Investment Analyst Explains Margin Call

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CORRECTION: I misidentified a classical song in the movie as The Funeral March, and viewers corrected me to indicate that it's actually Chopin's Raindrop Prelude. Apologies! The error has been cropped out of the video.
Margin Call is a movie on how investment banks reacted to the impending collapse of the US real estate market in 2008, but like other finance films, it can get a bit convoluted. I watch through some clips and provide some context.
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DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice - Richard is not responsible for investment actions taken by viewers. Please seek out a registered advisor if you require assistance (while Richard is a registered portfolio manager at WDS Investment Management, he does not provide advice through The Plain Bagel, which is not affiliated with his employer).

[@ThePlainBagel]

CORRECTION: I misidentified a classical song in the movie as The Funeral March, and viewers corrected me to indicate that it's actually Chopin's Raindrop Prelude. Apologies! The error has been cropped out of the video.

[@georgelien]

No, actually his dead dog was there to show how he cared more about his dog than other human beings. He cried for his dog and didn’t give a shit about what’s going on at his office.

[@diogonunes1608]

Can you review Moneyball or Joy?

[@surters]

Remind you of a later bank crash ... failing by margin call from customers

[@dexterantonio3070]

@@georgelien the point is that the job is so consuming that he cannot even greave his dog’s death. It is also about the death of the one thing that he cared about, loyalty.

[@ericbruzzone2644]

Raindrop is still relevant to the scene. You can check more information on KZbin, Wikipedia, etc but it was written at a catastrophic personal time for Chopin. Worth checking

[@seospider]

The best scene in the movie for me is when Zachary Quinto asks Kevin Spacey if he has mentioned the impending doomsday in the market to his son, who works at another firm. The look on Spacey's face when he realizes the thought of protecting his son from the crash never even occurred to him is priceless, and tragic.

[@will9134]

My favorite scene is Jeremy Irons, “DO YOU!” response to Spaceys character contradicting Irons character assertions on the effects of dumping the assets. In contrast, Jared earlier in the movie had a meek response of “yes”. There’s a reason Irons character is the CEO vs Jared.

[@kylevernon]

It did a great job humanizing his character. He ended up having to work for Jeremy Irons character when he didn’t want to because he knows he’ll need the money for his family.

[@stvjjgcj]

didnt catch that should rewatch it. great atmosphere

[@markcrandley8061]

And he can't do anything. It would be illegal and unethical as to his own company. Tough spot to be in.

[@Au60schild]

An excellent fine point. It's implications, which you explain, went right over my head as small talk.

[@jealva]

One of the most realistic lines in the movie was at the end when Kevin Spacey agreed to stay at the firm when asked by the CEO and said it was hard to believe but after 37 years, he still needed the money. In my 25+ years on Wall Street (investment banking and private credit), I have found that most people on the Street pretend to be rich but spend everything they make and barely own any assets. In fact, most of their net worth ends up being the stock of their employers and if something goes wrong with their employer’s business, then their annual comp and their net worth take big hits. That plus the rented city apartment, the summer Hamptons rental and their jet cards and pricey lifestyles lead to personal financial catastrophies.

[@bionmccool]

at least Sam has an excuse of going through a very costly divorce (wife: you know you can't be here) and not just wasting all he has on a yacht

[@es330td]

A friend of mine, now wealthy by the upper middle class standards in which we grew up, said in college "A person can be rich or look rich but most don't get to do both."

[@danielparson4574]

Great to hear the rats on wall street end up suffering financially , KARMA

[@Cleon851]

@@danielparson4574 envy ?

[@danielparson4574]

@@Cleon851 how so ?

[@USM3C]

Regarding the last scene with Sam burying his dog - Sam also mentions to Tuld in the end that if he dug ditches for a living he'd at least have something to show for his life's work. So, there's much symbolism in that last scene with Sam digging that ditch.

[@andybadger2610]

And a homage to the end scene of Death of a Salesman I believe

[@roakes1956]

1. The events of the film describes what actually happened at Goldman Sachs in early 2007. 2. The VaR model in the movie isn't "broken". Typically, VaR models (under the Basel Capital Accords) estimate potential loses on existing positions according to price movements observed during the previous 518 trading days. If those movements are normally distributed, there will be 2.5 daily observations that exceed the loss estimate in a given year. So when a risk manager sees as number of excess losses in a short period, the warning bell go off. That is what happens in the movie. 3. What we see in Margin Call, is the market risk management process working properly. 4. Fun fact: in 2007, Wall Street firms that used VaR models with historical data (where losses are not normally distributed) saw the crisis emerging before firms that used parametric models (using normal distributed losses). 5. Additional Fun Fact: The rating agencies who gave those MBS CDOs their AAA ratings, used models with the same assumptions as bank VaR models (and still do). It is interesting that as the model back test exceptions increased in 2007, the rating agencies (who are paid by the CDO sellers) remained silent. It amazes me that any of them are still in business...

