed caused AIG to over-insure, meaning they didn’t have enough money to pay all the claims. Which is why, in turn, the US government found itself bailing out banks and AIG. And also why there is now a worldwide discussion about requiring banks to hold a higher level of funding against the money they lend out and various other forms of financial regulation.

    Okay, lecture over. You can all wake up now.

    *The reason I’ve gone into a somewhat different economic field is long and involved. Basically I was on the losing side of the 1990s deregulation debate. However a couple of years ago I did get to tell Larry Summers “I f*ck*ng told you so” in front of a hundred or so other economists.

  2. says

    Incredibly, there are still numerous commentators on the right who persist in shifting the blame for the crisis onto the federal government, arguing relentlessly that the banks were “forced” into making sub-prime loans by a government eager to encourage home-ownership. Allowing the Community Reinvestment Act onto the statute books was Robert Rubin’s masterstroke, setting up a wonderful alibi.

    In one particularly egregious case in our local newspaper, the Leesburg Daily Commercial, an in-house plutocrat actually distorts the findings of the book Reckless Endangerment, completely ignoring the authors’ detailed account of the incentives at play within the private sector.

    Thanks to the first poster, above, for explaining those fundamentals again. It seems that we have to keep talking about it because a sizable chunk of the voting population either doesn’t understand, doesn’t want to understand, or is being deliberately misled.

    This new film will belong on the DVD shelf right next to Inside Job.

  3. billyjoe says

    ‘Tis Himself, OM.

    Is it true, as I beleive is the case, that there is a successful push for continued deregulation, and does that mean that this story is likely to have a sequel?


Leave a Reply

Your email address will not be published. Required fields are marked *