The market crashed.
I remember that moment perfectly. I was at the office, at my first job and the wiser, cooler, always-informed Direct Marketing Manager stated those words in the silent office where you could only hear the keyboards being pounded with ad briefs, supply chain updates and network reporting. No one stopped, no one said anything. I didn’t know much about the market at that point, but I knew it was bad. We all felt it. Sometime after the crash, after watching Margin Call and reading The Big Short (the adaptation is in the works), I realized I wasn’t the only one who didn’t know anything.
What’s the Movie About
Twas the night before…everything fell apart. Margin Call, with a great cast and splendid script, follows the hierarchical discovery, fall and torment of the soon to be the greatest financial crisis – the bad news travel from top to bottom, from a junior risk analyst to the big kahuna himself, played by Jeremy Irons. He’s as oblivious as the next simple guy you’d find on the street. You’d be surprised to learn, after watching the movie, that it wasn’t a documentary, or based on a true story. It’s fiction. Vividly rendered fiction, inspired by what perhaps was going down on the dim lit halls and conference rooms of Lehman Brothers. The dialogue seems genuine, as the director, although at his first film, probably drew a lot from his experience as a son of a father working at Merill Lynch.
What Can Be Learnt
Since the movie succeeds in being a fair portrayal of the behind-the-scenes of the market crashing, it helps to point out one major lesson: IGNORANCE. Not necessarily in the ignorance is bliss-kind of way. I admitted from the very start I knew nothing about the stock market, I wasn’t interested in it. What the whole situation and the movie in question and the book mentioned show is that the people inside the industry knew nothing about what was going on, either. Or decided not to know. The artificial machinery was spinning, and everyone in the industry was high on carpe diem. Few ventured to think of why things are happening the way they are and what is going to happen next. The Big Short documents the stories of people who got rich by betting against the faulty financial products. Most of them were going around Wall Street trying to see if they are wrong because they couldn’t believe they were the only ones who could see past the lousy ratings and the greed. It’s a fable about the rich getting richer, and the poor getting poorer. In Margin Call, the little people in the street come up in several conversations, but the decisions are being taken in the high levels of the building by men dressed in sharp suits, who are too IGNORANT about their business to be able to be IGNORANT about anyone else. Speak to me in plain English is a line used several times in the movie by different characters. Talk to me like I know nothing about it, because I actually don’t, they seem to say.
Even Alan Greenspan, head of the Federal Reserve, has admitted his own IGNORANCE. His excuse, I didn’t know is so bewildering, it’s offensive. He didn’t know about the overwhelming amount of junk mortgages, because they were hidden by some extremely complicated aura of algorithm. But if others, let’s say, could have had the privilege of saying: it’s too complicated, I could not be bothered by this, he should have been bothered by this because it was his job. IGNORANCE is as disastrous at the top, as it is at the bottom: The Big Short talks about maids who were earning several thousand dollars a month being offered loans of $750000 to buy property. The over simplification of the procedure made things worse and irresponsible.
Last year, during my master in business, I did finance with a Boston-raised industry insider who kept things simple and understandable for us – not to mention entertaining; how many finance professors sing Hit Me Baby One More Time in class? (the context was a company going public, you can figure out the rest). The rules are simple: the higher the risk, the bigger the returns; formulas are created based on past events and used to predict the future and in terms of precision they are somewhere close by. The Big Short keeps using the comparison with a casino and every time the roulette comes out as the stronger bet to make. But IGNORANCE is not only about not knowing, it is also about knowing and moving forward, regardless of what has happened in the past. That finance class offered a moment of truth: a guy from Boston raised his hand proudly to say he was part of the #occupywallstreet, that he went there and protested, but we all knew he was actively searching for a job in finance and would have felt honored to work for the same big names that crashed and burned – us, not themselves. It was pure realism and surrealism: the CEOs, the stock brokers, and the rating specialist – they’ve been through other crashes before, or witnessed their parents go through them. The stock market is a revolving door of ignoring the past for the sake of deducting $76520 spent on hookers, booze and dancers as entertainment. Another movie about the stock market, The Wolf of Wall Street shows the descent into this decadent universe, and ends with Scorsese’s subtle learning: a wolf never changes his skin.
Coming back to The Big Short and the final conversation from Margin Call, a crash is just a new opportunity, the ash from which a new distorted Phoenix will rise to increase bank accounts and the gap between layers of society.
What’s the Key Take-Away
Expect disaster and the worst. Some of the characters in Margin Call didn’t know what hit them. Some managed to land on their feet, while others had to commit professional suicide or even worse, step on their conscience. Losing your job, your house, your security can make you immune or turn you into a paranoid creature, but what it should do, is toughen you to always be prepared for the worst. No matter how tall is your tower, the ground underneath it still shakes.