Margin Call vs The Big Short: Not Quite Parallel
Two movies examine two different ends of the same event
On February 22nd, our buddy JRC in the EORE community posted this philosophical thought:
When I saw this I had not yet watched either movie, although I had seen clips from both. In the last week or two I made time for them in the background of other activities, catching twenty and thirty minutes here and there, and after spending a few days in the digestion process I’ve come up with a few thoughts.
But first, it would do well to summarize both movies for you.
Margin Call (2011)
Written and directed by J.C. Chandor, this film was also his debut. The story focuses on an unnamed Wall Street investment firm that suddenly realizes most of their assets are losing value and they face a hard choice: hold onto the assets as the market crumbles and go under, or sell the assets knowing they’ll soon be worthless. Over a 24-hour period you see the internal workings of the firm and the people inside it as they figure out how to survive what’s coming.
While this is set in 2008, it’s not based on a real firm or real people. The firm itself is never named and the characters are all somewhat generic, but they’re brought to life by a hell of a cast. Jeremy Irons, Kevin Spacey, Stanley Tucci, Paul Bettany, and Zachary Quinto form the core, with smaller parts from Penn Badgley, Demi Moore, and Simon Baker.
While all of these parts are crucial to the story, the real heavy lifting comes from Spacey, whose character Sam is buried under tons of emotional baggage. We’re introduced to him in a reverse “save the cat” situation, when he finds out from the vet that his dog is dying and needs to be put down. At the same time the firm is laying off a certain percentage of its employees, which is bad for morale, and it’s his job to keep everyone positive. He’s not in the right space to do that. After heading home from the vet, he gets an emergency call from the firm to come back, and they won’t tell him why over the phone or email. (Not a good sign in the finance world, where audits are always a possibility.)
The risk management department tells Sam that they just finished a report of the firm’s holdings and they’re trending downward, badly. Soon they could lose so much value that the firm would be worth nothing. Sam sends it up the chain of command and the firm’s Big Boss, John, arrives by helicopter. John (Jeremy Irons) takes a look at the situation and calls for a fire sale, forcing Sam to make all his traders get their assets off the firm’s books.
Why is this bad? Because traders build relationships with each other and while Wall Street has a reputation for being sleazy, these people do have to trust each other. (It’s everyone else that they like to screw over.) A fire sale is basically you handing dog turds to every one of your friends and telling them it’s a Snickers bar. They’ll take it, but they’ll never take another Snickers from you after that. You’re effectively ending your career. The firm offers huge bonuses to the traders who succeed, knowing that it’s the last big payday they’ll have in this line of work.
Each of the characters responds to the “margin call” in their own way. John shrugs it off and says he’s seen this kind of thing before, it’s a market correction, it sucks but it’s part of the process, and that capitalism just replaces the bloody wars of the past. Will (Paul Bettany) takes the playboy approach and acknowledges that it’s gonna suck for a while, but he’s got savings and things will get back on track. Younger guys like Seth (Penn Badgley) will lose their jobs and have their careers derailed, so their futures look different.
One of the standout performances was Peter, played by Zachary Quinto, who always brings a sharp intellectual edge to his roles. Even back in the day on Heroes he was a methodical serial killer on a quest for greatness, and while the new Star Trek movies are riddled with problems, he did a decent job as Spock, pushing his emotions down with his intellect. In Margin Call, his character is a rocket scientist who went into finance because the money was better and he could make the math work. He’s the risk manager who discovered the problem with the assets. Since he isn’t a trader, he’s on the outside of the actual fire sale, but he pops up from time to time to watch everything play out, knowing what it all means. While the traders destroy their jobs, his only becomes more secure, as he gets promoted for his work.
Stanley Tucci’s role was similar to Quinto’s. He plays Eric, Peter’s boss, who gets fired at the beginning of the film. Prior to becoming a risk assessment manager he was an architect, and there’s a great scene where he has a discussion with Will, talking about a bridge he built back in the 1980s. He rattles off a list of statistics covering how much time and gas that bridge saved for people every year. While this scene might feel unnecessary, I think it has major significance for the meaning of the story, especially when Will tells him that sometimes people still want to take “the long way home.”
The essence of Margin Call is that it examines shortcuts and payoffs, or rather, consequences. Yeah you can save yourself some time by taking the bridge, but what do you lose in the process? You can build yourself a bigger nest egg by investing in mortgage-backed securities, but when that gets so popular that it’s artificially inflated, well, it becomes competitive, then it stretches, then it pops, and you’re worse off than when you started.
