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The Margin Calls

Sam Rogers (Kevin Spacey):  “You cannot be doing what you are thinking of doing.”    Margin Call   2011 One of the basic principles of a well-functioning capitalist system is trust.  In fact the word credit comes from the latin word creditum which has the same root as the religious word creed (which usually start with the words “I believe”). Furthermore, this trust needs to be systemic to work effectively. Indeed like marriage, a capitalist system doesn’t usually work  when trust is difficult.  It only makes good business sense for a person to  give credit if they trust the recipient and believe they will pay back the loan.  The surest way to make sure your counterparty will do that is to know and like each other. Bankers often talk about building relationships because relationships build trust, reciprocity and profits .  That is why Margin Call is so depressing. The normal marginal benefits of a relationship  (the profits) between competing investment bankers usually exceeds the marginal costs of acquiring those profits.  Investment bankers sell or swap assets with each other. They know each other’s names and maybe even go out for drinks later.    Ongoing successful relationships are about this give and take. But that all changes when the game is about to end.  In Margin Call, the 20% who weren’t fired the day before are given exorbitant amounts of money to sell what they know to be junk to their counter parties (or friends) in other firms.  It is all about taking as quickly as possible because the system is going down and these brokers are asked to use these trusting relationships to make their final score. The friendships will never be the same again. In the movie, the head honcho or CEO John Tuld (Jeremy Irons) preaches three ways to become rich: 1) Be first, 2) Be smarter, 3) Cheat.  He declares with great pride that he doesn’t cheat but in a way he does.  He is cheating on the relationships by discarding them.  With his actions he is saying that the marginal costs of the numerous relationships are now too high when compared to the marginal benefits of saving his company.  He needs to be first out of the gate to do that.  As the CEO he gets to make that margin call.  

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