Problems- From a Finance Student
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drexeltoker — 14 years ago(November 15, 2011 04:33 PM)
The 40% OP was referring to was pass-rate for Level 1 which it is close to (and/or overall) for CFA not the amount who have it.
Also, not 40% of ANY sector/division of the Street has CFA including equity research and on the desk it will be less than 10%. As popular as the designation has become (especially abroad in EMs) it is still a relatively small cadre of financial professionals who have it (or necessarily need it) and even when it is most common/useful in equity research it is far less than 40% having it even in the bulge brackets. But thanks for repeating what I had stated about research analysts and asset managers.
The 'inside' information to which I think you refer regarding the CEO is poor reading of the situation IMO. The CEO understood the market was moving against the bubble and the music had stopped playing, but this has nothing to do with inside infobut rather shedding risk now would be better than trying to string the positions along. He chose to rip the band-aid off completely rather than a slow peel. Maybe you mean inside knowledge (or better knowledge) of markets past but it has nothing to do with inside information. -
mattbg — 14 years ago(December 29, 2011 09:43 AM)
I think you have it right.
The fact that they once knew the details doesn't mean they retain that knowledge in detail after they are forced to spend years focusing on higher-level concerns, which have details of their own. Your attention shifts, as does your focus on what's important. You rely a lot on people below you to brief you about the things they are experts in.
I don't think it was a flaw in the movie I think it was consciously trying to portray the fact that executives lose familiarity with the inner details of what they're managing and come to depend on people below them to succinctly summarize the details of their lower-level work.
None of these executives were static paper cut-outs. Their surface ignorance did transform into intelligent action over the course of the movie and as they gained more information. They appeared confused at first but picked up the ball quickly, and in that I think it's quite fair. It's one of the things I appreciated most about the movie.
The point is that you need vigilance to guard againt the problems in the movie, and you rely on a shared understanding of what's important and what needs attention. If one person in the chain falls down on the job, it can have severe consequences. If many people do, you have a problem. And you need it more than ever when complex computers are on the back end of your analysis.
Seriously, I thought this was a great movie. Far better at presenting a realistic picture of things than something like the Wall Street movies. If it's critical of anything, it's of a complex system that is so highly-dependent on people getting their job right the vast majority of the time, and so prone to serious failure with widespread impact if they don't.
It's tone was for more about "these are the risks of the way the system is set up" than "these are bad people". Less gratifying for the audience, maybe, but far more informative and useful. -
smfilm — 14 years ago(November 16, 2011 08:53 AM)
the writers were not fools at all having been and known a number of people like Sam and Will, I can tell you that they definitely know the forest better than the trees, typically do not have CFAs, their analysts are continually creating new reporting mechanisms utilizing new technologies that present the info in new visual ways
As the analytical techniques are developed you have programmatic creep the tools are developed by CFAs that used to be rocket scientists they poor over them for days week and months, slowly morph them, then present them to management who understand the business in a big way, but have never looked at these new tools before and have to be led in.
From my experience I found the movie to be spot on. Will and Sam were highly effective management that understood the biz, certainly better than the analysts, but were presented with new ways of looking at the biz that were not easily digestible.
I remember having the same exact thoughts as you when I was in grad school and I ended up be continually surprised by the management savvy of people who couldn't keep up with the reporting I was showing them then I got enough experience to be one of them and it all made sense..
The movie was spot on, don't underestimate these guys when you get out there, and good luck in your career. -
harrythebastard — 14 years ago(November 16, 2011 11:56 PM)
I work in the financial field and I can tell you this: the people at the top now exactly WHAT they're selling, but have a limited knowledge of HOW it works. The problem is that they might have graduated in the field, but the products keep changing and a couple of crash courses will not fix what you lack in hands on experience (which the people on the workfloor do have).
This chick
Marla Singer
did NOT have testicular cancer. -
bogwart-1 — 14 years ago(November 17, 2011 04:32 AM)
This is not at all a glaring flaw. All the exotic debt instruments, CDOS, MBS's etc, are incredibly difficult to understand. At the first big financial briefing at the time of the Lehman collapse when this film is set, Ben Bernanke himself asked the same questions as John Fuld asked in the film. Not one of the big snouts in the trough knew.