[@roakes1956]

@@Anrton Good question... Historical VaR models are noisy. There is kurtosis (fat tales) and skews, with new current scenarios constantly replacing old distant lest relevant scenarios, so results can jump around causing passive limit breaches that force management action. A model that uses Monte Carlos simulation is smoother and produces less alarm bells as a crisis emerges.

[@roakes1956]

That is not a particularly satisfactory answer, but I don't think a policy manual with fit in these text boxes...

[@frankmann1060]

To point 5, as said in The Big Short "...they weren't stupid, they just didn't care." The industry is propped up on vast amounts of graft and corruption. You'd think 2008 would change that, but here we are today.

[@darrenmcollins]

It amazes me that after this all happened that the rating agencies were allowed to function the same way and still do. Just take money to rate things. Seems so crazy to me to have an investment vehicle rating being paid for by the company selling it…

[@paullarsen4178]

VaR models present an upper limit to losses as a single figure but don't truly estimate the value of losses that could happen beyond the VaR figure. Leverage and the inability to finance their warehouse positions ultimately proved fatal to both Lehman and Bear Stearns. Bear had the additional burden of alienating the rest of the Street when it came time to offer a lifeline to Long Term Capital Management by refusing to lend to the pool. Consequently when Bear needed help it found that it had no friends. I was involved in the CDO market at the time of the crisis and the difficulty in getting rid of risk was that there were no buyers or at least no buyers who presented any bids that were other than "throw-away" numbers. Margin Call and The Big Short both present realistic although slightly dramatic representations of what did happen to a large extent.

[@KingUnKaged]

One of the great things about this movie was showing how the hyper financialization of the economy draws people away from more productive areas. Peter and Eric, the only people who see the crash coming, are people who had jobs as a rocket scientist and engineer respectively, but got into finance for the money (something Eric admits he deeply regrets). The people whose jobs are purely money focused like Sam and John openly admit that they don't even know how the company makes money, and mostly seem to get ahead by behaving badly and leaning on people like Peter and Eric.

[@linerse2743]

this, a friend of mine who has worked 10+ years in the financial sector explained that most of the real work in financial firms are done by people from rigorous non-financial backgrounds (most notably math and engineering). everyone else (including the MBAs/MiMs etc) are just there to posture and bullshit, while they collect ~70% of the firm's wages. but even with the useless leeches at the top, the engineers and mathematicians working for the so called 'remaining scraps' still make more money doing so than if they were to pursue a job in their original field of expertise. just goes to show how poorly unchecked capitalism (aka GREED) does at allocating our workforce/resources efficiently.

[@RogueReplicant]

Of course Sam and John know exactly how the company makes money. What they don't know or care about is the technical side of the business. As an analogy, Sam manages the truck drivers; he doesn't need to know how to drive or repair a truck, that's Peter and Eric's job.

[@joesr31]

@@linerse2743 people don’t just get to the top but doing nothing, if its that easy, their pay would not be that high. You don’t expect commanders to do the work of the foot soldiers, thats not their job but that doesn’t make the commander’s job any less difficult

[@peteparadis1619]

Wrong.. They get to the top because all the board members are their friends and vote them tons of perks which they kick back to the board who are by the way on a dozen other boards.. Correct..?? Fools all, one big happy Harvard Business School fraternity, or, maybe Yale, Princeton, or whoever.. State colleges don’t matter really

[@kirkworthley3221]

I know multiple financial professionals ( I guess thats what you'd call them ) who basically sell financial products to money managers, high net worth individuals and some institutions. These guys have NO IDEA how these products really work. Its stunning when I start asking them basic questions like how the rapidly changing interest rates will affect their business. They remind of real estate agents who ALWAYS think now is a good time to buy property.

[@BigHenFor]

Margin Call is really a good movie, both educationally and dramatically. It's not flash, or gimmicky, but it tells it as it is. Thanks for the synopsis. Congratulations on the birth of your second rugrat!

