1. Investment Analyst Explains Margin Call
  2. Margin Call – Movie Review
  3. Real Fund Manager Reacts To Margin Call “Emergency Meeting” Scene
  4. Margin Call Investment Banking Expert Reviews
  5. Margin Call – Movie Review & Breakdown | Well Watched
  6. Wall Street Analyst Explains Margin Call Movie Finance
  7. Margin Call Movie Explained

Investment Analyst Explains Margin Call

this movie review is sponsored by,blinkus use the link in the description,below for a one week free trial plus 25,off the annual subscription fee,ladies and gentlemen welcome to the,plain bagel Im your host Richard coffin,were back with a third installment of,the very popular series investment,analyst myself hello explains investing,topics and Concepts in pop culture,thats our working title that were,going with and todays movie is a very,highly requested one when I did my Wolf,of Wall Street one this was a very much,a top name in the comments section and,that is Margin Call this is a 2011 film,that talks about the 2008 financial,crisis taking the perspective of a Wall,Street firm thats trying to save its,own ass as things start to collapse,around it the main character is Peter,Sullivan a risk analyst who discovers,that his employer is on the brink of,collapse due to its exposure to the,falling real estate market and for all,the movies about 2008 this ones pretty,unique on the one hand it all takes,place over roughly a 24-hour period so,very quick sequence of events and the,film does a really good job of painting,a more realistic picture of what Wall,Street might be like you know compared,to movies certainly Like the Wolf of,Wall Street and even The Big Short to an,extent it does a really good job of,communicating that ruthless Cutthroat,and unethical side of Wall Street,without turning its characters into,caricatures you know the people are very,grounded and yet still you see this kind,of Detachment from the consequences of,their actions so it does a really good,job on that front but like other good,Finance films it can get confusing at,times so my goal here today is to,provide a bit of context and to explain,some of the more complicated scenes,starting off with the title of the movie,because for a film called Margin Call,theres actually none to be found in the,film but simply put a margin call is,when your broker requires that you add,more money to your account because its,Fallen below a certain value its lost a,certain amount of money and it only ever,comes into play when you have leverage,meaning youve either borrowed money or,used derivatives in both situations it,means that you can lose more money than,what you yourself have put into the,account and because of that the broker,will want to protect themselves and make,sure that you have a certain level of,cash in the account so that if the,account keeps falling below a certain,threshold they dont absorb that loss of,you running away enforce them to take,the loss with the debt theyve lent to,you and the problem with margin calls is,that they can lead to a vicious cycle,because they force investors to come up,with cash very quickly to meet those,margin calls which can force them to,sell out of other areas or close that,position and basically adds to selling,pressure in a market that might already,be declining so thats why it did play a,role in the 2008 financial crisis in,this movie not explicitly although you,could argue that figuratively it does,matter for the context of this film but,I figured Id explain it explicitly,since its never done so in the film,anyway with us already a few minutes,into the video Lets uh lets hop into,the film itself the movie starts off on,the trading floor of an unnamed,financial institution which many believe,is Loosely based on Lehman Brothers,although there are very key differences,between what this company does and what,happened to Lehman Brothers and we see,HR Representatives going around and,laying off a bunch of people because,even though this is before the actual,financial crisis people sometimes forget,but the United States was already in a,recession there was a recession that,started of December of 2007 as the,Federal Reserve had hyped interest