The whole derivatives market is constructed in such a way as to be all but incomprehensible. If it was easy no one would have undertaken the risks - don't forget they were talking about a potential exposure of
$8 trillion
. And at the moment the figures are so huge that although nobody can put a precise value on the potential debt it is considered that it could be anything up to $150 trillion, or in other words many times more than the global economy for many years.
It is absolutely not a question of the heads of these institutions being incompetent. They may be many things, but stupid is not one of them. You don't need to know the intricacies of computer engineering to use one. -
mamlukman — 14 years ago(November 17, 2011 01:58 PM)
I'm writing from a slightly different perspective and probably thus a different opinion. I have an MBA from one of the best business schools in the world (once #1 on WSJ rankings) and have a designation in insurance. I worked in insurance for 10+ years, but also in many other fields. First, in MY experience, the people at the worker bee level are the ones who know what's going on, as in the movie. As you go up the ranks of management, the level of ignorance increases exponentially. Managers make decisions based on whims, misinformation, and sexual attraction. Very rarely does objective goal-oriented decision-making rear its ugly head. If you recall 2007-08, that was exactly the problem: the largest banks in the world were betting their very existence on products they didn't understand. Do you REALLY think they would have bought this stuff if they really understood what it was??? No way. They were clueless. Secondly, the Demi Moore character had it just rightshe pointed out the risks and problems in meetings and was ignored. This has happened to me too often to count. Management doesn't want to hear the truth, they want subordinates to carry out their crazy half-baked ideas. And of course in the end, Demi was blamed, as non-team players usually are, regardless of whether they were right or not. I personally believe that in each of these banks there were meetings where some brave soul put up his/her hand and said, "Wait a minute. This is a crappy investment. If things head south, we're totally screwed." But they were ignored and probably fired. Just like 9/11 or the Benie Madoff mess. The lower ranks in the FBI and SEC were clamoring for permission to investigate, and it was the bureaucratic upper management that ignored or stopped them. It wasn't that NO ONE knew what was going on. A lot of people knew. It's just that no one in power bothered to listen. A third point is the ethical dilemmas posed to various characters at various stages. A constant in my entire working life, from high school teaching through dealing with companies worth almost a billion dollars, is the compromises you have to make with your own sense of right and wrong. You're constantly calculating how much it takes for you to sell out. Do you inform on a colleague who is cheating? What if your company refuses to re-call a vaccine they know is ineffective? What if your company is actively de-frauding customers? I've been in all these situations, and a lot more. If standing on principal causes almost four years of unemployment, you can bet the next time you are faced with an ethical decision the bar is a lot lower. And for most people, there is no bar at all. Anything goes. Thus our current situation.
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mamlukman — 14 years ago(November 18, 2011 09:07 AM)
A few more comments the next daytwenty years ago I dealt with the insolvencies of life & health insurance companies. Insurance companies, by state law, are required to hold certain classes of assets as reserves. A company in Louisiana (I can't remember the name offhand) held, as part of its assets, buildings owned by members of its board (this is illegal in itself). The real problem, however, was the inflated value of the buildings. The board members simply sold the building multiple times among themselves at increasing prices ($1 million, $5 million, $10 million, etc.) until the insurance company bought it for even more (so in other words, the "real" cost of the building might have been $1 millon, but the insurance company eventually bought it for $20 million). So the directors all got rich and the company eventually became insolvent because of their greed. All illegal. Do you honestly think that NO ONE in that company noticed what was going on? Sure they did.
Another company is really my favorite. Guaranty Security Trust, in Jacksonville Fla. Two stockbrokers from Louisville KY, of all places, bought the company (using credit, naturally), and immediately put what must have been a pre-conceived plan into action. Too many details to go into here. You can look it up! But part of it was using junk bonds as assets (illegal) which they got around by having Merrill Lynch buy the junk bonds back in December (when the required statements were created) and sell them back to them at a pre-determined price (illegal, of course) in Jan. You might say to yourself, "Where were the auditors?" In the company's back pocket, that's where. Coopers & Lybrand. When they objected to the illegal transaction, the company threatened to get a different auditor. The Coopers partner played ball and approved the transactions. Later the national Coopers firm disavowed the partner in Jacksonville. But that's not how it worksyou can't simply disown a partner as a rogue player. Another nifty touch with Guaranty Security Trust was that they owned several companies outrightChautauqua Airlines, Spinning Jenny clothing stores, a plastics company in Pittsburghand my personal favorite, a chain of strip clubs in Florida. All illegal. They weren't allowed to own companies. How did they do it? Easy. For the Spinning Jenny, for example, the guys brought in the skipper of their private yacht in the Caribbean and sold him the company for $1of course including a clause that they could buy it back anytime they wanted for $1. Then the insurance company they controlled made loans to Spinning Jenny (the loans = pocket money for the guys) that they counted as assets on the insurance company's books. Really creative. Capitalism at its best. -
drexeltoker — 14 years ago(November 19, 2011 09:34 AM)
Good grief this conversation has gotten out of hand.