[@LuisSierra42]

I almost fell asleep watching it cause i could not understand anything

[@Ferdinand208]

Disagree. Only the scenes with Jeremy irons. The rest was nothing. I understand all the financial talk. The big short was much better.

[@fitfirst4468]

congrats on deeznutz

[@TheNaldiin]

I like it as a very minimalist film, most of the expense seemed to be actors which is nice.

[@francescoalberga3819]

Crazy to know that the whole movie was filmed in a few weeks

[@sifridbassoon]

I love Margin Call. I watch it once or twice a year, even though I already know the ending. It reminds me of a Greek tragedy, especially with the Aristotelian unity of time (you mentioned that the action takes over the span of a single day). Wonderful cast.

[@jjsifo1]

Same here

[@mikejozefowicz888]

And then I watch Rock N Rolla to raise my spirits....

[@marcusaurelius6012]

10/10 - A+. (And remember whilst we watch and soak up these types of movies/$$$ topics, 98% of society is chatting about Megan and Harry and Hollywood gossip) Bread n Circuses 101

[@steveeuphrates-river7342]

I've watched it six times :)

[@donaldbabbitt1214]

Twice a year? I watch this movie like once a week. I probably need to get a hobby.

[@ScottieMacF]

I was pretty well versed in the housing crisis back when it started, as many of us who were worried about our jobs were. What was enjoyable about Margin Call was that they didn't tell us what was going on and assumed we were intelligent enough to figure it all out without explaining what VAR or a CDO is. Even if we didn't know, what we did know what that they had a lot of securities on hand that they had to get rid of before it ruined the company. That's easy enough to figure out. When Margin Call first came out I watched it at least three times in the first week. Since then I watch it a few times a year. The acting in this movie is incredible. With such a star-studded cast, nobody is trying to out-act anyone else. That is rare and makes for a very enjoyable and satisfying viewing experience.

[@upthebracket26]

Yup. The film sure had a vision

[@deanchur]

It hit that sweet spot between both sides of patronizing (on one side, explaining things like I'm 5 and on the other, expecting me to have a PhD in the subject). I'm no expert in the subject but I never felt lost nor talked-down to. If you can understand "crap mortgages packaged with good mortgages and sold as good mortgages = bad", then you can understand this movie.

[@HudsonStillwater]

Good analysis and explanation. I thought the analyst got it wrong at the very end, where he dismisses the dog scene as analogous to a "dog" investment. While I think you could look at it that way, I think the scene where Sam buries his beloved dog is actually intended to evoke his sense of loss regarding life choices, as the dog is symbolic of virtues such as honesty and loyalty.

[@johnhockey87]

That was my thought too....a dog represents fidelity and trust (the derivation of fido as dog's name).

[@reydion1648]

Anyone interested in watching movies about the 2008 financial crisis I would recommend: * The Big Short : Crisis from the point of the investors * Margin Call: Crisis from the point of the banks * Too Big To Fail: Crisis from the point of the government “The Big Short” has more comedic elements but also explains the various situations and mentions the differences between the movie and what really happened “Margin Call” is more gloomy and straight to the point. Great with some beer and popcorn “Too Big To Fail” has a more generic feel. Still very well made and an interesting watch

[@hakant.7242]

* Margin Call: Crisis from the point of the Investment banking

[@launchsquid]

I literally know nothing about financial markets but love this film, it doesn't try too hard to water down the jargon and it blazes through things quickly, all things that you might think would hirt it for me, but through context and the emotions portrayed by the top notch cast, it had me riveted. The final boardroom meeting is the meat of the film for me, Jeremy Irons turned an ok movie into a must rewatch movie simply with his performance in that scene. Pure Power, Charisma, and a touch of Villain, I absolutely loved it.

[@RudyBleeker]

fun fact: Jeremy Irons was actually brought in last minute to replace someone else, I've forgotten who. However, the rest of the cast had been filming for a while and had already build a rapport, also with the original cast member Jeremy Irons replaced if I remember correctly. So they weren't taking it all too serious when they started that scene. So Jeremy started out by doing the scene but shouting at everyone instead of using a regular speaking tone, but still in character and doing his lines properly. This set the proper dynamic of the scene with him as the boss and everyone else as subordinates, which after a few takes led to the scene as it can currently be seen in the movie.