rates,and that had depressed economic activity,and yes I know it sounds very familiar,its not the first time this has,happened and a quick fun fact about the,scene for those who arent as familiar,with the finance industry all those,computers you see are called Bloomberg,terminals they are a special computer,that you can rent from Bloomberg that,gives you access to all kinds of data,about stocks but because they are seen,as the gold standard of the industry,they are very expensive to rent I think,its roughly 24 000 a year but for Wall,Street firmness pain is employees six,figures if not millions of dollars its,sort of a drop in the bucket to fill a,floor with these Bloomberg terminals but,going back to the movie we see the HR,Representatives going and laying off,Eric Dale who seemingly is the head of,the risk analysts and as hes leaving,this building he seems very concerned,about something he was working on and he,hands a flash drive to Peter Sullivan as,hes leaving and tells him to look into,this thing to finish his work for him,and to be careful so Peter puts in a,late night tinkering away at this model,and eventually discovers whatever was is,missing and comes upon a very scary,realization so much so that he calls,back his boss and co-worker from the bar,to help him deal with it and as he,explains the firm has been violating its,VAR model and the way things are going,The Firm might be on the hook for losing,more money than what the whole company,is actually worth oh huge,well the losses are greater than the,current value of the company projected,so its a projected loss as well now VAR,stands for value at risk and it stands,for the maximum amount that a company,expects to lose over a fixed period of,time on its portfolio or its Investments,as explained in the movie the way its,built is that they take historical,volatility so how much prices fluctuate,for the underlying assets and then use,that to forecast how much they think,asset prices will move in the future add,a buffer to that roughly 10 to 15,percent and then use that to estimate,how much maximum they expect to lose on,these assets so five percent vaar of 10,million dollars means that a company is,95 confident that they wont lose more,than 10 million dollars on any given,trading day and the reason why its,important is because a lot of companies,base their Capital decisions and their,risk tolerance off of this figure,assuming that hey so long as we dont,lose more than 10 million dollars we can,invest this amount we can borrow this,amount and well just keep this amount,on hand to cover that potential loss but,as mentioned in the movie The Firm was,already violating its maximum expected,loss a number of times over the past two,weeks that the model was now worthless,now part of the ass is violating this,model well as explained later on in the,movie but its mortgage-backed,Securities which weve explained before,on the channel but are essentially just,a pool of mortgages meaning the actual,loans that are given to homeowners that,earn interest payments those are taken,pooled into this investment vehicle and,then people can buy into this pool to,earn that interest rate as a return so,this Investment Bank has a bunch of,these mortgages on its book and,mortgages are now deteriorating and,thats all related to The subprime,Lending crisis where financial,institutions prior to 2008 were lending,money to people who could not afford,these loans and it was sort of a ticking,time bomb especially when rates started,to increase and those loans got more and,more expensive that people were going to,start defaulting so when youre an,investor who owns a mortgage is,receiving those interest payments from,the borrower in more and more borrowers,are starting to default being unable to,pay you back youre going to absorb a,loss and thats sort of the situation of,this Investment Bank because their VAR,model is based on historical information,which does not reflect a housing crisis,they were now being violated by these,mortgage assets which were fluctuating,by law because of the underlying credit,situation so Peter explains this to his,boss will and his co-worker Seth and,will goes on to cal

