Sunday, 15 November 2015

Margin Call

Before viewing Margin Call (2011) I had mixed feelings as I had never heard of it before, however once I saw who was in the cast I knew that it would be a good watch with the likes of Kevin Spacey and Zachary Quinto performing.

The basis of the film is following the main people in an investment bank for a 24 hour period whilst they attempt to deal with the early stages of the financial crisis. It became very apparent towards the end of the film that this unnamed company were in a very similar position to what Lehman Brothers found themselves in; a company that had overwhelming amounts of debt (overleveraged) that realised that the only way to survive would be to sell all of its toxic assets. The only difference in this case was the company in the film managed to sell theirs, unlike Lehman Brothers!

It all starts when a junior risk analyst (Zachary Quinto) discovers that the volatility levels of the firms portfolio (made up of mortgage backed securities) has already breached the historical volatility levels that the company bases its whole investment policy on. With this in mind, if the company’s assets were to fall by 25% in value then this would be a loss that was larger than the entire market value of the unnamed company!

At this point in the film we have a great insight into the minds of the people at the top of a major organisation, where they have a decision to make: To save themselves? Do the right and moral thing?
Hmmm, let’s think about it for a minute... Of course they decide to try and save themselves and try to sell all of their toxic assets to their usual buying companies with the full knowledge that they are worth absolutely nothing. To give some credit where credit’s due, in the film they do manage to sell the majority of the toxic assets before the buying companies have fully acknowledged what is happening.

Was this decision a surprising one? Definitely not! Corporate greed was most likely the reason for the company being in the position that it was, so it only made sense for the people at the top to save themselves.

When I look back at the 2007 financial crisis in hindsight, it almost seems moronic that massive organisations thought they could continue operating in the way that they were with no repercussions. Especially with historic events such as the Wall Street Crash in 1929 And Black Monday in 1987!
However, was it just the investment banks to blame? Or was there anything that the government could have done to prevent such a crisis? In the case of the collapse of Lehman Brothers I believe that the government should have bailed them out despite the massive costs that it would have involved. The fallout caused due to the collapse of such a massive firm was so much larger than what the costs would have been for a bailout! On the other hand, in Margin Call, the CEO claims that if they were saved another company would fail after them and if they were saved then another company would fail, etc. So according to Margin Call it was inevitable that a crisis would occur!

Please feel free to comment fellow bloggers...

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