[@GubeTube19]

I'm at school doing my masters in quantitative finance right now. I asked my professor who served as a quant at TD bank in Canada about the film. He told me the firm depicted in the film is actually Goldman Sachs (as they were first to dump and are typically first to move). A lot of people think its based on Lehman because the CEOs name was Dick in the film (Lehmans CEO was named Dick Fuld), but the film is actually inspired by Goldman.

[@DumbledoreMcCracken]

So, do your professors acknowledge the fundamental relationship between investment "profitability" and the growth rate of the money supply? While people claim, without evidence, that the money supply drives price inflation, its true purpose is to drive up "asset" prices. The price of retail goods is capped by the ability of people to pay for those goods, and the debt service those people are also paying, not the money supply if it has a *negative* effect on wages.

[@GubeTube19]

Bruh idk how this has anything to do with my comment about the movie lol. Also that is more of an economics question than quant finance question lol

[@luisandrade2254]

@@GubeTube19 isn’t finance just economics with extra steps

[@DumbledoreMcCracken]

@@GubeTube19 is it? Isn't finance about the profitability of an investment, Brah?

[@lakeguy65616]

@@DumbledoreMcCracken inflation is caused when growth in money supply exceeds growth in GDP.

[@davidgab4448]

I really liked the scene, where they discuss the situation, while riding in a car to get Dale. Basically "if we're right we'll be seen as bad people, and if we're wrong the competition will buy our assets, make make big money from that and laugh at us for years"

[@ddude27]

Richard also forgot to mention how the profession of the intermediate analyst majored in rocket science. It's very common for people of incredible talent in a different field to be recruited in wall street. The funny part of it all is most people ditch their study of the field they originally majored to move into the financial sector because the pay is atrocious. We're seeing the same thing happening for computer science related jobs as it seems to be one of the very few sectors that exceeds inflation in terms of wages.

[@lygiabird6988]

It is the one industry that is allowed to conjure money out of thin air

[@TrulyMadlyShallowly]

Wall Street, and consultancy. They actively recruit among University graduates, no matter what degrees

[@NothingMaster]

The title “Margin Call” in the context of this (amazing) movie was specifically referring to the firm being forced to close/sell off its losing positions in order to survive; albeit, at a considerable loss. Although, at a far less loss than had they continued to keep those incredibly risky/toxic assets on their books. So in essence the firm issued a major Margin Call on itself.

[@MrSupernova111]

Margin Call is possibly my favorite finance film. This film is one of the reasons I'll soon make a transition from finance to data science. At the heart of the industry there are very complex financial and mathematical models that drive the industry. Great recap of this phenomenal film. Cheers!

[@suryaprabakaran6507]

Could you explain more on this?

[@jackjia8773]

Welcome to the field of data science. Soon enough, you'll find we are full of shit as well.

[@rogehmarbi]

@@jackjia8773 as someone with a data science background transitioning to finance, I concur

[@ninjarider2941]

Finance people and climatologists should be banned from using any math higher than algebra with a single variable. The Black Scholes model nearly blew up the economy. It's like giving car keys to a drug addict.

[@MrSupernova111]

@@ninjarider2941 . I agree with the notion that finance should be simple but we know that's not the reality for high level finance.

[@programmerontheloose]

I’ve probably watched this movie 100 times. The sense of impending disaster, the slightly vague but intense dialog gives it such a real world vibe.

[@bgfn858]

With Margin Call representing the banks, The Big Short representing the people... Please do Too Big to Fail. I enjoy your videos and how you explain things that an average viewer can understand.

[@magtovi]

Nah, "Too Big to Fail" just glorifies the people at the top. Watch "Inside Job", that thing puts the world upside down.

[@cinemaipswich4636]

Margin Call was a movie I enjoyed for it taught me a lot about brokers. The cast was excellent with 10 major actors performing at their best. The slow burn drama made me wait to the end, and I was not disappointed.

[@freedomtrucker2332]

..I guess I would say Eric Dale was my favorite character in this movie ..played by Stanley Tucci ..the final kick in the nuts by the firms layoff was cutting his phone off ..couldn’t even call a taxi ..so he did what I would have done with that thing ..lol ..(excellent post ..this was a GREAT cast) ..

[@kevinquinn7645]

The two best scenes in this film are Zachary Quinto's character explaining that he was a rocket scientist but investment banking pays better and Stanley Tucci's story about building a bridge.

[@dyingearth]

The company is Goldman Sachs. As for Margin Call, the Will Emerson explained 7:33 to his boss that the company is so levered up that it's a miracle they are still on the right side of the balance sheet.