You push so hard to get ahead that you hurt yourself in the process, and probably don’t even realize it until you’re standing in a field of debris, looking back at every choice you made to get there.
This is never more apparent than it is at the end of the film when we check in with Sam (Spacey), who’s disgusted with everything that went down in the last 24 hours. Remember, this dude is still mourning his dead dog. He’s been with the firm for over thirty years, he’s probably made untold millions of dollars, and for what? It cost him a thousand dollars a day to keep his dog alive (kidney problems) only for her to die because of a liver failure. The movie ends with Sam burying the dog in his ex-wife’s front yard. She semi-coldly tells him that he can’t stay there, which he understands.
All those years, all that money, and in the end he never secured the things that mattered most. His dog’s dead, his wife no longer loves him, he’s alone, and he played a key role in destroying the economy, because he popped the real estate bubble on Wall Street.
Maybe he should have taken the long way home.
The Big Short (2015)
This movie is based on a Michael Lewis book that I haven’t read, but I plan to. My library doesn’t have the audiobook so I’ll have to buy it. While it does focus on the 2008 market crash, it’s not about the investment firms that started the sale and popped the bubble—it’s about the investors who saw the bubble and bought insurance, basically placing bets on when the bubble would burst. The economy could fail and they’d collect a huge payday.
Charles Randolph and Adam McKay wrote the screenplay, with McKay directing. Most of McKay’s work is in the comedy space, as he’d been with Saturday Night Live! for years prior, and while this is still a serious movie, the comedy element shines through in several spaces.
Despite being based on real events and people, the movie gives them all fictional names, which allows for a little more artistic license. It also follows three main storylines that intersect and overlap, but don’t really tie together.
Michael Burry (Christian Bale)
Burry is a former medical doctor who got into investment banking. He’s a high-IQ, low-EQ savant who struggles to relate to people but is incredibly good with numbers. He’s in charge of an investment firm’s assets and he is one of the first to notice the housing bubble in 2006. He visits various banks to pitch them the idea of a bond that guarantees they’ll pay him if their mortgages fail. This is at the height of the mid-2000s housing market, so they eagerly take the money, not knowing what’s coming. Burry’s investors are furious but he’s committed to his model, and he takes heat from them for the next two years as the whole saga plays out.
Vennett and Baum (Ryan Gosling and Steve Carrell)
Vennett is a securities trader for a huge bank, and he gets in on selling “credit default swaps.” The movie explains financial instruments like this with humorous asides and celebrity cameos, from the likes of Margot Robbie, the late Anthony Bourdain, and Selena Gomez. Vennett also serves as the movie’s narrator, and frequently breaks the fourth wall to tell the audience what’s going on.
Baum is a hedge fund manager who hates the big banks and is mourning his brother’s suicide, brought on by money problems, so he has a personal interest in fighting back against these people. After confirming that there’s a housing bubble, and that people can’t pay their mortgages, he goes all-in on the same kind of insurances that Burry is buying, betting against the housing market.
Charlie and Jamie (John Magaro and Finn Whitlock)
These two friends also manage a hedge fund, although theirs is a lot smaller, and they’re trying to get bigly rich off of their current holdings. Like Baum and Burry, they find out there’s a housing bubble, so they go in on the bonds, which have high monthly premiums. They expect to get a return when the market crashes. They don’t know this, but according to Burry’s model, this should be in Q2 of 2007. They call in an old associate of theirs, Ben Rickert (Brad Pitt), who is highly reclusive and hates the U.S. Government. He agrees to help them since he’s always believed a crash is coming and people need to plan for it.
Just as an aside here, while this movie is full of colorful characters, I personally thought Brad Pitt’s was the most amusing and likable, as well as the most consequential. You’re meant to feel that way about Steve Carrell’s Baum, but Pitt’s Rickert was mine. You’ll see in the end.
The Shocking Truth
While these three groups of money managers are all correct on their initial bets, the American Financial System will not go quietly into the night, and does not deal honestly with others. The anticipated Q2/2007 collapse doesn’t come even though it should. Burry, Baum, and the others all carry out their own investigations, and they start to see two powerfully blinding truths: first, the entire monetary system is based on meaningless bullcrap that could collapse at any time, and second, that the banks and the government will lie straight to your face about the state of it.
The film shows this when Baum confronts a ratings agency whose job it is to determine the credit rating of different banks and firms—basically they have to make public statements about whether a bank is actually in good shape, and the banks pay for these ratings. If one agency won’t give them the rating they want, they’ll go down the street and buy it from a different agency. Then the banks advertise this rating and do business based on it.
