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Movie Takes
Margin Call
Once again, Hollywood pretends to remain ignorant of the ancient maxim caveat emptor.
My first unaccompanied car-purchase, when I was older than I would now care to admit, was of a blue, six-year-old Renault 4 and it cost me, if I remember rightly, £250 — which at the time was worth about $650. I was a penurious American student in England, and that represented a considerable part of the money I had available to support me for the remaining year of my course there and so was something of an extravagance. But I was determined to use the “long vac” for an extended camping trip through the land of the Renault’s manufacture and thought that it would be a good idea for my prospective means of conveyance to feel at home there. I don’t remember what I eventually discovered was wrong with it, but I do remember that it cost as much to fix as the car itself had cost me. I also remember the look on the face of the seller when he saw the cashier’s check that I had just presented him with. He couldn’t believe his luck.
In that moment — too late! too late! — I knew already that I had been sold a pup, though I wouldn’t admit it to myself until the fact became undeniable. Fortunately, the car got me around France and back to England again before its mechanical problems required immediate attention. Doubtless this was a good learning experience for me, and not only because I didn’t make the same mistake again. I learned, for instance, where the ancient maxim, caveat emptor, comes from and why it is so crucial to the economic progress of mankind. The honorable thing would of course have been for the seller to tell me that there was something wrong with the car, but then it would not have been salable. In these circumstances, a man is a fool to expect honorable behavior from others, even though what that man did was no less dishonorable. Trust but verify, as Ronald Reagan used to say. People forget that he was making a joke.
J.C. Chandor, the writer-director of Margin Call, though still under 40, looks to be a good bit older than I was when I bought that car, but he still thinks it scandalous when someone sells something he knows is less valuable than he has represented it as being. So it would be in a perfect world, though it is pretty much the ordinary way of the world as we know it. His fictional company in Margin Call is supposedly based on Lehman Brothers, but this company has, as Lehman Brothers did not, an opportunity for one last glorious trading day in which it disposes of all its toxic assets to suckers around the world before they realize what the company’s clever young number-crunchers have discovered, namely that everything it has to sell is or soon will be without value. That, on the face of it, seems pretty unlikely, as does the fact that it takes some nerd at a computer and far down in the company hierarchy to spot a mathematical miscalculation that has made it or soon will make it bankrupt.
In reality, that’s not how things happen. You don’t discover one afternoon from some mathematical wizard’s taking a look at your balance sheet that the assets you hold will be worthless in 24 hours. If they’re worthless now, they were worthless when you bought them, and if you didn’t know it you should have known it. More importantly, if you didn’t know it, someone else must have known it — most likely whoever sold them to you. For those who don’t know, they don’t know not because of mathematical legerdemain but because of the same kind of self-deception I was guilty of when I bought that car — around about the time, I imagine, that Mr. Chandor was born. It’s an old story and one in which the guilty parties are many. But, from Hollywood’s point of view, that’s the problem. Guilt is too widely diffused to suit the purposes of Mr. Chandor who, like many of the demonstrators at the Occupy Wall Street manifestations and their sympathizers in the media, is on the hunt for the real villains, those who can be made to bear the burden of guilt for the rest of the one percent — and perhaps for the 99 percent who rode the bubble as well.
Mr. Chandor’s chosen scapegoat is John Tuld (Jeremy Irons), the similarity of whose name to that of Lehman’s Dick Fuld is doubtless coincidental. He it is who, on the news that the assets have been suddenly discovered to be worthless, gives the order to sell them anyway with the sort of aristocratic insouciance in which Mr. Irons has long been a specialist. Of course, they must be sold at once and at whatever discount is necessary to get them sold, and both the more and less sympathetic underlings to Mr. Tuld all meekly hop to it and sell them. Their willingness to go along with the imposture so as to salvage something from the wreck of their livelihood means that they must be supposed to share in his guilt, but I think the idea is to give a boost to the essentially political one that they do so because it is really “the (capitalist) system” which is to blame. If you don’t like to hear that, you can tell yourself that it is only a movie since, unfortunately, it is.
The reviewer for the New York Times wrote that this picture “does a great deal to humanize the authors — and beneficiaries — of the 2008 financial crisis.” But its characters and those they are presumably based on were neither authors nor beneficiaries. It’s hard to think of anyone who was a beneficiary of the crisis, apart from Barack Obama whose election that year it made all but certain. But as for authorship, the crisis was a result of a silent conspiracy of government, bankers, and homeowners, both existing and prospective, all of whom were willing to ignore the risks of reducing or eliminating old-fashioned lending standards for the sake of the money to be made or the political benefits to be reaped, for a while, from doing so. But the self-deception of the greedy is too old a story to suit Hollywood for whom, as for the greedy profiteers themselves, there is a powerful incentive to believe that “this time it’s different.”
