Aspects of the financial system explored, people might have missed
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Archived from the IMDb Discussion Forums — Margin Call
thornsthorns — 13 years ago(March 27, 2013 02:46 AM)
Yeah, film is a bit technical so hard to explain if you don't have a background in it.
Its difficult to explain. So I'll try and only explain a few things, and hopefully you can put the whole picture together yourself.
LESSON ONE - zero sum game
Basically all financial markets are zero-sum games. if someone wins, it means someone else has lost.
In the end when Tuld talks to Rogers and says you have been bankrupting people for 40 years, and Eric talks about having done something real with his life, building that bridge, and Rogers talks of just wishing he had dug ditches holes all his life. And how their are always the same percentage of winners and loser etc. These are all reference to this fact of the financial markets.
This is the market, you think this is overvalued so you sell it. this is undervalued so you buy it. you are in effect bankrupting, swindling the person you are dealing with. as Tuld says, it today was no different than any other day, just more extreme.
The market does not create any wealth, it is merely a casino. it steals all our brightest minds and turns them into sophisticated gamblers. a zero-sum game.
LESSON TWO - what goes around comes around
our wealth, our lifestyle in the west is built on this corrupt zero-sum game. financial empires stealing the wealth from the masses for themselves. We actually only care about ourselves.
Which is true, everyone was in an uproar over how these financial companies swindled and stole from the masses. but no one cared about how they had been doing that for decades with the 3rd world.
When Will gives the speech in his car about eff the real people who will ose out in the coming crash (1hr14min mark), how he doesn't care about them. How these people are hypocrites. They (we) want to continue living like kings. And the only reason that is possible is because of people like Will, Tuld, Rogers and all the other Morgan Stanley, bear Stearns, Goldman Sachs people.
He was referencing how the average Joe in the west, the only reason we enjoy such a great lifestyle is because traders like Will stack the scales, the game on their side. The effect of this is that 5 billion people starve to death, whilst we rich people in the west waste food and consume nearly all the worlds resources.
its because of traders like Will that poor people in the 3rd world can't afford to buy food, because they and their companies own and control all the prices for profit. Not just food, it spans energy, oil, gas, labour, currency. Have you ever asked why a 3rd world countries currency is worthless and a western countries currency worth so much? Why the massive disparity, they work, we work, they work harder. Why? because of traders like Will who hold down the scales in their favour, in the west's favour.
The same goes for all the cheap goods we buy, made from child labour, from people working 60hr weeks, all due to the trading floor, all due to companies like the one portrayed in the film..
If the 3rd world were to fight back, or people like Will take their hands of the scale as he puts it, and it should all of a sudden be equal and fair, we would not enjoy the lifestyle that we demand and play innocent about where it comes from. Our lifestyle is built on massive suffering in the 3rd world.
LESSON THREE - leveraging
Fractional reserve banking creates bubbles in the financial markets. When these bubbles burst, these assets become worthless.
Leveraging, margins, put options, these are all the same, borrowing and using IOU's to invest/turn a profit. The most basic form of this is fractional reserve banking. banks by law are allowed to lend out more than they have in their accounts, because no one ever asks to be paid. We simply accept the banks IOU, without ever actually asking for the money itself. Your current account, your credit card, your mortgage, your debit card, these are not money. They are IOU's written by the bank promising to pay you the money when and if you ask for it.
Since you rarely do, and instead use the IOU's as money, the banks actually lend this money out to other people. They then go even further and actually lend out the IOU itself. They do this over and over.
This is fractional reserve banking. The effects of the banks lending out money that does not exist, is it creates bubbles. As investment people will leverage, they will borrow this money, these IOUs from the bank to buy assets to flip and turn over and make a profit.
the problem with this is that, asset prices can't keep going up forever and ever. There is a limit to how much the banks can leverage, and how much investors will leverage.
This is like a game of musical chairs. People borrow from banks, to buy assets, that only increase in value because someone else is borrowing money from banks to buy these assets off you at a higher price.
