Inside the Black Box

I recently saw Margin Call, a new film offering a fictionalized account of the 2007 market collapse. The movie takes place almost entirely within the Manhattan trading offices of a faceless financial institution presumed to be a major player in the unregulated mortgage-backed securities market. The action starts when a junior risk analyst discovers that the company is exposed to catastrophic losses, setting off a crisis mode within the management team. With disaster imminent, the firm faces two awful choices: be the first to sell off as many toxic assets as possible (directly causing a crash but ensuring the company's survival), or doing nothing and waiting until some other firm sees the danger and starts its own fire sale. As you may have guessed, there's not much of a choice.

The film is technically well-executed, with a great cast and an energetic pacing, but its main strength is in the sheer number of interesting questions and concepts packed into each scene. Chiefly among them is the inherent tension between the interests of the company and its employees. Throughout the film, there are two distinct narratives: one concerning the survival of the firm, and the other focusing on the economic "survival" of the individuals working there. The former is a linear narrative unfolding over the course of the whole movie; the latter is more interesting in that each major characters' precarious situation is only revealed gradually and in sequential order, moving up the layers of corporate hierarchy.

We start with the lowly risk analysts and traders. Then on to the department and floor managers. Then the division heads and VPs. And finally, after an artful build-up, the almost mythical CEO is revealed. At every level, the higher-ups are portrayed as living embodiments of the corporate will. Only after the attention shifts up a level do we see their very human predicament and the harsh incentive structure forced upon them which induces such misanthropic behavior. If the institution needs something to be done and an employee won't do it, then they're out. And someone new comes in who will.

Margin Call seeks to muddy the moral waters of the 2007 crisis in a most delightfully challenging way--by confounding the culpability of the rich one percent banksters we love to hate. To cite a classic example: assume one manages to balance a pencil straight up on its eraser. Obviously it will be precarious, and will soon topple. How shall we best assess causation in this example? In one approach we could  identify the particular wind gust that finally tipped the pencil from its perch. In reality, however, this situation is best explained by stating the obvious: that the pencil was tenuously balanced and obviously would soon topple, in one direction or the other. To blame a particular wind gust would be foolish. Its the system that counts.

Other topics explored include equality, the moral deserts of Wall St. traders and executives, and the work/play balance of life. It's a great movie, check it out.