Margin Call; A Trader's Dillemma

The 2011 thriller Margin Call is already being called one of the greatest Wall Street movies of all time.   The movie shows how one investment firm (rumored to be modeled off of a combination of now bankrupt Lehman Brothers/ Merrill Lynch) decided to preemptively dump its toxic assets at the onset of financial collapse, effectively kick starting an industry wide sell-off and subsequent crisis.

One of the most dramatic scenes in the film is when Sam Rogers, the firm’s veteran trading floor director played by Kevin Spacey, informs his traders that their only option is to sell as many of their toxic MBS products as they can during that day’s trading session; an insignificant short term solution with lasting long-term consequences.

If I was working on Roger’s trading floor that day, I surely would have been faced with one the most challenging decisions of my life.  On one hand, knowingly selling the worthless assets will ruin any client relationship I’ve built up during my career.  On the other hand, if I dump 93% of our MBS assets, I can look at $1.3 million bonus, for the day. 

In answering the question, is there an honorable response to such a request, the short response is absolutely not.  If I sell, yes I make my bonus for the day, but I’m only spreading around these toxic assets to other firms, multiplying the stress/ risk of financial collapse across the industry as a whole.  However, if I don’t sell, my firm is going underwater and my job won’t exist by the afternoon.

If I came down to it, I probably would have left the firm after being told to dump the troubled assets.  Even if I pulled off the fire-sale, the firm would most likely not survive the ordeal (as seen with Lehman and Merrill Lynch in the ’08 collapse) and I would probably be getting laid off anyways.  At that point, I’m thinking that it’s easier to get a job on Wall Street when you haven’t consciously sold your interviewer hundreds of millions of dollars in troubled assets.  Yes, forgoing the $130,000/ hour paycheck would be difficult, but the future value of a career combined with the morality of the decision would lead me pack up and start looking for a new job.
-Harper Coulson

Margin Call: The CEO for Dummies Guide

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

The Value of a Dollar vs. the Value of a Hole: Margin Call's Opinions about Rewards

The movie Margin Call criticized the economy and strategies of high-profile businesses. The film depicted a 24-hour critical period at a large investment bank where the company had to choose whether to be honest with its clients and risk failure, or to deceive clients and make off with the profits. Margin Call was set in 2008 during the financial crisis.

One of the assertions the movie made was that financial work did not have any truly beneficial outcomes for society. At one point in the film, CEO John Tuld (Jeremy Irons) told Floor Head Sam Rogers (Kevin Spacey) that money was made up. Tuld was making the point that dollars were no more than pieces of paper and only had value because people gave them value.

On the other hand, Margin Call portrayed physical labor as being rewarding and serving society well. The movie mentioned two specific examples of physical labor with tangible outcomes: engineering and ditch digging. Eric Dale (Stanley Tucci), risk management head for the floor, told Will Emerson (Paul Bettany), trading desk head, that he used to be an engineer. Dale described a bridge he once helped make that saved commuters copious miles of driving over the years. I interpreted this as meaning that engineering was rewarding because it saved people something real: time. When Rogers was frustrated with the way the company was handling the situation, he exclaimed that he might as well be digging ditches because then he would at least have something to show for his work. The film ends with Rogers digging a hole where he can bury his dead dog. I thought this exemplified how Rogers was finally able to do something meaningful with his time that produced tangible results.


- Olivia Davis

Margin Call on Ethics

J.C. Chandler’s 2011 film Margin Call examines the actions of an investment firm’s key decision makers during the earliest stages of the most recent financial crisis.  One theme of the film centers on business ethics and whether personal interest should trump customer/employee investment.  Clearly, the decision made by John Tuld, played by Jeremy Irons, and senior management demonstrates that it’s a dog eat dog world.  Personal investors are at the mercy of the individuals and the firms they invest with. 

The ease with which Tuld makes his decisions is scary to any business ethical viewer.  With resounding statements such as, “Its just money” and “So (the firm) may survive” the audience begins to understand that the financial system can be an unfair game.  Moral ethics are thrown out the window in order to salvage a firm that has taken on too much risk in order to increase profits and inflate employee earnings. 

            

Management is willing to do whatever it takes to save themselves and protect their personal assets.  This includes liquidating entire departments, and ruining the integrity of their own employee’s careers in the process.  However, senior management justifies their unethical actions by providing millions in payoffs to each employee. 

              

This film is a powerful reminder that business and moral ethics can easily be lost in the shuffle when billions of dollars and entire companies are at stake.  Tuld is willing to “kill the market” to protect his interests, without concern for the company’s investors or even the strength of the global economy.  When money is no longer an issue and you consider money, “made up” like Tuld, you lose all concern for the individuals who do not hold the same viewpoint.