Margin Call – Movie Review

restricted please army extraordinary times this year there it was snow,misery insists on seeing whats happening,got an opportunity of africa and then i think i dont have it never happens are,rare sight confidently handled,is para actor sexy main on work thats happened out my didnt harm,right from the headlines margin call but thats the employers moments of two,thousand,eights economic collapse and a lot to rob a all has been a bit with fright,it discredits,fifty it is on this is its a fictional film but it is,british-based,its its a slice of the night before the bubble burst,and uh… an investment firm in new york this is going through a round of layoffs,uh… a low level of risk management broker played by zachary quintile high,digs through some of the work that that his of recently fired boston for the,other and realizes that the whole house of cards is about to come tumbling down,and um… as this news travels up the chain the company has to take drastic,measures to,uh… try and minimize their own,uh… damage in all this pickles commissioner i was working on something,before the commission,so failed,prisoners come back up here,with distressed recruiters back here now,women with the student,worlds that sharply lower does that mean youre right,spring arrives,there is a trillion dollars and zero in on the worldwide equation,what do you mean the world,services assets increased by just twenty five percent,balance would be greater than the current market capitalization of the,system how long would it takes a period of twelve,so little further youre selling something that you know has no value,so that we,may so hot,or freeways to make a living expenses first,this time,worksheets,people underground eyes you know,and he was about to happen,referring to,these funds,are you in a,pensions and people in this case very nasty things about what we do today,from going down,and in,alert religion,ground shipping below are few,remembers that was,from mister,penicillin is the leader of the outcome is different because theres,this firm and we dont notice for may survive,but i guess i fell into a topic for class to people who are unsuspecting,brightening destroy the reputation at the very least senator al damato also,destroy the economy enough uh… i think was really cool weather through the i,mean i love,uh…,inside job which was the the documentary on structure about,how it all that happened in the you know id that movie with with pictures file,explaining what the hell a credit default swap brought us together like,never figured out,this only really happened,gives you some of the the,insider look and and and more so the human being looked at all,how this all of the how the stuff went down in this incident a giant,complicated mess but,this really sort of mir is down to,accommodation factors of your hubris and,people who were gambling in people who are taking advantage of deregulation,are people who were bulb other short-term enough thinking about the,long and all that kind of stuff,is going on this movie but its,the divorce rate there besides a sort of being thats a look at this,catastrophe the recently happened its an interesting drama like these are,interesting characters theres great dialogue some of that i was a little too,on the nose in every so often,but um…,its a really compelling story it was really good place to the plight of the,game and placement as its contained,david and after i have for grazing exactly according to notify him that he,did say about writing but i dont have the death is very very contained inside,the building for the most part of all of this error one night,uh… but it theres a real person is to it and i think i i really i dont worry,others are those of us will be last year but this unit what one of the,things that got to talk to my right hand side john this is an that many,discussions about the federal collapsed,miss,is the sort of thing then,human nature of the stuff of normal human emotions that drove some of this,and so in a sense,it was that was written refreshing to me to see,how this could be sigit human situation,but its also incredibly,distressing,sultanate of which is again i guess what i liked this movie but,theres so much,about this that is yes,simply people behaving,like people and that,and which is,ultimately why you need,regulations because this is what happens not these works is word a bunch of,people hobbling thinking how he did it in advising the multinational and how,they were doesnt remember art of doubt been jeremy irons characters aside in,bigger characters i happened to high-risk apartment so even anyone they,dont want to,less than one things to continue in the morning and penetrating train and then,when the gravy train derailed their first priorities,c_y_a_,retro and that and thats and nothing else you need a german right and ive,been meaning to do it without the higher-ups in the firm i have no idea,how to read these numbers of zachary pruitt has broken down his life,make last minute regularly panaga so yeah i mean it down three things that is,great,it is very many interests that that masculinity event first letter of the da,analog interpretation of sentences and that,fairly is staging and actually it is part and since you cant structure quite,a bit adding up,kitty morse talking again liane,anything you have his sbc talk and everything down probably talking to,ladder as it is a little structure and how much do you know that the movies im,sure is a town that i do everything i see him and his deterred,and i know i dont really stand,the other lesion on my head discussing all these buildings and with six other,valuable evidence you guys the nato allies and theres not a meticulous that,the other hand was great and a and asked about really had a test is graded,understand one blanket if you get this is just with,denouncing the lesser known people whether it makes the same impact i think,it doesnt think thats why you invented movie stars i think it helps enormously,that these are now,instead also deliver baby had great actors who were kinda indicate immersion,initiative effectively i think because the writing is there is no question that,with the star of the also the possible is that i see,dont start couldnt carry it without sort of the without the story and thats,right but i understand,somalia alaska lets concede this is personally since he came out that,required a land whether,but i think its awesome,because they said they didnt matter this is a obviously its a,personal choice for everybody loved by all office lead should it should remain,weatherization whether to say so right,it does make a difference and,we read these stories about these kids who were so conflicted when theyre,young it really matters and if it and hes already if theyre barely what,affected a a_b_c_ news anchoring inspired by that,well give it to happen and that some political critics some,dark here okay and somewhere is going to play,this is as bad as i thought it was,uh… i actually think listed i think this has attended all the facts on,people by height instead of,a moment self growing up i think it would have helped greatly if you know,that like i wasnt,the that not only that i wasnt the only one,but that it wasnt necessarily this horrible thing that only people who,lived in the shadows and had no friend,and were not for the society,have you know and and in the,the seventies and eighties and i was growing up the hill that we had people,with someone from delves into sex we had told him that charles manson it with you,i love though your honor again,the shocking i know i think is coming out of your together depending on how,hot but you know i i think its always a good thing that,did people in all walks of life for one more at least in the other hes a great,thing that i a sailor,that and and hopefully theres a you know that it just get me gets more,actors more confident because,the same question that you take off the movie could act and critic