About the Author
James Bowman, our movie and culture critic, is a resident scholar at the Ethics and Public Policy Center. He is the author of Honor: A History and Media Madness: The Corruption of Our Political Culture, both published by Encounter Books.
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Bill Hussein O'Stalin| 11.22.11 @ 7:18AM
Ironically the scheme and massive exposure to derivatives continues on it's path to assured mutual destruction of all participants.
U.S. banks have never held more worthless paper and much of it is being lent overseas where "fat chance" of getting it back would be an accurate rendering.
While members of Congress complain about Fannie Mae asking for 6 billion to bail out US housing, the taxpayers are backstops to hundreds of billions of bad or questionable bets being made in Europe.
This article is from Keith Fitz-Gerald of Money Map Press:
In 2009, five banks held 80% of derivatives in America. Now, just four banks hold a staggering 95.9% of U.S. derivatives, according to a recent report from the Office of the Currency Comptroller.
The four banks in question: JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc. (NYSE:C), Bank of America Corp. (NYSE:BAC) and Goldman Sachs Group Inc. (NYSE:GS).
Derivatives played a crucial role in bringing down the global economy, so you would think that the world’s top policymakers would have reined these things in by now – but they haven’t.
Instead of attacking the problem, regulators have let it spiral out of control, and the result is a $600 trillion time bomb called the derivatives market.
Think I’m exaggerating?
The notional value of the world’s derivatives actually is estimated at more than $600 trillion. Notional value, of course, is the total value of a leveraged position’s assets. This distinction is necessary because when you’re talking about leveraged assets like options and derivatives, a little bit of money can control a disproportionately large position that may be as much as 5, 10, 30, or, in extreme cases, 100 times greater than investments that could be funded only in cash instruments.
According to the Bank of International Settlements, U.S. banks have loaned only $60.5 billion to banks in Greece, Ireland, Portugal, Spain and Italy – the countries most at risk of default. But they’ve lent $275.8 billion to French and German banks.
And undoubtedly bet trillions on the same debt.
There are three key takeaways here:
•There is not enough capital on hand to cover the possible losses associated with the default of a single counterparty – JPMorgan Chase & Co. (NYSE:JPM), BNP Paribas SA (PINK:BNPQY) or the National Bank of Greece (NYSE ADR:NBG) for example – let alone multiple failures.
•That means banks with large derivatives exposure have to risk even more money to generate the incremental returns needed to cover the bets they’ve already made.
•And the fact that Wall Street believes it has the risks under control practically guarantees that it doesn’t.
Seems to me that the world’s central bankers and politicians should be less concerned about stimulating “demand” and more concerned about fixing derivatives before this $600 trillion time bomb goes off.
Maxwell| 11.22.11 @ 8:02AM
Frist, I do not fully understand derivatives but from your description it looks like it is something a small time investor like me should not bet his pension or life savings on.
Second, what really happens when the market does crash because of derivatives and will it happen before the next election? I know, I always a lot of questions.
My first car was a '61 Hillman Huskie in 1966 with a really bad first gear but I got it for free and after paying 187 to rebuild it ran like a top.
TrueBlue| 11.22.11 @ 1:32PM
Don't forget it's still business as usual for the big banks and our government. With the FDIC coming in and closing down local banks (who didn't make those bad investments) in order to prop up the larger banks so that they can spread their debt out just a little bit more and hold off another crash just long enough for the CEOs of the national banks like BofA and Chase to make more money and gtfo as it all comes tumbling down again.
But then, what do we expect when politicians and their cronies are playing musical chairs with our economy. A politician gets elected with massive funding from this or that industry, and then when he gets out of office he goes to work for them as a lobbyist. Same goes for the banking industry, they get placed in the FDIC, Treasury Dept, etc. to make rules that help the national/international banks, and then when they leave they joins those banks as VPs and CEOs to reap greater rewards.
Crony capitalism at its finest.
Brian Mc| 11.22.11 @ 7:25AM
There are two sides to the coin, Mr. Bowman. When I was called into the sales manager's office for a little chat, I was still reeling from a bald-faced lie that had been flung at the two of us on the sales floor. My trust in humanity had been shaken to its core and I was wondering whether I had made the right career move-if I could deal with customers so willing to deviate so willingly from the truth in order to screw 'us' for a deal.
