The movie “Margin Call” is about a fictional financial company and its struggle during the 2008 financial crisis. In the movie, the financial company was firing employees to downsize itself. One of the victims was the risk management division head, Eric Dale, who, at the time he got laid off, was working on a major analysis. Because he was let go, his young colleague, Peter Sullivan, ended up completing the study for him. The colleague finished the analysis late and night and then frantically called his other colleagues back into the office to show them the company’s financial disaster he just discovered. He found out that the company’s financial instruments (subprime mortgages, I’m assuming) that had seemed very promising had a very high risk of dissolving into thin air. They all understood that if the mortgage-backed securities that were currently on the company’s books (which were heavily leveraged) decline in value by an additional twenty-five percent, the company’s losses will be greater than its total market capitalization.
In the movie, John Tuld, the CEO of the company, came up with a very desperate way to salvage the company. He wanted to dump the “greatest pile of odiferous excrement in the history of capitalism”. His idea was to sell all of it at discounted rates in just a few hours, before word got around to the buyers that the paper is nearly worthless. But in the latter parts of the movie, there was conflict between John Tuld and Sam Rogers, head of the trading floor.
John Tuld thought that the investment was too much of a gamble and will always be subject to bubbles and crashes. On the other hand, Sam Rogers hesitated to carry out John Tuld’s strategy on the notion that if they peddled junk to their customers, they would end up never buying anything from them ever again. Sam Rogers believed in the idea that if they kill trust, they will end up killing the market as well. However, John Tuld ignored him. John Tuld believed that the...