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Real Fund Manager Reacts To Margin Call “Emergency Meeting” Scene

so why doesnt somebody tell me what,they think is going on here why am I in,this business I love a good office quote,all right welcome back to the channel,today were gonna do a blind reaction to,this a scene from Margin Call now Ive,seen this movie once before a while ago,and I actually kind of forgot some of,the parts where this is truly a blind,reaction I havent filmed this before,Im just going off the cuff here and,give my two cents of running hedge funds,and all that kind of stuff so it should,be kind of fun you guys ready lets dive,into it were all coming in so this is,the main dude,I got dressed up sit down,welcome everyone this is the I would say,I mean you could say its the fun part,but of running a hedge fund its kind of,a crappy part of running hedge fund uh,especially in markets um our a lot of,our fun right now is in the crypto,markets which run 24 7. and so things,can happen at 2 A.M or 5 a.m and youre,asleep and you get called and stuffs,got to get done right then weve had a,few of these scenarios and uh its just,its like why am I doing why am I in,this business you know but its also,cool its like were moving anyways,youll see in a second but I apologize,for dragging you all here so Im not,coming out but from what Ive been told,this matter needs to be dealt with,urgently,so urgently in fact probably should have,been addressed weeks ago but that is,spilled milk under the bridge so why,doesnt somebody tell me what they think,is going on here,all right give us the premise as I,mentioned earlier if you compare the,figure at the top of page 13.,just speak to me in plain English,okay in fact Id like to speak to the,guy who put this together Mr Sullivan is,it oh yeah so you come back this this,analyst found this problem in their Risk,Management Department that they were uh,way uh well hell actually explain it,right here if you speak English sir,Id like to speak with the analyst who,seems to stumble across this mess,certainly that would be Peter Sullivan,right here oh Mr Solomon youre here,good morning maybe you could tell me,what you think is going on here and,please speak as you might to a young,child or a golden retriever,it wasnt Brave I actually love that by,the way because Finance people talk like,they try to talk over your head they try,to talk smarter than you most the stuff,in finance isnt that crazy to,understand its actually pretty simple,but they use these crazy terms and and,all this kind of stuff and it it makes,you feel confused it makes them feel,smarter than you and I actually I do,actually appreciate that in this movie,they try to try to make it simple yeah I,can show you that,well um,sir as you may or may not know I work,here for Mr Rogers as an associate in,the risk assessment and management,office at MBS please just relax stand up,tell us the clear voice,what is the nature of the problem,okay uh,well as you probably know over the last,36 to 40 months The Firm has begun,packaging new MBS products that combine,several different tranches of rating,classification In One tradable Security,so let me let me just pause there for a,second just understand so what theyre,doing theyre packaging together,different tranches which just means,groups of investments into a package and,theyre selling those off to different,groups so you could take and this is,what they do uh mortgage pulls a great,example so theyll take mortgages broad,example lets take your whole,neighborhood lets group that,neighborhood together in a package and a,big bank can buy that package and make,the money on all the people you pay your,your mortgage every single month they,make that money in a package and then,what they do is they package together a,bunch of neighborhoods in your city put,those together and then they sell those,to a bigger bank right and they package,these together and they can put other,things with them so they say hey were,going to take your neighborhood were,going to take a uh a different,investment category different class,were gonna take just for example were,gonna take some crypto were gonna take,some stocks were gonna take some we can,do whatever and we can package it,together typically you probably wouldnt,do that but give an example they package,stuff together and say this is a great,little portfolio you can buy it so,sometimes theyll package most of the,time its the same type of thing so,mortgage is a good example but this is,what youre talking about here,this has been enormously profitable as I,imagine,you noticed aha,well the firm is,I love that,um yeah so theyre packaging it you can,sell them for a premium because they,dont have to go through the work to buy,all the stuff and put it all together,yourself for a premium right so theyre,making tons of money packaging these,groups together I forgot the product,though I dont know the investment,product yet I forgot on the movie but um,theyre packing together and selling,these off together certainly doing a,considerable amount of this business,every day now the problem which is I,guess,why we are here tonight is that it takes,us uh The Firm about a month to layer,these products correctly thereby posing,a challenge from a risk management,standpoint,so let me let me pause for a second so,it takes a month he said to layer these,products together I wish I remember the,again Im just doing a blind reaction I,always remember the products but lets,just say it was theyre grabbing some,bonds theyre grabbing some uh mortgages,theyre grabbing some other stuff it,takes about a month to put those,together into a tranche and then sell it,and what hes saying here is the problem,is that month they have to hold all,those assets on their balance sheet for,a month and if those things on their,balance sheet go bad theyre the ones,holding the bag when it goes bad,and sort of that challenge is well we,have to hold these assets on our books,longer than we might ideally like to yes,but the key factor here is these are,essentially just mortgages so that has,allowed us to push the leverage,considerably beyond what you might be,willing or allowed to do so okay so hes,had mortgages so it sounds like mortgage,pools theyre grabbing mortgage pools,theyre putting different types of,mortgages together into a big Tron to a,big pool together and hes just saying,we have to hold those and now theyre,adding lots of Leverage to be able to,hold those in any other circumstance,thereby pushing the risk profile without,raising any red flags,so essentially they are over leveraged,see they use all these fancy terms to,make it simple they have too much debt,they borrow too much and now they uh,theyre over levered they have to like,if you have too much credit card debt,they gotta pay the payment and they,cant they dont have enough money to,pick the payment before they sell it to,somebody else like thats thats all,theyre saying right they just have too,much debt and theyve over leveraged,just a fancy term for too much debt on,their mortgage pools what Im guessing,your report here says and give me some,rope here,what Im guessing it says is that,considering that shall we say bumpy row,weve been on the last week or so,but the figures your brilliant,co-workers up the line ahead of you have,come up with,dont make much sense anymore,considering whats taking place today,actually not whats taking place today,but whats already taking place over the,last two weeks so youre saying this has,already happened sort of so hes saying,yeah theyre already declining theyre,already in a really bad spot and uh,anyways Ill let them keep going,so,and Mr Sullivan what does your model say,that that means,for us here,well thats where it becomes a,projection,but,um,youre speaking with me Mr Sullivan,well sir,if those assets decrease by just 25,percent and remember I actually like how,he talks to this analyst I actually,really like it from a huge managing part,theres a lot of Pride and ego I just,love that hes like dude stop worrying,about your bosses just talk to me