Morgan-Reese V. Hale        

Chrysler, Clint Eastwood and the Enduring American Spirit

Leave it to Dirty Harry to pick up where President Obama left off.

Early in his State of the Union address on January 24, Obama discussed the current health of the manufacturing sector of the U.S. economy, saying his blueprint for success moving forward centered on it. He talked specifically about the domestic auto industry, first pointing to the dire straits American automakers found themselves in at the height of the recession.

"On the day I took office, our auto industry was on the verge of collapse," he said. "Some even said we should let it die. With a million jobs at stake, I refused to let that happen."


Then he went on to highlight the triumphant turnarounds that many car companies have experienced the past few years. Our auto industry is back, he told us, pointing to the nearly 160,000 jobs it added this year as evidence. Chrysler in particular got a shout out for establishing itself as the number one automaker in the world.


In keeping with the President's tune, Chrysler wanted to make some more noise for both itself and its country. To do so, it got Clint Eastwood to do a two minute spot that was aired during the Super Bowl. You can't get more American than that.

What we got for a final product was an extended commercial that was equal parts tough, thoughtful and inspiring, which is pretty much how we think of Detroit being as a city. It showed images of laborers hard at work as the sun rose with a new day. It told our country's story of unemployment issues and economic despair, and then rallied around the hope that companies like Chrysler are instilling to end on an upbeat, glorious note.


"This country can't be knocked out with one punch," Eastwood breathed as the commercial wrapped. "We get right back up again- and when we do, the world is going to hear the roar of our engines."

For those who missed the spot on Sunday, here it is:
http://www.youtube.com/watch?v=_PE5V4Uzobc

-Brian Seliber

Executive Salaries in "Margin Call"

"There are three ways to make a living in this business: be first, be smarter, or cheat" 

 Given that large financial corporations are currently doling out bonuses to their exec.'s for 2011, the movie, "Margin Call's" examination of greed and corporate pay is extremely relevant.  As the quote above references, much of Wall Street is a dog eat dog world, the goal being to get ahead no matter what.  As movements like 'Occupy Wall Street' continue to protest "Too Much Pig," the film accurately presents the origins of the financial crisis and how individual avarice is well documented at it's roots.  The overarching question that emerges as a result asks, "In the face of financial calamity, do financial gains justify the means through which they are achieved?"

There is obviously nothing wrong with the first two tenets of actor Jeremy Irons’s quote.  Triage through better information is how money gets made in a capitalistic economy.  While many debate the veracity with which the firm handles the worthless securities on their books, especially how they manipulate their business peers to do so, I can think of no alternative the firm could have come up with in their own best interests.  I do believe that the bonuses they offer their employees for colluding with the firm are where the plot turns sour. Rewarding a few traders with millions to cheat their peers, who will lose heavily on the transactions, is unethical and should not be tolerated as the movie suggests, those employees will most likely be unemployed in the highly contentious job market that would emerge through the crisis.  

-Bryan Kloster

Facebook’s IPO: Changing the Game

Facebook’s CEO Mark Zuckerberg has always done things a little bit differently. He is often called “cocky,” but he was named Time’s person of the year at age 26. The billionaire has been considering taking his social media company public for sometime, but Facebook is finally expected to file for an IPO as early as today.

With Morgan Stanley and Goldman Sachs as the leads on the initial public offering, you’d think Facebook’s filing would be standard bulge bracket procedure. However, the company that prides itself on personal connections is pursuing a few unique, if not peculiar, angles when their stock hits the publicly traded exchange.

Like other companies such as Google and Groupon, young technology firms are seeking to add a more personal, quirky touch to their customers via stock offerings. Facebook, with a CEO who has a controversial past and is known for spurning a $15 billion offer from Microsoft, is planning to offer stock to all 800 million users of Facebook from day one.

Generally speaking, with very attractive IPOs, about 90 percent of shares go to institutional investors and about 10 percent of shares are sold to everyday investors. Insurance companies and other large-scale investors are usually investment banks biggest clients. While Goldman Sachs and Morgan Stanley have deep, long lasting, and extremely lucrative relationships with large insurance and investment companies like MetLife, Prudential, and Fidelity Investments, they may be forced to pick between the 800 million Facebook users or the investment banks’ chummy, institutional customers.

Wow, that is a tough call. Appease the 1%? Appease the 99%? With sweeping changes and new laws coming to the banking sector, we may see more pressure put on investment banks to alter the way they are most comfortable doing business. 

More transparency, more accountability, a less proprietary nature; the future of the banking sector is in limbo. Accessibility by the common man may help improve relations between the 1% and the 99%. Regardless of intention, Facebook is helping push the relationship in the right direction.

Read more details of Facebook’s unique IPO:

http://finance.yahoo.com/news/facebook-deliver-ipo-surprise-214857803.html

Reid Coopersmith