As I sat down he asked, "You know you CAN tell when a customer is lying...do you want to know the giveway?"
I leaned forward in anticipation of the answer that would free me from my quandary. He sat back, pulled at his tie and smiled, "Just wait, and watch for their lips to move."
By the way, mine was a '69 442. Two days after the purchase and on my way to my first duty station; at two a.m. on the Ohio Turnpike outside Warren, something came through the oil pan and left me standing in the dark in sub-zero temperatures. Buyer beware, indeed!
Peppermint Tea| 11.22.11 @ 9:59AM
Mr. Bowman, you worry too much. Bernanke and Obama are going to save us from ourselves and from the evil capitalists. After all, The Leader BHO has never told an untruth to get us to buy something. Capitalists and used car salesmen may lie, but politicians never do.
Say Baptist| 11.22.11 @ 10:26AM
Mine were a '55 DeSoto fireflyte and a '58 Ford.
The Community Re-investment act, a product of Anne Rivlen,Barney Frank and Bill Clinton,was the Govt"s mandate to defraud.
Frog In Fatigues| 11.22.11 @ 1:29PM
Mister Bowman,
I'm really sorry for your purchase of one of the worst cars in a line of very bad cars from a very bad company. Part of the story comes from the Renault heritage. Louis Renault was our Henry Ford, a real genious and a maker of very good cars. After WWII he was arrested by the communists (yes, the same ones that had betrayed our country during our 39-40 "weird war" against Germany, and sabotaged our war efforts) under the very fallacious pretect that he had sold cars and trucks to the Wehrmacht. In those times you either sold something to the Germans or had it taken from you, along with your house and your freedom. Unfortunately while being very roughly interrogated in jail, Monsieur Louis had the bad taste of not withstanding torture and he died before anyone who could have helped him, managed to know where he was incarcerated. No problem, for the commies he was still a traitor and his company was seized, or stolen or "nationalized" along with all french gas & electricity companies, railways, ports and coal mines. The Societe Renault became the state owned Regie Renault, managed by the communists, the union and apparatchiks from the government. The quality went down the drain and although Renault has been partly privatized recently, it's still belching unbelievably bad, poorly engineered and manufactured lemons. The wages of sin, one would say. Your 4L was the first attempt in 61 from Renault to make a front wheel drive car, the engine had been designed 20 years before and had not been improved in any way, the gear box was a 3 speed unsynchronized affair and the alternator was a flimsy 6 volt excuse for an electrical device. To had insult to injury, the car didn't handle well at all and didn't brake. It's a miracle you made it back from my country. Any limey car was better than the best french car of that period which was the Peugeot 403 (the kind of street tanks that Opel from Germany had ceased to produce before the war)
Believe it from a frog:never, ever, buy a french car.
albert constantine jr| 11.22.11 @ 8:48PM
"The wages of sin, one would say. "
Wasn't the "Wages of Sin" actually a fine piece of French cinema?
old white guy| 11.22.11 @ 2:09PM
i'm not sure about any of this but a couple of years ago i started losing a grand a month on one investment. it took me 24 hours to change everything i have to more secure investments. the changes will allow me to continue living my middle class life until the world econmy tanks.
POST American| 11.22.11 @ 10:02PM
---------------------FINAL WORD-----------------------
-Hollywood, having made BILLIONS (or is it
TRILLIONS?) from VAST franchise slum access
to Asian markets ---and MASSIVELY outsourcing
there as well -----has lots, and lots, and lots
of time, talent and money available for these
SUB-Oliver Stone retreads, and sundry other
moral alibis.
MEANWHILE --the 20th---30th---40th
----50th-------and NOW 60th Anniversaries
of the awesomely relevant, RED China/Globalism
and EUGENICS 'unfriendly' KOREAN WAR
were, one and all, ------completely 'overlooked'. . .
Jacob R| 11.23.11 @ 3:48AM
Mine was an 02 BMW M3, but for some reason after I drove it 140 everywhere I went for a year it barely ran anymore.
What can I say, I'm a frugal American who likes to make a little go a long way..fast!
PCC| 11.25.11 @ 1:06AM
Mine was a '73 pale yellow Dodge Dart station wagon (built by Mitsubishi) with a gas pedal that stuck to the floor and had to be held up with the tip of my toe.
I bought it for two cases of beer from my boss, the service station owner, and drove it for nearly two years with hardly a complaint.
SUBVET| 11.26.11 @ 12:27PM
One of my first loves was a 1968 Playmouth GTX 440/6 pack payed $3,450.00 new. Kept it for over 5 years sold it and now wished I never had.