I saw the movie Margin Call a couple of weeks ago, and had a couple of points to make about it that I haven’t seen elsewhere. Actually, three, but the additional point has been made before, to whit: see it. It’s the first movie about Wall Street I’ve ever seen that gets it even remotely right – at least, right based on my experience. I’ve worked with every single one of the guys depicted in that movie. The world depicted is real. Not, of course, in every single detail – but in the important ways, yes, it’s real. And for that reason alone – along with the wonderful ensemble acting and the surprisingly strong pacing of the writing and direction (since almost nothing actually happens, it seems superficially slow, but it’s actually paced almost perfectly).
Now, for my actual two points.
First, John Tuld, the Jeremy Irons character is regularly being compared to Dick Fuld, the CEO of Lehman Brothers. But if I understood the action of the movie correctly, and the actual events of 2008, Tuld does exactly the opposite of what Fuld did. After Bear Stearns was basically forced to sell to JPMorgan Chase in March of 2008, everyone looked over to Lehman as the next domino potentially to fall. But the Fed started allowing investment banks to borrow at the window, and for a few months everybody relaxed. Fuld did not take the opportunity of the spring and summer lull to clean up the mess at his firm – rather, he tried to brazen his way through the crisis, assuming he’d be bailed out. This outrageous arrogance is a major reason why the government refused to lift a finger to save Lehman, which, in turn, led Lehman to seek the protection of Chapter 11, at which point we entered the full-fledged phase of the financial crisis.
Now, I’m not saying that Dick Fuld caused the financial crisis single-handedly. Had he done what John Tuld does in the movie, and aggressively liquidated his portfolio of sub-prime-mortgage-backed securities, he might have failed – or he might have succeeded in driving Merrill Lynch over the brink instead of Lehman. Who knows. The same weekend Lehman went under, AIG, a much, much bigger ship, was revealed to be hulled way below the water line. This was a systemic crisis; every major Wall Street house, and plenty of minor banks, along with the Federal Government and quasi-government entities like Fannie and Freddie, not to mention independent quasi-regulatory organs like the ratings agencies, was implicated. But I am saying that John Tuld, who appears to be the villain of the movie (inasmuch as there is a human villain, as opposed to the abstraction of “Wall Street”), does exactly the opposite of what his model, Dick Fuld, one of the widely-recognized and vilified villains of the actual financial crisis, did in real life. Which should tell us something about the nature of decisionmaking in the crisis.
Tuld reminded me, in fact, of the structural heroes of Michael Lewis’s book, The Big Short. Lewis’s narrative follows a handful of guys who, following John Tuld’s three possible ways to make money on Wall Street (“Be first. Be smarter. Or cheat.”) were first, because they were smarter. They saw through the flim-flam of the sub-prime mortgage pyramid scheme and, rather than join the party and try to ride it as far as one could, decided to short the whole business. In the popular understanding, these guys were among the villains of the crisis – or, rather, the instrument (the naked default swap) that they used to execute their trades, and the investment banks (most notably Goldman) who facilitated them were the villains. Because what these guys were doing was picking the worst mortgages and shorting them (betting they would default) by having investment banks package the other side (a long position in said junk mortgages) into securities to sell to buy-side accounts as legitimate investment products. Which said banks did. So they are understood to be part of the chain of villainy: their trades kept the game going, and made the game more toxic, and made them a whole lot of money while trashing the world financial system. But in Lewis’s book, these guys are – structurally – the heroes. Because they are the guys who didn’t cheat. They were smarter, and earlier, than everybody else in assessing what was likely to happen. They placed their bets, took their chances, and profited. That’s the way it’s supposed to work. The villains, in the Lewis book, aren’t speculators like these short-sellers, but the guys who put mortgages together into securities and marketed them as investment vehicles without caring what junk was was in the pools. The short-sellers were making money off that villainy, but they weren’t the villains.
So, to get back to Tuld, he – and his fictional firm – had been playing the game for years. And Tuld figured out – early, thanks to the smart work of risk analyst Peter Sullivan (the Zach Quinto character) – that the music was stopping, and that when it stopped his firm would be bankrupt. And so he made the call: liquidate everything, immediately, before the crisis hits. Save the firm. Screw the clients.
Which is the right call. It has to be the right call. It’s not a disinterested call – I’d assume more than 50% of the fictional Tuld’s wealth is tied up in his firm’s stock. But the whole reason he’s got all that stock is to incentivize him to do what’s right for the firm rather than what’s right for him individually, by making what’s right for the firm and what’s right for him individually identical. Of course you screw the clients when the survival of the firm is on the line. You’re not there to serve the clients. You’re there to serve the shareholders.
