Margin Call, a 2011 film by J.C. Chandor, follows key individuals at an investment bank, over one day, during the early stages of the financial crisis of the late 2000s. The director and film paint the upper-level executives of the firm as rather uninformed on multiple fronts. The level of risk associated with ramping up their leverage, as well as the level of risk inherent in the mortgage-backed securities and their repackaged form, CDOs, apparently went unnoticed. However, I think that the film crucifies the executives a bit unrealistically.
Wall Street is constantly innovating, creating new and complex products, in order to meet customer needs and stay ahead of regulators. While CEOs, CFOs, and other executives may not be on trading or syndicate floors, most of them have had experience in one way or another; most executives work their way up in the world of finance. While MBS and CDO are extremely complex, to think that the heads of the banks didn’t understand the way they worked seems unlikely.
In my opinion, the director was incredibly vague in his presentation of the products. For him to paint the executives of the firm as clueless would be like the pot calling the kettle black. The root of the financial crisis is tied to risky positions and a bubble economy. Many of the investment banks and insurance companies were on the wrong side of the bet. While the CEO doesn’t physically construct the MBS or CDO, and thus cannot know every detail of the instrument, I feel confident that upper level executives were more knowledgeable than Margin Call lets on.
-Reid Coopersmith
-Reid Coopersmith
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