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Margin Call Investment Banking Expert Reviews

hey look,i was working on something but they,wouldnt let me finish it so,take a look at it,be careful,hello my name is deborah taylor and im,a trainer at financial edge,before becoming a trainer i spent nearly,10 years working in investment banking,and im going to draw on some of my,experiences to review the movie margin,call now the movie is set at the start,of the global financial crisis in 2007,and the movie gives a fictionalized,account of a fixed income sales and,trading department during a rather,stressful 24-hour period where they,realize quite how much risk they have on,their balance sheet,now although some of the script in the,movie is a little bit painful for,example they reference the fact that,their potential losses are greater than,the entire market capitalization of the,bank,the movie is actually really well,researched and provides some great,learning points to understand the,workings of an investment bank,particularly at a time of extreme stress,now although margin call does focus on a,financial crisis that happened over a,decade ago its actually super relevant,to us today considering that we are,currently dealing with another economic,shock which is of course a global,pandemic,now these economic shocks can be really,useful learning experiences because they,remind us that the economy is a dynamic,system that periodically does have,moments of stress,and it shows us how companies and,markets react to these stresses,so lets have a look at a few scenes,from the movie and see what we can learn,from margin call hey,look whos burning the candle about,events,why didnt you come out with us,theres no more cuts planned you dont,have to kiss my ass,i frankly dont even know what it is you,guys do well im really sorry i had to,bring you guys back here but thats all,right,whats going on look at this,eric gave me this file before he left,eric,dale and he told me that he couldnt,quite figure it out and the last thing,he said to me before the elevator doors,closed was be careful,he said be careful yeah so obviously im,a little curious i start to get into a,little bit and i realize that the only,thing that hes missed,this is not good well right okay so what,is he doing here,um no no go to model 4 it makes more,sense,okay,all right what is this,this is basically everything that we,have in our books at any given time but,what eric was trying to do was to work,these numbers for levels of volatility,that fall outside of the standard va,model what are those levels,fairly complicated simplify uh the,volatility levels are set using historic,patterns basically and then stretching,those patterns out another 10 15 roughly,all right so so we are starting to,uh test those historic patterns,when,today um tuesday monday,last friday and wednesday two two,fridays ago,all right i get it,[ __ ] me,once this thing gets going in the wrong,direction this is uh,this is [ __ ] huge oh huge,[Music],well the losses are greater than the,current value of the company projected,losses the projected losses will,and this is just our floor yes,so in this clip they mention the phrases,volatility and var but what do these,mean,well volatility measures how much the,price of a security,changes over time lets say for example,a companys share price,if the share price stays quite stable,then this is described as having low,volatility whereas if it moves around,significantly that means it has high,volatility,now investment banks have huge amounts,of securities on their books and those,fluctuate each trading day and that,means its really important that they,have some way of monitoring the,volatility of the securities that they,have on their books and thats the job,of the risk management department,now var or value at risk is a key metric,used by risk management to understand,the risk associated with the volatility,of a security that they hold,now one way to calculate var is to use,historic price information,lets take an example if we look at a,companys share price over the last year,and on only one percent of the trading,days the share price fell by more than,five percent that means 99 of the time,the share price has fallen by less than,five percent,and if we use that historic information,to predict future share price movements,well that implies if we hold a hundred,dollars worth of the stock today then,over the next year we can be 99,confident that losses will not exceed 5,or 5,so this information helps the risk,management department to set var limits,for each trading book and for the,trading floor as a whole,and this var limit expresses the maximum,losses which are acceptable to the risk,management department and help to,protect the bank from major losses,so sam what do you have for us,theyll be here in a minute finding,somebody in the coffee room at this hour,was a little bit of a challenge okay,lets go right into the introductions,this is sarah robertson who you know,chief risk management officer ramesh,shah from upstairs and david horn one of,the firms in-house counsel nice to meet,you all this is my head of trading will,emerson and this is,peter uh sullivan and seth bregman and,they work in our roost department,wheres eric dale,he was let go today,who do you have left in your risk,department,as of today that would be peter and our,junior analyst seth,really,uh will emerson yes please just hang,them up,this scene gives a really great,introduction to some of the key roles in,an investment bank,demi moore plays chief risk management,officer so she heads up the risk,management function and theyre,responsible for overseeing the risk,exposures of the trading floor including,monitoring compliance with the var,limits that weve just looked at,asif manvi plays in-house legal council,thats the legal department for the bank,and they work closely with the risk,management function to help manage the,firms legal risk,we also see paul bettany play head of,trading so thats the person with the,oversight for the firms trading,activities,typically the trading floor is divided,into desks with each desk focusing on,different training activities for,example different asset classes or,different regions and all of these desks,then report into the head of trading,kevin spacey plays head of sales and,its the sales team that manage client,relationships so sales are often the,ones that know which clients will be,interested in buying or selling,even though its trading that will,actually conduct the transactions and,thats why sales and trading work so,closely together on the trading floor,now the one thing i think is a little,bit surprising in this scene is that the,head of risk and the heads of sales and,trading are having to introduce,themselves to each other in this meeting,whereas i think in reality uh heads of,risk and heads of sales and training,will often meet regularly to discuss,areas of concern such as limit breaches,yes,whats your background my background,your cv ive been with the firm for two,and a half years working with eric that,whole time but i hold a doctorate in,engineering specialty and propulsion,from mit with the bachelors from penn,what is a specialty in propulsion,exactly my thesis was studying the ways,that friction ratios affect steering,outcomes and aeronautical use under,reduced gravity loads,so youre a rocket scientist,i was,yeah,interesting,how did you end up here its all just,numbers really just changing what youre,adding up and to speak freely the money,here is considerably more attractive,so this is a really interesting scene,because we hear about this persons,background and find out that he has a,doctorate in engineering now you might,think that this seems quite unusual to,find someone with this kind of,background working in an investment bank,but actually the reality is investment,banks recruit from a whole range of,degree disciplines,not just those with finance degrees and,thats because its really beneficial to,have a broad base of experiences and,skills across the different divisio