And there’s no systemic reason not to do it either. As John Tuld says: “I don’t cheat.” He doesn’t pull the accountants in and say: I order you to hide the loss. He doesn’t pull risk management in and say: I order you to change how we calculate VaR. He says: sell it all. To willing buyers. At the best price you can negotiate. If that’s not what he’s supposed to do, then I’m really not sure what he’s supposed to do. I suppose try to blackmail the government into bailing him out. Which is what Dick Fuld did.
All of which brings me to my second point: Sam Rogers, the Kevin Spacey character. Now, over the course of the movie, this guy, the head of the trading floor responsible for all this crap, moves from the periphery to the center of the movie. He’s the one who questions Tuld’s decision to sell everything. He’s the one who everyone looks to as the “good” guy – the one who gives the pep talks to the folks who haven’t been laid off as well as the guy who the folks who were laid off still trust and look up to, and don’t really blame for what happened. He’s the veteran, the lifer. He appears, structurally, to be the hero – a tragic hero, like Michael Corleone, who sacrifices his own sense of right and wrong for the good of the family, but a hero nonetheless.
And that’s a load of self-pitying horse-hockey.
Let’s take a closer look at Sam Rogers. The first thing we learn about him is that he’s got a dog who’s dying, and he’s totally broken up over it. Now, you could take this as a save the cat moment that makes us sympathetic toward the character – and it is, except that’s a trick. We do become sympathetic to him. But precisely because we do, we don’t notice – not until later, when we’re supposed to – what the dog’s death is really telling us about him. Because his mourning for the dog is so over-the-top, it should clue us in to something about this guy. It’s not that he’s so caring that he’s broken up over the death of his dog. It’s that the dog is all he’s got left. Which is confirmed at the end of the movie, when we find him burying the dog on the lawn of his ex-house, now occupied by his ex-wife. This is where his loyalty to the firm has got him: to a place where he cannot afford to walk away from a job he now despises because he lost all his assets in what we must presume was an ugly and acrimonious divorce.
At the big, late-night executive committee meeting, Rogers is the one to stand up to Tuld, and tell him he can’t do what he’s planning to do – he can’t screw over their entire client base this way. They’ll never trade with the firm again. Tuld says he understands. Rogers asks: do you? To which Tuld responds: do you? This is it! Meaning: there’s no point in keeping our clients if we don’t have a firm left to trade with them.
All of which is true. But, of course, Sam Rogers is not the firm. If he gives his sales force the order to liquidate everything, their clients will be furious. With his sales force, and with him. He, personally, stands to suffer. The firm may survive, but his career won’t.
But that’s the conflict. To do his job, he must sacrifice his career. To preserve his career, he’d have to refuse to do his job.
It is very, very difficult for me to see this as a moral conflict. It sounds an awful lot like a question that can be resolved monetarily: how much do we need to pay you to do your job so that you don’t worry about the fact that you’ve just torched your career?
But that assumes that Rogers’s career is just a way for him to make money. That it’s not a vocation. And, obviously, that’s not the way Rogers sees it. He, in his own view, has been doing something more than just earning a living. He’s been a leader. A mentor. A man people look up to.
Corporations need people with Sam Rogers’s skills and their self-conceptions. But the Sam Rogerses of the world would do well to bear in mind that these skills and this self-understanding is being exploited. There is no higher purpose for which they are leading their teams. The only purpose is making money. The moment when there is no prospect of doing that, the team will be disbanded.
This character, Sam Rogers, lost sight of that fact. His lack of cynicism makes him seem like the hero of the piece, but it’s just self-delusion. The only choice he faces is the choice I identified above: preserve your career, or do your job. That’s a purely self-interested question. There are no higher values involved. But the choice forced him to recognize that he had imbued both sides of the equation with emotions that were undeserved. He didn’t just feel like the firm was a good place to work; he felt loyalty. He didn’t just feel like his career was a way to make money; he felt like it was an identity. Being forced to betray your identity to prove your loyalty is a lot more serious than trying to decide whether $6 million is adequate compensation for ending your career on a sour note. But that is, in a fundamental way, Sam Rogers’s fault. He’s the one who decided that he couldn’t do his job unless it was more than a job.
The real message of the Sam Rogers character’s story is: if you’re that kind of character, you don’t belong on Wall Street. Because these character traits, which in the normal world we think of, basically, as strengths, are weaknesses that will be ruthlessly exploited – like everything else is – in the pursuit of profit. Exploitation which it’s difficult for me to fault guys like John Tuld for engaging in. Since, after all, that’s their job.
And that would have been a very good message indeed for the Peter Sullivans of the world to get before they got on the money train. Because once you’re on that train, as pretty much every character in the movie admits, it’s extraordinarily difficult to get off.
Which is another thing this movie gets right.
UPDATE: I was remiss in not pointing out at least one reviewer who understood that the story isn’t really about Lehman specifically. I don’t recall whether I read his review before writing mine, but I probably did, and he deserves the shout-out. Sorry for the omission.