Now this game of musical chairs, round and round as prices go up and up. Comes to a stop, when banks stop lending and people start defaulting. Which is inevitable, sooner -
aoibhneas — 13 years ago(March 27, 2013 10:46 AM)
Thank you so much for taking the time to explain this. I didn't fully understand the system before reading this and neither did I understand what exactly occurred to topple the markets. A very insightful and well-explained post.
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Kiers77 — 12 years ago(August 17, 2013 02:26 PM)
LESSON FOUR:
Senior Management "Downsizes"
regularly
based on a balance between
(1)self preservation (from immediate threats from the middle management) and
(2)need for competence to outperform benchmarks
Result: fire the old geezers, keep the youngthings work out nicely.
I can't tell you how many times in the movie they kept asking "who are these young boys?" again and again, even from within their own department (by Demi Moore)! LOL.
Yet when Spacey gave his "firing" night (night of the layoffs) speech, on the trading floor, he said "you are all here for a reason, you have been hand pickedsurvivors etc etc etc."
all BS! as the future stress situation showed.
LESSON FIVE:
Senior management, manages more by "gut feel" and "intuition from experience" rather than analytic logical thought.and usually it pulls them through! After years in the trenches and all that mental toil, it finally distills down to those few pithy phrases about
how things really work
.
Examples:
Jeremy Irons: "either be smartest, or cheat, and while I like to think we are the very brightest, others too will see the same thing; so we can be first (first to buy and first to sell is always a winner)"
Jeremy Irons: "there are more of us (bankers) now, but the percentages (who win or lose) are the exact same"
Spacey: "We have to BOTH buy and sell, the minute we stop to buy, we are dead" and "we only survive by getting the people who buy from us to come back for more the next day".
Nice quotes those. I liked them.
(But really finance is much more corrupt than the simple quotes would have us believe). -
StoicBlade — 12 years ago(September 20, 2013 02:44 PM)
Thanks for that explanation. I have college degree and I still has no idea what was going on in that movie. I mean, I got the gistWall Street sells things that have the illusion of value. As long as the illusion holds, then the thing still has value. Of course, I think I learned that from watching "Wall Street" back in 87'. Your explanation helped out a lot.
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DanPhx — 12 years ago(October 23, 2013 04:49 PM)
Fantastic post!
One small quibble
This is the market, you think this is overvalued so you sell it. this is undervalued so you buy it. you are in effect bankrupting, swindling the person you are dealing with.
If I sold MSFT at $35 this morning to someone who thinks it's worth more, but it fell to $33 by closing, I didn't swindle him any more than I go bankrupt if it skyrockets to $42.
If both parties are operating in good faith with the same information available, it's far from a swindle.
If either party's solvency is resting on a single trade or even all of their trading, they are fools who have no one to blame for the consequences of taking that risk but themselves.
It's not an indictment of the street light system on roadways that some people die in the process of jaywalking.
Now in the specific case of derivatives it was first and foremost a collapse of information but that would be another movie
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hoov-4 — 12 years ago(February 22, 2014 11:37 AM)
thornsthorns, this is such an excellent post that I missed the first time I watched the movie. Now watching it for a second time right now on Sundance, I came on here to read some comments. Your comment is the best. Thanks kindly for explaining it like this.
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svetiev_b — 11 years ago(April 26, 2014 04:26 PM)
This is one of the greatest explanation posts I have ever read on these forums.
I believe you should put this under some heading in the FAQ section of this movie. It is a wealth of information about everything that's wrong with our society at this point in time. Thank you. -
internethero — 11 years ago(June 23, 2014 02:47 PM)
It makes me sad that so many of you are misinformed to such a degree that you would actually believe this propaganda.
Banks do not lend out money that does not exist http://en.wikipedia.org/wiki/Fractional_reserve_banking
(or see ECON101)
Financial markets are not a zero-sum game (see ECON101 yet again). How would you propose start-ups raise money without investors?
The assets they sell are priced according to market sentiment (and what you call "the masses" are other banks primarily). If you want to assume the risk of holding an asset it is your choice, no one is forcing you. There are risks inherent in owning a house as well, or crossing the street.
I don't have time to address all the erroneous claims in your text. But the above is a start.