How ‘Margin Call’ Gets It Right
About the Financial Crisis
- October 22, 2011
Margin Call is the smartest movie you will ever see about the Financial Crisis. Debuting at a time when the Occupy Wall Street movement seeks to make caricatured villains of bankers and much of the public puts the blame for a lagging economy squarely on their shoulders, this movie offers an extremely thoughtful, fair and—for that very reason—ultimately much more powerful critique of how our financial system really works.
It tells the story of a roughly 24-hour period at a fictional investment bank on the eve of the 2008 financial collapse. In a sequence of events that mirrors what really must have happened at several real-world banks, a lowly junior analyst discovers that his firm’s dangerously high risk exposure to mortgage-backed securities could bankrupt the entire company and alarm bells ring right up the chain of command in an effort to avert disaster before it’s too late. By the movie’s finale, that effort has set in motion the inevitable system-wide collapse that we are all still dealing with today. Together with the film’s cast, the writer and director J.C. Chandor masterfully shows how each and every person up the chain of banking seniority would have to weigh difficult decisions and wrestle with the moral and financial consequences of their actions.
And herein lies the key to Margin Call’s truth: It examines the thoughts and motivations of individuals, resisting the easy narrative shortcut of lumping everyone responsible for the disaster into some monolithic, single-minded group. By doing so, Margin Call manages to do what almost no book, blog, newscast or Senate hearing has adequately done for the American people: to explain not just how the financial crisis happened (which financial giants failed in what order, which government entities bailed them out, etc.), but rather, to explain why it happened.
The standard trope about the crisis until now has generally been to point the finger at greedy banks and corrupt corporations. This isn’t an unreasonable reaction; when something as disastrous as the Great Recession happens, it is natural to want a bad guy to blame and punish. Hollywood, for its part, has always been inclined to this kind of Manichaeism—after all, every good story needs a hero and a villain. And the nefarious banker makes for a pretty perfect villain. Michael Douglas’s iconic portrayal of Gordon Gekko in Oliver Stone’s Wall Street set the mold for this character, and a batch of post-financial crisis films have followed suit: from narratives like Wall Street 2 and Company Men, to documentaries like Inside Job and Capitalism: A Love Story.
The problem with this portrayal is that it simply does not reflect reality. There were no capitalist masterminds who were able to maliciously game the entire financial system, no conspiratorial “fat cats” who single-handedly brought about the crisis. That’s why there have been no major prosecutions of any of the leading figures of American finance: because they didn’t actually break any laws. (Investigations across Wall Street since 2008 have turned up a few cases of isolated fraud and some infractions of SEC regulations, but nothing that could possibly be seen as a major cause of the crisis). And this is the core dilemma that is so vexing to the American people. How can something so bad, that hurt so many people and caused so much damage, have come about without any overt wrongdoing?
Margin Call attempts to give an honest answer to that question. There is no character in the film who breaks the law, engages in conspiracy, or does anything a reasonable person would label as unquestionably immoral. Even when the CEO of the film’s fictional bank makes the decision to sell all the company’s toxic assets—the act that literally sets in motion the complete collapse of the entire American financial system—it is an understandable, if difficult, choice. What else can he do? If he doesn’t sell first and start the catastrophe, someone else will. The outcome is inevitable, so what good could it possibly do for him to sacrifice himself and his firm and all his employees’ jobs if it makes no difference to the outcome?
That is the core conundrum of what economists call a collective action problem. If no individual person or firm’s actions can make a difference, the only reasonable thing to do is assume everyone else will follow their most selfish (and possibly destructive) instincts. Everyone has an incentive to follow the worst path they suspect others of following, and so it becomes a self-fulfilling prophecy. This explains not only why bubbles burst, but also why they build up in the first place. After all, why did the big investment banks start packaging and selling huge amounts of the mortgage-backed securities that eventually triggered the crisis? Because all the other banks were doing it. They were seeking higher profits, of course, but profits are the raison d’être of any company and the basis of its survival. Each bank’s employees knew that if they didn’t get in on this extremely lucrative new branch of the business, they’d fall behind their competitors, their share price would go down, they’d get fired.
Even if they thought the securities might crash at some unknowable point in the future, it would happen regardless of their own decision whether or not to get involved, and in the meantime it was their job to get the timing right for their shareholders and lock in profits before that bubble bursts. It was by this exact same thinking that so many millions of ordinary Americans bought or refinanced homes they couldn’t really afford in the expectation of making an outsized return on their investment. Virtue this was not. But in a capitalist economy, decisions aren’t made on virtue, they’re made on self-interest. These courses of action were logical on the individual level. The problem was that collectively they made everyone worse off.
