Understand the Global Financial Crisis (Movie Review)

As someone who was still in school during 2008, I know very little about the financial crisis and its origins. While I was aware of what went on at the time, I was still dependent on my parents.

Like most teenagers, I wasn’t interested in finance, and I was caught up in socialising with my friends and worrying about school exams instead. But the 2008 event still impacts all of us nowadays and has changed the world of banking forever.

For this reason, I’ve set out to watch a trilogy of movies, in the hopes that they could help me understand why there was a crash, what happened, and what implications the downturn has for us today.

Today, I’ll share my experience of watching The Big Short, Inside Job, and Margin Call. Raph will also add his perspective as someone who spent a few years on an ABS desk managing some of these Bonds.  

KEY TAKEAWAYS

  • Margin Call is loosely inspired by the 2008 events. It is one of the Top 10 movies about Wall Street. One of the reasons is a dozen lines famous on Wall Street. These quotes touch upon the type of people attracted by careers on Wall Street, the profession’s ethics and its social purpose.
  • If you’re interested in finance and haven’t heard about Michael Lewis, you must have a look at some of his books. Lewis takes on somewhat impenetrable topics and thrillingly explains them. The Big Short film is based on his 2010 book. You will understand the mechanics of some of the most complex financial products ever assembled by Wall Street.
  • Inside Job is a chilling re-run of all the events that led up to the financial crisis, is very accurate. The documentary also goes beyond The Big Short by examining how the financial industry captured the regulators and academics.
Here is the full analysis

Watch First: MARGIN CALL

Margin Call | Official Trailer | Available on Amazon, Google Play, Netflix And iTunes

Thrills, Chills of Financial Ills

Margin Call is a 2011 drama created by J.C. Chandor. Since it is marketed as a thriller and I don’t enjoy violent movies, I would never have watched it if it weren’t for this review. 

However, there was were bloodshed or fight scenes, and I quickly got engaged in the plot. 

Of the three films, this one feels the most like a movie because it is purely fictional. 

While it teaches viewers about the crisis, it doesn’t involve breaks in the storyline to explain financial terms as The Big Short does.

The Plot

Margin Call begins with an action-packed scene during which 80% of the bank’s risk management team gets dismissed. 

Soon after, a junior analyst with a rocket science background, named Peter discovers that the firm has dangerously high exposure to mortgage-backed securities. 

According to financial models, current risk levels could bankrupt the bank.

This information gets passed on to the analyst’s superiors, and the rest of the movie focuses on how the bank’s boss and high-level employees deal with the situation.

WHAT DID Kat THINK?

I found it particularly interesting how the various levels of employees were portrayed. Each character, from the entry-level analysts Peter and Seth to the big boss John Tuld, has their motivation and reason for working at the bank.

The incredibly high salaries are discussed several times, and it becomes evident that most of the characters don’t believe that their actions are unethical. 

Even if others lose, that’s just the way the game is played. 

In the words of Tuld, “There are three ways to make a living in this business. Be first, be smarter, or cheat.”

Contrary to my expectations, this film was the easiest to watch, and I didn’t get confused at any stage. 

For casual viewers, this might be a great place to start. 

However, I would recommend learning the basics of the financial crash before watching, especially because there are no explanations throughout the movie.

WHAT DID Raph THINK?

While being fiction, the movie is loosely inspired by the 2008 events.

In my mind, it is one of the Top 10 movies about Wall Street. 

One of the reasons is a dozen lines famous on Wall Street.

These quotes touch upon the type of people that are attracted by careers on Wall Street, the ethics of the profession and its social purpose

Wouldn’t it be more fulfilling and useful to use rocket scientists or bridge construction engineers to help advance humanity? 

It also shows bankers’ thought processes on who should be blamed

Is it the industry or are bankers just a medium through which society as a whole expresses human nature that translates into speculation in the markets, wealth and extreme inequalities?

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Watch Second: THE BIG SHORT - Inside the Doomsday Machine

The Big Short - Inside the Doomsday Machine | Official Trailer | Available on Netflix, Google Play, Amazon and iTunes​

A Comic Look At the Financial Crisis

The Big Short is a 2015 movie directed by Adam McKay.

It is based on true stories, but the names and some of the details have been changed. 

Before watching, I looked at the Wikipedia page. 

From the summary, I found the plot incredibly hard to understand, so I wasn’t sure I’d enjoy this movie. 

But once I got going, it was engaging and provided an interesting perspective. 

The Plot

The Big Short follows several investors who shorted the housing market. 

The first one was an eccentric hedge fund manager and physician named Michael Burry (played by Christian Bale), one of the first people who recognised the issue with the market

Burry was so sure that the housing market would collapse after mortgage fixed rates ended that he bought 1.3 billion worth of credit default swaps from different banks. 

The second character is Steven Eisman, named Mark Baum in the movie, who was a jaded investor running his fund under Morgan Stanley’s umbrella.

He found out about the opportunity to invest in CDS contracts due to a misplaced phone call by an executive at Deutsche Bank, Jared Venett.

Baum and his coworkers were intrigued by Venett’s ideas and decided to partner with him. In the end, Baum bought the CDS contracts, making the firm millions, and Venett got a bonus worth $47 million. 

The most unlikely heroes were two youngsters that made over $100 million by coincidence.

