Here is a trailer of the new film, Margin Call which is loosely based around the collapse of one of the largest investment banks, Lehman Brothers. However, this film is not about Lehman Brothers specifically. The firm in the film is completely made up.
I watched this film recently and it dawned on me that it tied into the problem of Dirty Hands. Don’t be fooled by the “24-like” time updates during the trailer, this film actually moved very slowly (unlike HBO’s “Too Big to Fail”). If you couldn’t decipher from the trailer, the crux of this film is based around the findings of a junior analyst (Zachary Quinto) who was handed a USB drive from his boss about material that he said he should “be careful” about. After spending a night working on projections off of the data from the USB, the analyst arrives at data that what would define the future of the firm. The analyst “discovers that trading will soon exceed the historical volatility levels used by the firm to calculate risk. Because of excessive leverage, if the firm’s assets in mortgage backed securities decrease by 25%, the firm will suffer a loss greater than its market capitalization.” (http://www.sysmaster.tv/index.php?mapa=webtv&accion=clip&id=77.)
In English, this discovery set off a series of events. This firm made many very risky loans adding to their historical volatility levels. If the firm’s assets in MBS decrease by 25% (which they will due to many of the bad loans that real banks made prior to the Fall of 2008 to people who couldn’t afford them and defaulted on their mortgages), then the firm will suffer a loss greater than the Market Capitalization (basically the value of the company) of the firm. Due to these bad loans, this formula that the firm relied on couldn’t account for such risky leverage (loaning). So, all of this toxic stock that is on their books could sink their company. So here is where we encounter the problem of Dirty Hands.
The firm has two decisions: either hold on to this toxic stock that they know will kill their company within days or attempt to sell off all of these worthless assets all in one day before the market can react and realize what their selling is absolutely worthless. Eventually, other investors will soak up their risk but no other companies will ever want to do business with them again and there will be no trust in their firm and furthermore will kill their ability to lend which is a vital for a bank to survive). Damned if you do, damned if you don’t. This problem was unavoidable because no matter what the firm’s executives did their company was going to go bankrupt once they realized this startling figure.
The Dirty Hands problem usually pertains to politicians and their constituencies, however this idea is as political as it philosophical. Due to that, there is no reason why this conundrum couldn’t occur in such contemporary financial times. Do you agree withthis belief?
This film has been received as considerably liberal, so what do people who on the other side of the political spectrum believe? Even though most people haven’t seen this film yet, how would people entertain the message of this film which is that the big banks humanely initiated the economic recession? (Note: this is solely my interpretation of this film message on why the economic recession started, obviously not a fact and absolutely up for debate).