To the person who mentioned Bernanke he's a central banker. He executes monetary policy and while he did not catch all the signals early and did not fully understand the entire securitization machine, that is not indicative of those that work at the banks or with the products daily.
I think at the end it is easy to forget the underlying trigger that truly caused panic: that real estate prices finally stopped appreciating. I have no doubt the bubble would have continued should prices have kept rising.
To the person who went to IESE or INSEAD or the like (note to all: anytime someone qualifies one of the 'world's best biz schools' you can rest assured they're not referring to Harvard, Wharton, Chicago, Stanford and the other American elites) thank you for your detail career history in the insurance biz, in some cases just quite irrelevant to this topic. -
Kompressor_Fan — 14 years ago(November 20, 2011 10:16 AM)
Getting back to the original topic. I will be quick. I'm a CPA, I have a masters in accounting, and a bachelors in economics and finance. This stuff ain't Greek to me, but it is to most people.
That is the whole point of the 'explain it like I'm 10 years old' lines in the movie. They took a little bit of dramatic license because they wanted the majority of the audience to understand what was going on, as well. Not just the CPAs and CFAs.
We in the financial services industries have our little languages, in part, so that people will have a reason to pay us. That's all well and good, but it doesn't work in the context of a drama. If the script were loaded with with references to, say, tranches and credit default swaps you would lose the audience in less than five minutes. -
fr1-2 — 13 years ago(September 14, 2012 08:34 PM)
Funny, I have the exact same degree and qualification as you are, but still those graphs sounds greek to me. I dont recall anywhere in my CPA course anything about VAR or advanced stuff they mentioned in the movie.
Only when I was doing my applied finance degree, then I learned about these MSB and else
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mathmaniac — 9 years ago(January 19, 2017 04:23 PM)
See 'The Big Short' (Brad Pitt, Christian Bale) - Alan Greenspan is referred to in the film as one of the 'architects' of the crisis - I believe he was a central banker, no?
I remember an old woman saying to me that things were looking good because Greenspan 'would take care of us.' I thought then we were in for a beep of trouble. It came along soon enough -
robertmichel — 14 years ago(December 03, 2011 05:01 AM)
Exactly. Thank you for remarking this. I was going to myself, because I am not a financial expert far from it but I really want to see this movie because I like this kind of drama.
The portrayal of the characters, the decisions they make, what that tells me about their personality but also what the consequences are for other characters etc. that's the reason why I like watching movies, so I don't worry about what kind of degree they've got (unless that's relevant to the plot and then, too, I'd like to have it explained to me in layman's terms). I mean, for example, I'm not a lawyer nor have I ever been in the military, but I really enjoyed "A Few Good Men".
So, too bad if it draws anyone out of the movie but when I'm going to see this, I'll be glad they included those lines in the movie to help me understand the drama, help me understand what the impact is of what's being said. -
tuviolitihane — 14 years ago(November 25, 2011 03:51 PM)
Are you kidding me here people?
- Who cares who you are.
- The film made it pretty clear that the chief knew very well what was going on. They were just playing "golden retrievers".
Seems that finance education doesn't provide ability to concentrate nor brains. Maybe just a knowledge of cool acronyms.
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szisoman — 14 years ago(November 26, 2011 06:00 AM)
Look at it this way. portraying them as incompetent is much better than portraying them as smart professionals who understood the risks.
If they didn't know, then the blame lays with whomever placed them in those positions.
If they did know, which you suggest, then they are accountable for causing all that wreck.
Taking risks is part of life, but some decisions are plainly stupid & destructive & should never be taken. Is it ambition or greed?
" Let's go get a drink & smoke a cigarette" -
kcommings — 14 years ago(November 29, 2011 06:36 PM)
Having the guys at the top say things like "just speak plainly" wasn't to show them as incompetent. It was a device to enable the problem to be explained to the movie audience who are not financial people.