Margin Call – Movie Review & Breakdown | Well Watched

there are three ways to make a living in,this business be first be smarter or,cheat,look at these people wandering around,with absolutely no idea whats about to,happen,remember this day boys,remember this day,[Music],welcome,dude,[Laughter],watched,[Music],greetings yall its your enoch peter,mata and today for this well-watched,series were going to shift gears and,talk about one of my favorite movie,subjects or i guess just one of my,favorite subjects in general,and that being business and finance,for those who dont know i was a,business major undergrad in accounting,masters analytics both from lsu so go,tigers and currently im working in,business analytics for my career,so i love watching movies that talk,business and that depict that,environment,so in todays video were going to,specifically talk about one of my,favorite financial movies and frankly,one of the better ones out there,that of course being the 2011 movie,margin call,which weirdly enough from looking on,youtube its a movie that isnt,necessarily talked about that much,i mean i would definitely say theres a,cult following for the movie and there,are definitely people out there who love,this movie,but for whatever reason there arent,many videos out there that just focus on,it,so hopefully we can do it justice today,and break it down here,so first some quick background on margin,call,as i said this movie was released in,2011 and crazy enough it was jc sanders,directing and writing debut for a,feature length film,and even crazier he actually received an,oscar nomination for margin call for,best writing of an original screenplay,the movie was a star-studded affair with,a great ensemble cast that included,kevin spacey paul bettany zachary quinto,jeremy irons demi moore,stanley tucci simon baker,and i guess ill even throw in pin,bagley in the mix as well,all of which shared a fair amount of,screen time,crazy enough despite having all those,names,the movie was made for only 3.5 million,dollars,and while it wasnt widely released it,did have a groundbreaking day-and-date,release where it made more than 10,million dollars in video on-demand sales,during its initial theatrical release,this contributed to its overall box,office numbers,that ultimately topped at 19.5 million,dollars,so id say its pretty modest returns,which is somewhat interesting because,like i said earlier,the movie was well received for those,who did watch it,for instance on imdb,he got 7.1 stars out of 10,and on rotten tomato he got 87 fresh on,the tomato meter and 74 on the audience,score,and the written reviews were all mainly,positive as well,heres some snippets of what a few said,also the critics consensus on ron tomato,aptly describes the movie as such,so its pretty obvious already at this,point what my overall grade for this,movie would be,its an a plus no question,but for the rest of this video id like,to go through the plot some specific,scenes and explore the themes that,margin called digs into,so with that being said,heres your spoiler warning if you want,to watch this movie before hearing all,this,getting into the plot now,the movie opens up inside the office of,this unnamed investment bank and we see,this team of people coming in,we soon realize these folks are coming,in like george clooney and up in the air,to coordinate mass layoffs in the,company,one particular layoff the movie focuses,on is the head of risk management eric,dale who is played by stanley tucci,with erics layoff,we get to see the harsh realities of how,these layoffs are conducted,professionally done sure but very,straightforward and cold to the point,where they dont really take into,consideration anything hes saying,which turns out to be extremely,important,just to point out here quickly,this sort of realistic view of how these,layoffs were done,sets the tone early on of how this movie,will go which i would say is one of the,big reasons a lot of people like this,movie because its concise and realistic,and anyways getting back to it,as eric gathers his stuff and begins to,leave,he gets consoled by will emerson played,by paul bettany as well as peter,sullivan and seth bregman played by,zachary quinto and penn bagley,respectively,before eric finally leaves a building,he hands peter a flash drive and,cryptically says,be,careful once all the layouts were,finished,we then get introduced to sam rogers,played by kevin spacey,hes wills boss and essentially the,head of the trading floor,will summons him to talk to the,remaining staff,he delivers this pure affected corporate,speech to the floor that,is your opportunity,motivated by this and by what eric had,told him,peter gets to working on finishing his,model during the late evening hours,while his co-workers go take a load off,at the bar,grinding away,peter finally figures the model out and,he soon realizes the horrifying,ramifications that the model projects,for the firm,trying to take action against this,projection,peter calls will and seth back to the,office,they do get back and they review his,model and they also see what peter sees,and decides to escalate the issue,further up the chain of command as they,call sam back to the office too and,attempt to find eric dale,sam does eventually get back to the,office and also reviews peters model,with will,he too realizes what it projects,and again the issue is escalated further,up the chain of command,so after peter and seth were,unsuccessful at finding eric,they get back to the office and join sam,and well for a meeting with the powers,that be,division head jared cohen played by,simon baker,along with chief wrist management,officer sarah robertson played by demi,moore,and another senior executive from shah,played by,this was a great meeting scene that had,sarah sizing up peter in his model that,he developed from erics work,however this move backfires on her as,peter explains his tremendous,qualifications doctorate in engineering,specialty and propulsion from mit with,the bachelors from ben what is a,specialty in propulsion exactly my,thesis was a study on the ways that,friction ratios affect steering outcomes,and aeronautical use under reduced,gravity loads,[Music],so youre a rocket scientist,that was,[Music],interesting,we also get some subtle subtext here,that suggests sam and these executives,have talked about the possibility of the,situation happening in the past year,and we can start piecing together more,why eric was let go and why he blew up,on sarah earlier in the movie,[ __ ] you,as the meeting wraps up sarah and ramesh,get more time to review peters work and,sam and jared get into a heated,discussion about what course of action,the firm should take,ultimately the issue finally reaches the,top of the chain of command,as jared calls in ceo john told whos,played by jeremy irons,and whose name by the way was the,combination of mayor lynchs ex-ceo john,thane and lehman brothers zack ceo,richard full,sarah mess do indeed conclude that,peters work is accurate,and john finally arrives to hold the,meeting about what the firms final,strategy will be,this is another great meeting scene,and you can feel the tension rising here,especially when peter is forced to,explain the situation to the room,anyone whos early in their career and,has been forced to present in front of,upper management can relate to the,intimidation he feels here,but he handles it and explains it well,and we finally get a little more,understanding of what exactly the model,projects,and what the cause of all this mess was,essentially he talks about how the,profitable but risky business with,mortgage-backed securities ie mbs which,of course weve learned played a huge,role in the 2008 financial crisis,has finally come back to bite them,now i wont get into the technical,details here,there are plenty of resources online,that would definitely explain it better,than me,but basically for the movies sake what,hes saying here is that the firm,currently owns a lot of mbs thats,filled with default loans,and