[@ReinierS]

Merrill Lynch*

[@kevindegroot846]

Congrats on the little one. Also that movie is one of my favorites. As an engineer it's disappointing to see a drain of talent to Wall Street that could be better utilized solving actual real world problems rather than managing risk for the already rich...

[@sivi9741]

Well the crux of the argument is there isn’t ? If wages were reasonable in the Finance industry ( hello CEO salaries and bonuses for example ) and not so disconnected from reality and the real economy , engineers would not leave their profession in the first place right ?

[@binkyxz3]

@@sivi9741 Much of engineering is capital intensive work (projects), but at the same time downstream of financial operations depicted in the film. Only someone like Trump was able to pull off the marketing to win against paper shufflers like Lehman Brothers.

[@dannyarcher6370]

@@binkyxz3 He's my favourite stable genius.

[@conors4430]

I love the scene with the guy talking about being an engineer, and about all the efficiency, the bridge he built brings to a community and to the economy, and his admission that he traded to doing something useful in for something that realistically wasn’t that useful to be economy at all, but it just happens to pay a shitload more. And he ended up being part of a thing that destroyed economy and efficiency and people’s lives rather than making it better. Just because it paid more money. Great symbolism.

[@danielhale1]

I want to see this movie now. Most disaster movies are flashy fluff films about plucky families and heroic heroes surviving meteors or earthquakes or aliens or whatever. This looks like a very grounded film about sleazebags surviving a disaster they helped create. It's totally off-beat from the normal film and I like when a movie calls out the predatory Wall Street world like this.

[@dleatherman4539]

My wife hates financial movies, typically, but just sat down and got drawn into Margin Call. She said it was the most constantly intense movie she had ever seen. I agree. Great review, and I appreciate your content.

[@81i2b49cj]

The beauty of this movie (like Rounders) is the audience can view it on their level of understanding of wall street / economics (or poker in rouders). If you understand it, both are so well done they make sense on that level. If you don't understand it, the storyline itself flows so effortlessly that it is still a great movie. The first time I watched margin call I didn't understand what was going on beyond: something was wrong, they were running out of time in fixing it. And it was still a brilliant movie

[@10ark]

Congratulations on your new baby! Thank you for posting this video. I really enjoyed the additional information and the "dog" part especially as I was really confused by this ending when I first saw this movie. Keep up the good work!

[@jerryshi8394]

Thanks for your thorough analysis with economics background! One small typo I noticed was in 13:54: the classical piece that was played was Chopin’s Raindrop Prelude (Op. 28 No. 15), the choice of which I think is even more symbolic to the foreshadowing of the financial crisis storm from the prelude of raindrops that the few big firms foresaw that led to the margin calls. Anyways keep up the great work!

[@RModillo]

Not a literal funeral march-- at least not entirely. It does borrow that format for the middle section of the prelude, though.

[@the_primal_instinct]

Most funny thing for me in the movie was how the higher was somebody in the chain of command the less they understood about the market and technical details. And they all stated that directly to their subordibates. Peter's boss said that to him. Then Peter's bosses' boss said that to Peter's boss (who understood more than him but less, than Peter). And finally the CEO who interrupted Peter's explanaition with "is the music playing?"

[@TheNaldiin]

The CEO knows, and there's a lot of oblique references that make me think the President and head of risk management were also aware of how it would end but decided to keep at it.

[@lakeguy65616]

I find it highly unlikely that traders in such key positions didn't understand the risks... They may ignore the risks but being completely unaware is (in my view) highly improbable.

[@LambdaTheory]

The CEO definitely understood - he was able to reference every financial crisis for a hundred years, at a moments notice.

[@nickvdk11]

I work in a financial services company that provides our clients ability to trade derivatives. I find it hard to believe there wasn't a model already in place to forecast risks. Considering they're dealing with hundreds million or billions they all know the risks. I find it more plausible if like movie Big Short they find out there are higher home loan defaults and loan brokers giving loans to everyone.

[@TheNaldiin]

@vdk11 pretty sure that's what both movies imply, just Margin Call is less about the cause than the resppnse. The part of their risk model that broke had to be related to defaults.

[@josephmassaro]

I enjoyed his movie quite a bit. As much as you can enjoy a movie about a catastrophe. Glad you gave a professionals review.