The investors named Jamie Shipley and Charlie Geller found a pamphlet about Venett’s ideas in the lobby of an investment bank by accident.

Because they didn’t qualify for an ISDA Master Agreement, which allows institutional investors to trade certain types of derivatives, they asked the retired trader Ben Rickert (played by Brad Pitt) for help. 

WHAT DID Kat THINK?

After watching this movie, I have a better understanding of what happened during the crisis.

While this wasn’t clear to me after Inside Job, I now know the difference between a CDO and a CDS and how one can bet against the housing market or other bonds.

The film also clarified why the crisis happened in 2008. It demonstrated how the collateralized debt obligations that contained the low-quality mortgages went up even after people started defaulting on their loans in 2007.

Investors were so certain of their value that they didn’t realise what was happening until it was too late, which is part of the reason why the crash was so massive. 

Just like Inside Job, The Big Short isn’t designed to be watched for relaxation.

People who didn’t go through the 2008 downturn first-hand or those who don’t know much about it will need to concentrate hard throughout.

However, it’s more of a movie and less of a documentary, so it might appeal to a more diverse audience.

WHAT DID Raph THINK?

If you’re interested in finance and haven’t heard about Michael Lewis you must have a look at some of his books. 

Lewis takes on somewhat impenetrable topics and explains them in a thrilling way. 

Lewis is arguably the most valuable voice in modern nonfiction narrative.

For instance, in the 1990s, Liar’s Poker: Rising Through the Wreckage on Wall Street has infamously become a lure to Wall Street for a whole generation of traders. Flash Boys gives some unique insights into a quite opaque high-frequency trading industry.  

The Big Short movie is based on his 2010 book. It shows how banks piled up MBS products, and sold them to real-money investors that blindly trusted rating agencies.

You will understand the mechanics of some of the most complex financial products ever assembled by Wall Street. 

Selena Gomez will walk you through the genesis of vast markets that didn’t serve any (social) purpose outside of being a giant casino. 

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Watch Last: INSIDE JOB

Inside Job | Official Trailer | Available on YouTube, Netflix and Amazon

Blame Game

Inside Job, a 2010 documentary is directed by Charles Ferguson.

It’s split up into five sections that explain what happened before, during, and after the crash.

Blaming the Regulators

According to the film, the primary reason for the 2008 market crash was the deregulation of the financial markets. 

Since the 1970s and 1980s, the banking sector grew massively, and a few large investment companies took over the majority of the market share. Because they weren’t as regulated as in previous decades, there were many opportunities for them to defraud customers. 

One of the biggest issues was the way mortgages were sold. In the past, a lender sold this financial product directly to homeowners and was therefore careful about whom to lend to. But in the new system, lenders sold mortgages to investment banks, which packaged many of them together and sold them on to investors all over the world. 

Blaming the Banks

Both the original lenders and the investment firms no longer made losses if someone defaulted on their mortgage, so they put quantity over quality. 

By combining many risky loans into investment products, they could obtain a high rating. As a result, the products were often bought by retirement funds, eventually harming the average consumer. 

The second problem mentioned was derivatives, which are financial products that don’t involve buying the underlying asset that determines their value. 

For example, the insurance company AIG sold credit default swaps, which essentially insure the buyer against the default of a borrower. Since anybody could insure assets, not just the people who owned them, AIG was taking on a lot of risks (Selena Gomez scene in the Big Short).

These factors eventually led to the collapse of several organisations, most of which were acquired by other institutions. Unfortunately, the investment firm Lehman Brothers couldn’t be acquired, and its bankruptcy triggered a massive financial crisis.

Blaming the Status Quo

The entire financial industry came to a standstill as Lehman Brothers offices had to shut down. 

The stock and housing markets collapsed, and many people, especially the subprime borrowers, could no longer pay off their mortgages. Unemployment rose to over 10% in many countries. 

The film concludes on a negative note, detailing that regulations increased in other countries but that the situation in the US barely changed. 

The CEOs and bankers who made hundreds of millions during the bubble never had to return their money, and many of them weren’t persecuted. 

As a result of the growing inequality in American society, people now take on more debt and work longer hours.

WHAT DID Kat THINK?

I enjoyed watching the film and found it challenging. 

For someone who didn’t have a lot of background knowledge, it was hard to understand some of the more technical aspects of the financial crash. At some points, I had to stop and rewind to understand the explanations.

The format of the movie was engaging throughout, and I liked the structured approach that took the viewer from the origins to the results of the crash.

Towards the end, I began wondering whether it was possible that so little had changed after the crash.

If nothing changed, how come we didn’t have another crash in subsequent years?  

After doing some further reading, it seems that some regulations, such as the Dodd-Frank Act, were put in place.

However, this didn’t happen until 2010, which might explain why this change wasn’t featured in the movie.

WHAT DID Raph THINK?

The chilling re-run of all the events that led up to the financial crisis is very accurate.

The documentary also goes a step beyond The Big Short by looking at how the financial industry captured the regulators and academics. 

That said, it is limited in its way of looking at the broader picture of greed, fear, cycles and human nature, which is perhaps why looking at all three movies including Margin Call gives a better perspective.

Crises do not repeat themselves but certain of these universal aspects will make them rhyme.

Thank you for reading.
Good Luck and Keep’em* Rolling!

(* Wheels & Dividends)

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