Wall Street Analyst Explains Margin Call Movie Finance

margin call what is going on who even,are the good guys knowing the truth may,help you see the movie differently,perhaps even differently from how it was,intended and no degenerates its not the,kind of margin call youre familiar with,this is a margin call against the,portfolio of an entire investment bank,and for the non-degenerates who havent,experienced a margin call a margin call,is when youre trading using borrowed,money when your borrowed money assets,appreciate you make huge profits but if,they lose money at a certain point the,margin loan that provided you the money,to buy these assets gets called back and,you have to pay it back in full and,thats disastrous margin call is said in,2008 and its about the great financial,crisis and the crash of 2008 the worst,crash since 1929 in the great depression,millions lost their jobs and stocks fell,56,the crash was caused by the subprime,housing crisis before the crisis there,was a housing boom and it was driven by,subprime lending subprime lending means,lending to people who wouldnt normally,qualify for a mortgage from 2003 to 2006,subprime lending exploded mostly driven,by securitization securitization is when,a lender takes the loan and sells it to,an investor that allows the lender to,make more loans more mortgages and puts,the risk of default with the investor,not with the lender from 2003 to 2006,subprime mortgages went from about seven,percent of total mortgages to about 25,almost a quarter of all mortgages and,then from 2006 to 2008 subprime lending,completely stopped because the subprime,borrowers werent able to pay their,mortgages and they defaulted and this,whole thing took years to unfold but for,the sake of this movie its been,compressed pretty much into one day i,just apologize for dragging you all here,in a common hour but from what ive been,told this matter needs to be dealt with,urgently the star of the film i think is,jeremy irons playing john tuld the ceo,of this investment bank his character is,loosely based and probably named after,dick fuld who was the ceo of lehman,brothers at the time this movie was made,dick followed looked like a great,villain because in 2010 when the movie,was made it was a catastrophe millions,were out of work values were much lower,and they were looking for someone to,blame another key character is peter,sullivan played by zachary quinto hes a,young risk management analyst but people,in risk management have a job and its,to see how much money the bank can lose,at any given time they use a calculation,called var,value at risk the problem here though is,that the value at risk calculation was,based on assumptions of what had,happened in the past but of course what,had happened in the past is the past,what happens in the present and the,future is unknown and could be worse,than what happened in the past theres,also kevin spacey playing sam rogers,hes the head of trading on the,mortgage-backed securities trading desk,and his job is to manage the traders and,the risk management analysts and produce,a profit for his firm okay so lets get,right into it this is basically,everything that we have in our books at,any given time but what eric was trying,to do was to work these numbers for,levels of volatility that fall outside,of the standard va on the wall heres,the scene where theyve discovered the,problem theyre seeing unanticipated,trading patterns effectively in the,market they had modeled their risk their,value at risk based on data from the,past but the past data is not the,current data and the current data is,more volatile the volatility levels are,set using historic patterns basically,and then stretching those patterns out,another 10 15 roughly all right so so we,are starting to,uh test those historic patterns,when,today,tuesday monday and this is very scary,because,uh they anticipated a certain amount of,losses and they are potentially seeing,much much greater losses and theyve,given it a little bit of urgency by,saying weve already gotten into these,levels these here are the,historical volatility index limits which,of course our entire trading model,relies on pretty heavily well,were now so levered up that once it,gets outside of these limits,it gets ugly in a hurry their portfolio,because it has so much leverage in it,its an enormous portfolio and its been,put together using in enormous leverage,they borrowed a huge amount of money to,take control of this huge quantity of,mortgages,that could lose value,and just like when you have a huge,portfolio a small percentage change in,its value translates into a large gain,or a large loss thats the simple rule,of large numbers a small percentage of a,really huge number is still a large,number this movie never really talks,about derivatives but derivatives were,also a big problem during the mbs crisis,and that not only would people create a,portfolio of mortgages but then they,would write contracts to produce certain,specific outcomes that were very complex,and unpredictable and that stuff you,know warren buffett called those things,i think weapons of mass financial,destruction its not really a part of,the movie but its sort of i think,hanging around you know reading between,the lines how long under normal,operations would it take your people to,clear that from our books,what,all of it,yes,i dont know weeks weeks yeah weeks,heres why the movies fun to watch they,kind of turn a simple decision about,buying and selling assets into a moral,uh dilemma in the movie theyve decided,based on very limited information that,they think that these assets are bad and,losing value rapidly and you know a risk,to the firm so theyve made a decision,with incomplete information that says we,want to sell these assets and everyone,is free to do that thats normal trading,no one knows the future of prices and,markets anything can happen they can go,up or down no one knows but kevin spacey,sort of implies and insinuates that,somehow theyre doing something wrong,here and he does this a lot and thats,what gives the movie a little bit of,tension and makes it fun to watch but,its important to remember that there is,actually no insider information here,in the united states anyone can sell or,buy any asset for any reason whatsoever,unless they have inside information,inside information is where you know for,certain about something that other,people dont know and thats not whats,happening here oh mr sullivan youre,here good morning maybe you could tell,me what you think is going on here and,please speak as you might,to a young child or a golden retriever,it wasnt brains that got me here i can,assure you of that i love the way irons,introduces himself and the way he,demands to have everything spelled out,very clearly and really everyone should,do things this way because,its very easy for people to hide behind,jargon and lingo and kind of gloss over,the real meaning of things so sullivan,is now going to explain for like the,fifth time in the movie to the biggest,boss there is that they have a huge,portfolio of mortgages that theyve been,participating in a lucrative market but,theyve overextended themselves they,have this huge book and it could produce,disastrous losses in fact theyve only,been lucky up until now and at any point,they could be forced to face just,devastating losses well as you probably,know over the last 36 to 40 months the,firm has begun,packaging new,mbs products that combine,several different tranches of rating,classification in one tradable security,the mortgage-backed securities market,mbs in this movie refers to the concept,of taking hundreds thousands even you,know millions of mortgages and putting,them into giant securities within the,giant security there are different,slices that represent different types of,mortgages some are higher quality and,less likely to default others are lower,quality subprime and bear a significant,risk of default and thats no problem,for the bank because the bank is simply,taking the mortgages proces

