Managerial Economics & Accounting

REACTION PAPER ON THE FILM

MARGIN CALL

MARGIN CALL. According to a definition from Investopedia, margin call is usually an indicator that
securities held in the margin account have decreased in value; and when it occurs, the investor must
choose to either deposit additional funds or marginable securities in the account or sell some of the
assets held in their account. As I watch the movie Margin Call, I’m afraid I haven’t witnessed all of these
choices, they directly took the choice that won’t hurt them but their clients/customers.

I love the Margin Call film. I like the dialogues specially the lines from which the characters take their
stands, so I have taken some of those lines to better express my reactions on the film. The film brought
me to the actual setting of companies and opened my eyes on what really happens during financial
crisis. In this film the main characters were faced with moral challenges which led them to act according
to their personal views. The film was filled with so many controversial decisions which created an
opportunity to discuss the balancing act between self-preservation and not taking into consideration the
welfare of the masses.

Margin Call film started with the commotions in the firm having 80% of the employees being laid off
including Eric Dale, head of Risk Management Department. Dale had served the firm for 19 years but
seems that the management did not consider him to be loyal to their side so they decided to still lay him
off with severance pay. He said that he was working on something important but they did not pay
attention to it. I admire Dale’s concern for the firm and his colleagues’ welfare that time when he chose
to hand over the drive containing the financial model he’s working on to his mentee, Peter Sullivan, who
finished the work and found out the huge problem that could lead to the downfall of the firm real quick.
This discovery lead the top management including Sam Rogers, Jared Cohen, Will Emerson, Peter
Sullivan, Seth Bregman and CEO John Tuld to an all night meeting seeking second opinion from the Chief
of Risk Management Sarah Robertson, Ramesh Shah and David Horn as one of the firm’s in-house
counsel.

At first I was amazed thinking that the top management was very concerned about the problem that
they held a meeting in a very late night until morning but only to realize that Tuld had the meeting just
to hear an advice that he already had in mind – saving the company from massive losses even to the
extent of compromising the welfare of masses (which includes his employees). This dark scheme of Tuld
was made concrete with evil-minded Cohen’s suggestion of selling all of the firm’s Mortgaged-Backed
Security assets which are considered to be volatile. Even with Roger’s strong objections laying down all
the consequences, Tuld was still firm of pushing through with the evil plan of selling the assets, which
will literally be of no value according to Rogers, to their existing clients/buyers.

Be first, be smarter, or cheat. These are the words CEO Tuld quoted as three ways to make a living in
the business world, which he really believed in and unfortunately he chose to be first. He decided to act
first before the word spread in order to save his source of wealth without considering the losses and

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harm he will cause to his employees and clients. During the all night meeting, I realized it was legit that
not all people on top management deserve those spots. It was like sitting with them around that table
witnessing who really know the business they’re at and who doesn’t. This line “it wasn’t brains that got
me here I assure you of that” of CEO Tuld seemed to be really true, the CEO had no knowledge of what is
happening and what is about to happen with his selfish decision. It wasn’t really his brain but his evil
schemes and selfish desires of putting himself above others that put him to where he is. His and Cohen’s
enthusiasm to fire sell worthless assets indicated that they did not care about the losses their buyers will
incur and only thought of how the company be saved from massive losses (for their own benefit
ofcourse).

I really admired Rogers during his one-on-one discussion with Tuld. He reminded Tuld of what they
believed in when they started as salesmen: “We don’t sell anything to anybody unless we think they’re
going to come back for more.” ABSOLUTELY CORRECT! It must be the mindset of all salesmen, not just to
sell everything but knowing that nobody will return and buy more. I agree with Rogers when he told CEO
Tuld that his decision of selling those assets with no value will certainly kill the market. It makes sense,
who do you think will buy again from someone who deceived or sold them something that’s worthless?
But obviously, Tuld doesn’t hear anything except his selfish desire of protecting his source of money at
whatever cost.

In conclusion, I totally disagree with the decisions made by the characters in this film specially that of
CEO Tuld and Cohen who were very self-centered. I absolutely know they were really in a very difficult
spot, but that doesn’t warrant the decisions they made. They chose to take the wrong path with the full
knowledge of the problems it will cause their employees, traders and buyers. If I were to give another
title to this movie, I would probably label it “THE MONEY”, because their decisions were purely
motivated by money and the urge to self-preservation and protection. I remember a line from the
conversation between Will Emerson and Jared Cohen, when Cohen said “sometimes in acute situations,
often what is right can take on multiple interpretations.” I think this is true in our society nowadays, but I
bet to disagree with him; because for me, if you really have work ethics you will sure have the same
interpretation of doing the right thing no matter how acute the situation is.

I believe the characters could have chosen the alternative options mentioned in the definition of margin
call, they could have deposited additional funds or marginable securities in the firm’s account to protect
their clients opposed to protecting themselves. But I think they don’t want to be responsible and take
risk of giving up their money, because all they wanted all those times was to gain money and sustain the
extravagant lifestyle they had.

I also thought about the metaphor of Roger’s dying dog. It symbolized the state of the downfall of the
firm because of the top management’s wrong decision, which in the end killed the market. I really feel
sorry for Sam who lost his dog, the only living he’s with. I think living alone with quite miserable life is
what led him to take Tuld’s offer despite his heavy heart.

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ECONOMIC PRINCIPLES:

1. Cost-Benefit Analysis
 “…but John if you do this (selling of all the worthless MBS to their loyal buyers and whoever
is willing to buy), you will kill the market for years it’s over… you will never sell anything to
any of those people ever again.”
 Tuld did not think of the cost or consequences his decision of selling worthless MBS to their
loyal clients, he just thought of the benefits he’ll get on that time of financial crisis. He
offered bonuses for those who can sell 93% their assets.
2. Absolute Advantage
 Some employees work harder and perform more tasks than those who have greater
advantages (ex. specialized skills, higher salary and benefits). Take as an example Peter
Sullivan with specialized skills in math analyzed and found out about the problem versus
Jared Cohen who just follows the boss without considering the negative outcomes but still
gets $18B salary.
3. Price Elasticity of Demand
If a client knows that stocks have no value, no one will want to buy them.
The firm decided to sell all of its MBS assets with minimum price which is lower than current fair
market price therefore they sold most of MBS.

ETHICAL DILEMMAS

1. Amorality
 “sometimes in acute situations, often what is right can take on multiple interpretations.” –
Jared Cohen
 “we are selling to willing buyers at current fair market price SO THAT WE MAY SURVIVE!” –
CEO John Tuld
 The motive of selling the worthless assets is for the company to remain afloat even when
their clients and employees suffer losses.
 Their dangerous decision was driven by money and selfishness that causes pain to many
people.
2. Conflict of Interest
 “it’s just money” - Tuld
 Cohen and Robertson having known the financial crisis long before it was discovered chose
to hid everything under the rug just to be financially secured.
3. Lack of Social Responsibility
 The top managements are profit-oriented and were only concerned with their wealth, while
social interests are ignored.
 Tuld and Cohen were perfect examples of bosses who force their employees to compromise
their integrity for their selfish gain, and still fired them in the end without warning.

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