If this terrifies you, well, you’re starting to understand the popularity of cryptocurrency in the last fifteen years. (This is not financial advice by the way, I’m just describing a movie…)
The End Result
As it turns out, the banks can shuffle the deck chairs on the Titanic for as long as they want, but at the end of the day, this SOB is still going down and they can’t stop it. The collapse finally hits in Q3 of 2008. The entire market tanks, but the funds and firms who put their money into bonds end up making a killing.
Burry gives his clients a 489% return on their investment, and then walks away from the firm. He’s always been honest with people—it’s one of his eccentricities—and he decides he can’t do this any longer, it isn’t right. Yes he served his clients, but the widespread destruction eats at him.
Baum is reluctant to sell his fund’s position only because he wants the banks to pay for their misdeeds. The collapse will make them suffer, sure, but it won’t stop them from doing this all again. In the meantime, Vennett makes a huge commission, not caring about the cost of it all.
And finally we come to Charlie and Jamie, who rake in millions and millions on their bet against the market. They couldn’t have done it without Rickert’s help, and as he returns to his reclusive life overseas, they ask him why he decided to help them as much as he did. (It seemed out of character for him to do so.)
This is where Rickert delivers the dagger. He doesn’t do it with malice or aggression, he just tells the truth. He knows Charlie and Jamie are perceptive enough to see what it means. “You wanted to get rich, now you’re rich.” As they watch the housing market utterly implode, they see beyond the numbers in their spreadsheets and start to realize that these are lives, families, and homes being destroyed. Rickert taught them through actions what they would never have learned through words.
The Bill Comes Due
When the curtain drops on Margin Call and The Big Short, you’re hit with the same question: what is the cost? Wealth, success, extreme money, all of that can be good, or used for good, but to what end? And what does it take to make it happen? Supposedly there are safeguards in place, but both of these movies—and especially The Big Short—show just how easily and how often those safeguards are circumvented.
Personally I’m not opposed to getting rich, I think there is a right way and a wrong way to go about it, and these two movies are a dramatic exploration of that wrong way. I was 24 when the 2008 collapse hit and I while I saw it and felt it a little bit, I was a renter with two wage jobs and three roommates. I do know that it made it a hell of a lot harder to buy a house after that, for two reasons: banks wanted a big down payment and tons of income documentation, and during the recovery houses were so cheap that investors were buying them up instead of first-time homebuyers. I can’t tell you how many times a $135k house in Henderson (3/2) got snatched out from under me and my pregnant wife by some investor who may never put that house back on the market. (It’s going for $500k now).
But I digress. The thing that sparked all of this was JRC’s question about personality types, and which one enjoys which movie.
Verdict for JRC
On the surface, both of these flicks are about high-rolling millionaires standing in rooms and screaming F-words at each other for two hours.
Both movies feature characters from both ideological camps: “Let’s make a ton of money” and “Holy crap this sucks and we’re terrible people for doing this.”
However, each movie definitely leans in a different direction. Margin Call is much more somber with its tone, its score, its casting, and the ultimate meaning of its story. There are few, if any, moments of levity and laughter, while you get plenty of deep, reflective statements and dialogue exchanges. The performances are all powerful, moving, and emotionally charged. This is a movie for the resigned personality type, the one who sees the evils of the world and the damage it can deal. You might be a good person trying to survive it, or a bad person who was part of the problem, but either way, you’re going to see it for what it is. It’s a movie about regret, and how you deal with it.
The Big Short is, well…let’s go back to the Titanic. If Margin Call is a string ensemble playing “Nearer, my God, to Thee,” The Big Short is a mixture of First Class and Steerage raiding the bar because the consequences are predetermined. Each of the focal groups has crushing regret at the end but the tone is set by the narrator, Gosling’s Vennett. He’s laughing in the face of inevitability, not least of all because he got his cut.
So to proffer up an answer to JRC, I think that’s the key. Margin Call is for the penitent personality, the one who takes an account of his own actions and says “I did this.” The Big Short is for the sigmas, nay, for the conquerors. “Here’s what it takes. What’ve you got?”
You could make the argument that both movies are saying this. And they are! I’d even wager that if you’ve seen one movie, you’ve seen the other. I suppose that’s why JRC said this to begin with. Preferring one to the other will depend on how you like to see the world.
Let me know if I’m wrong.