Margin Call Movie Explained

hey YouTube its Dimitri and today were,gonna talk about a movie because one of,our subscribers here aldor asked me to,hear you thanks for sharing your life,story I wanted to ask one question can,you make a video about the movie called,margin call and explain what happen,there from a quantitative finance,standpoint okay so this is more,traditional finance,its just how markets work well talk,about it big disclaimer though I have,not seen the movie but I have looked up,the plot and read all about it so lets,just dive on in and talk about this okay,so theres two components playing into,this movie plot line here so basically,what happens is somebody took a really,really big position and in the movie,right the world is gonna end its gonna,bankrupt the entire firm and they need,to get out of that position quickly,thats the general plot here but the,reasoning under why the position is so,dangerous I think is something that is,more or less the question here first off,lets talk about margin real quick so,the movies called margin call when you,have a position in your in a trade for,example so example in options youll,have essentially two people that are in,opposite positions of a bet here so,somebody says you know if the market,goes up I dont pay you lets say dollar,for dollar as it goes up and then,somebody else in another position saying,you know if the market goes down you pay,me dollar for dollar so lets just say,you have $100 and the one person if it,goes up to like 105 dollars this person,right they get five dollars from this,person so they agreed to give them five,dollars then in the opposite store – so,lets say youre out $100 it goes down,to I dont know lets say ninety two,dollars so its dropped eight dollars,now this person that was taking the long,position so betting its gonna go up,theyre gonna pay the short position,which is they will give eight dollars to,this guy and hell benefit when it goes,down so theres this contract right but,typically theres a time frame on the,contract so what ends up happening is,you enter in the contract lets just say,January first and lets say by the end,of January so January 31st thats when,were gonna settle up on the final,contract well see who essentially is,the winner and the loser and then the,contract ends the issue though is that,over the month,the stock price is going to bounce,around so lets say its a hundred,dollars and it drops to like I dont,know 70 dollars all of a sudden because,its high volatility and then it goes,back up to 105 right depending where you,are in the month you dont really know,whos gonna win and lose until the final,date when the contract closes and then,whoevers up or down pays the other,person based on the position but one of,the risks with this is that lets say the,stocks at $100 and it drops to say $70,so theres a thirty dollar gap here and,one partys gonna have to pay the other,party thirty dollars what if they dont,have the thirty dollars to pay you so,for some reason theyre not financially,stable and theyre unable to make that,payment this is called counterparty risk,so your counterparty is unable to cover,that position right it seems crazy when,you say a hundred dollars and thirty,dollars but typically these positions,can be you know ten thousand dollars,they can be a hundred thousand dollars,they could be a million dollars so again,having you know that right a million,dollars to pay over to their party you,might not just have it and so what ends,up happening is to reduce this,counterparty risk over the time frame of,the contract so in this case over,January theres limits set so say this,stock or the asset here is started at,$100 all right and theres margin bands,put in place here I guess those other,terms for these but this is me just,hodgepodge doing this together what ends,up happening is when the stocks bouncing,around nobody changes money but then,when you cross one of these bounds so,lets say theres a ten dollar up and a,ten dollar down here if the stock price,gets to 110 then they have whats called,a margin call so you have to put margin,up front as well so just like money it,essentially states that youre able to,cover the position when you hit a margin,call though what ends up happening is,that the stock price is going too far,one direction and the party that,essentially is at risk of having to pay,the money they have to put more money,down to help cover that position so when,we talked about going from a hundred,dollars down to seventy so thirty dollar,drop there might be a margin call lets,say every ten dollars and so as soon as,it becomes ninety dollars,the broker will call up the other,individual and say hey youre,essentially losing the position here you,need to put more money down for the,margin call if not well close out the,position so what this does is it,prevents essentially if it does go down,to 30 right and they cant pay that it,prevents the other party from losing all,$30 if they default on it after the,first margin call si $10 what ends up,happening is that party will end up,losing $10 here so you end up having a,loss of $10 but its far better taking,that loss of $10 then letting all other,down to 30 in the example and losing a,bunch of money so margin calls is what,happens when you need to put more margin,into the account on that margin is like,safety money that helps cover the,position again you might end up having,to add merge and as its going down and,then if it goes back up for example then,you dont need as much margin in the,account or as much safety can I go down,payment really and then you can kind of,remove some of it if you want to but,again thats what margin is and this,movies called a margin call and the,reason being is that the assets in this,movie that are purchased essentially,when they move too far and they get a,margin call theyre required to put more,money in and if you cant make that,payment right you default,okay so thats the first component of,the movie is gonna be the margin and the,margin call component the second part,this is the leverage and so leverage is,when you borrow money from somebody else,to make an investment the reason you do,this is you increase your returns so,this is one reason I always emphasize,people that you need a risk adjusted,return so an example of what leverage is,doing here is lets say I invest $100 in,some asset and it goes up to 102 right I,have two percent profit and I make 2%,and I sell it and make two percent okay,now if you want to tell it leverage that,position so were gonna double that so,we have a leverage of two here lets say,I put in $100 and I go to somebody else,and they just give me $100 Im going to,borrow from them and Im gonna give it,back with no interest in this case so I,get the other hundred dollars and I have,two hundred dollars and I put the two,hundred dollars in at that one hundred,and it goes up to one hundred and two,right whats gonna happen is youre,gonna make four dollars but what when,you subtle operate youre gonna give the,hundred dollars back to the other,individual but on that position you put,$100 in youve got four dollars out even,though the stock only went up two,dollars so it looks awesome right you,can leverage your position so this is,what we call adding leverage youre,gonna end up having essentially borrowed,money that makes the profits much larger,than they were reform so you can take a,terrible strategy and if it just has a,little bit of a profit over time,you can like basically take advantage of,this and make the profit quite large,from enhancing the leverage now the,risky parts this is where it comes in,with the movie if the opposite occurs so,the stock price goes from a hundred,dollars down to 98 dollars right you,lose two dollars in the first scenario,if you put your hundred dollars in goes,down – you lost two bucks kind of sucks,right but thats how thats how life is,so if you borrow that other hundred,dollars from someone who lent that to,you and you take that now you h

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