Watching Margin Call with a Hedge Fund Trader
Does art imitate life?
Margin Call. (April 23, 2012)
I liked Margin Call — which is modeled on the fin de siècle machinations at Lehman Brothers or possibly Goldman Sachs — the first time I saw it. But what do I know? I’m a blogger. My host has a long record in investment banking and hedge fund trading, with posts in Asia and New York. His office now overlooks Ground Zero, and if he complains sometimes about bad market weeks, he’s remodeling what was already a perfectly good kitchen and nobody’s coming to repossess his BMW.
Margin Call is set over two days and a long night, as a cabal of high-flying traders — more glamorous than rock stars—are brought to earth with a thud. The credits roll over New York City, and during a panoramic shot Stephen points out not only his office but his former Hudson River residence on the New Jersey side, from which he could take a ferry to work. The film opens in the office of a high-pressure investment firm, as a mass layoff is in progress. Stephen is impressed that not only do the desks have the correct Bloomberg screens (albeit too many of them; they’re $2,000 a month, so junior staff have to share), but also the Herman Miller Aeron chairs that are the only way to go at financial institutions.
“It’s hard to tell about the phones, though,” he says. “Trading floors use special phones with ‘turret’ recording systems to ensure that every conversation gets archived. A trade with someone on the telephone is a contract, and it’s binding, so it’s essential that all the exchanges are stored in a central location.” He added that a persistent rumor — possibly true — maintains that the phones are recording whether they’re actually on a call or not. Stephen pointed to the wall of clocks with the time in different trading centers. “We really use them, for obvious reasons,” he said, opening a second beer. “They’re often wrong for days at a time because of daylight savings time.”
Stanley Tucci, as fired employee Eric Dale, is escorted from the building, and Stephen remarks that he looks a lot like Dick Grasso, the former chairman of the New York Stock Exchange. And, yes, they really do fire people that way — even taking away their cell phones. “It can happen to anybody at any time,” Stephen says, adding, however, that the Dale character seems too senior to get taken out by low-ranking human resource functionaries. “Dale would have an office as head of risk management, but it wouldn’t be on the trading floor — he’d be away from the action. Hardly anybody on the floor has an office. Even guys making $100 million a year don’t have offices.”
The remaining staff is given a pep talk by head of trading Sam Rogers (Kevin Spacey). “The people who are gone were good; you’re better. There’s a reason you’re all still here.” British-born senior trader Will Emerson (Paul Bettany) looks intense. “He’s married to Jennifer Connelly,” Stephen said. “I used to bike by their penthouse in Tribeca. I think I saw Nicholas Cage walking his dog by the river once.”
“I don’t really buy Kevin Spacey as the head of the trading floor,” Stephen says. “He’s not sleazy enough. And they wouldn’t fire 70 percent of the trading floor at one time. A huge cut is 10 percent.” He then told me that the risk managers who make up some of the film’s principal characters wouldn’t rate a Bloomberg screen, and they’d never socialize with traders. “Risk managers are shit upon,” he said. “They make less money, and lack the personality type to be traders — both sides know that. Their role is to serve as a check, but they’re not the ones putting themselves on the line — traders don’t like them because they’re always telling you what you can’t do. Their job is to keep the company from blowing up, which is all negative from a trader’s point of view — they prevent you from making money.”
By this point, risk analyst Peter Sullivan (Zachary Quinto) has deciphered Eric Dale’s parting-shot USB drive and realized it contains horrendous news about the company’s liquidity as an over-extended investor in mortgage-backed securities (which, in real life, brought down the American economy in 2008). “The projected losses could exceed than the market capitalization of the company,” Sullivan tells CEO John Tuld (Jeremy Irons), who doesn’t hear the music that will help him dance out of the situation.
Stephen and I agreed that the film hadn’t really established the urgency of unloading the “greatest pile of odoriferous excrement” as Tuld describes its MBS holdings. In the film, the losses seem merely theoretical, absent an actual panic over the value of the securities. “And it’s not plausible that their exposure comes as such a public surprise to everybody,” Stephen said. “Risk management would have known that the company would lose a lot of money if certain unlikely scenarios unfolded over time, like people not paying their mortgages. The idea that the department suddenly discovering one day that there was exposure is totally unrealistic.”
I sat there nodding my head as Stephen explained to me that these odiferous mortgage investments come under the broad heading of collateralized debt obligations (CDOs), which have multiple “tranches,” or complex parts of the same transaction. “CDOs aren’t at all like stocks. Their payouts are not necessarily linear, so they can be tricky to analyze,” he said.
Nervous traders and risk managers assemble on the roof of their building to shiver, smoke and look out over Manhattan. They talk freely with Emerson about his $2.5 million annual compensation and the $150,000 he spent on his Aston Martin, which Stephen says would never, ever happen (instead, they’d talk behind his back). Among the melancholy group on the roof is risk analyst Sullivan, who informs us that he has a Ph.D. in physics but followed the money.
Stephen tells me that such elevated qualifications are typical on Wall Street. “Trading is hard,” he said. “That’s why there are a lot of super-qualified Russians, Chinese and Indians quantitative nerds who become traders and make a lot of money. The risk managers are just waiting to get into the front office and start trading.”
Stanley Tucci’s Eric Dale was an engineer, and once built a bridge that, to this day, cuts a few minutes out of people’s commutes. That bridge is his monument, not his lengthy time in risk management. As the film winds down, Stephen talks wistfully of “wasted talent” on Wall Street, all the people who work on the next floor who could have done really great things with their lives. And it’s true of him, too. He has advanced degrees and off-the-charts computer skills that could have taken him in many different directions.
Despite its improbabilities — like all those Bloomberg screens left on at midnight (a major security risk) — Margin Call gets the big things right. “Having been a Wall Streeter for most of my professional life, I can say that this film gets it right,” says AMP on Amazon. Stephen agrees. Margin Call is by far the best Wall Street movie I’ve seen,” he said as I prepared to stumble off into the night.
JIM MOTAVALLI is author most recently of the book High Voltage, and is a contributor to the New York Times, NPR’s “Car Talk,” Mother Nature Network and PlugInCars.com.