[@kirkclements4893]

I had a fun margin call during the 87 crash. I had caught the Sept start to the bear and cashed in. In Oct on the Friday before the crash I thought that things would calm down so I went long the S&P index futures and bought puts on the index at the market to offset the position. Monday went against me and Tuesday I get the margin call for $150,000US$ as the exchanges changed the rules and the puts no longer could be counted as a hedge and the puts were now worth $145,000. I asked my broker how long I had to unwind the position and he said that I had until end of trading. I went golfing and returned to the brokers office before end of trading and closed out with a $1,000 loss on the position but earlier I had taken a $36,000 profit on the Sept down-leg so no real damage. I investigated how the exchanges could change the rules like that and have never been involved with those exchanges again. Live and learn!

[@garthfriedberg5666]

I remember that Friday, Monday and Tuesday, the 16th, 19th, 20th of October 1987. Brilliant move on your part to wait till closing on Tuesday. The Dow as I recall was down 120 Friday, and 508 Monday. Tuesday it roared back up. Great move.

[@DanielRiveroPadilla]

In the beginning I wanted to call out the fact that this video was made after Peter did an analysis on the movie, which is amazing and I recommend watching it, but after the explanations I understood this video has a different vibe. The only complain by the end of the video is the lack of closure. There isn't a summary that will bring up all the lessons learned from the movie.

[@baran5965]

Congratulations on having George. I've been following your channel for a long time, and I appreciate that you are one of the few people on this platform that just give solid, to-the-book advice. Cheers.

[@leebrock4783]

Happy birthday George. And you don't have to thank anyone for watching your vids. I can literally count the honest youtubers that I trust on one hand, and you're one of them. Congrats.

[@daiheadjai]

So glad you reviewed this movie (I thought it was more grounded than The Big Short), and congratulations on the new addition to the Bagel family!

[@elthionel]

As someone who worked in the finance sector during this era, Margin Call absolutely reflects the mood and how companies behaved during this time. Especially the sell off and subsequent commercial paper crisis. It feels more authentic to me than The Big Short, even if The Big Short does drama well and communicates the underlying market issue in more detail.

[@1greenMitsi]

The big short was just through the Hedgefund lense, margin call the banks. I enjoyed both perspectives

[@Banzai51]

@@elthionel Exactly. I tell my relatives if they want an overview of why things crashed, watch The Big Short. If they want to know what it was like working on the inside while it was happening, watch Margin Call.

[@maestromecanico597]

Very, very well done. I saw this flick at the Burns’ Film Center surrounded by more than a few financial types. The general consensus: it was simplified but accurate.

[@profdc9501]

At the beginning of the movie, it is striking how Sam is weeping over his dying dog while his traders are being fired, after which he gives a rousing speech to the remaining traders. It sets the tone for the rest of the movie, that every person involved in the firm cares only about themselves, and what happens to their coworkers, trading partners, or the public is of no consequence. There's a quote from Wall Street: "and if you need a friend, get a dog," which here shows for all of their wealth, just how alone and friendless these traders are. It is portrayed that for all their wealth, the traders don't seem very happy, and that no matter how much they make, there is never enough, and always more things to be coveted and that they are never satisfied comparing themselves to their peers. For all their machinations, they are left unhappy burying a dead dog.

[@terenzo50]

Best scene for me was Stanley Tucci sitting on his stoop talking about his character's earlier life building a bridge and what it accomplished for the world.

[@MC-gj8fg]

I was in the mortgage business back in the day. At that time a 620 credit score was considered AAA for a conventional 30 yr fixed loan, which was perhaps a bit risky, but 620 scores were almost certainly going to pay even if they got a bit sloppy. It was DTI ratios (debt to income) that had gotten out of hand. I would regularly see 60%+ back end ratios ( income vs all customer's debt including the prospective new home) where these people were clearly house poor. A reasonable back end ratio should max out around 36%. The issue mentioned in this video is that rates went up, but adjustable rate mortgages where this would become a factor for someone already buried in their home were relatively uncommon in my company. I don't see how the fed raising rates would create any additional financial imposition on most house poor home owners. They were in fixed rate assets. That said, if you had a higher score you could be approved for loans where they didn't even bother to verify your income so DTI became irrelevant and were probably sometimes 70%+ using these products. One would expect that someone with a 720 score wouldn't do something so compromising as to buy insanely more home than they could possibly afford, but I guess enough delusional thinking paired with the salesmanship from real estate agents and loan officers could convince people of anything.

[@CheckThisOut77]

People bought more house than they could afford because: 1. Prices were going up, up, up. 2. They assumed their house’s value could not drop. 3. Future increases in the adjustable-rate mortgages would be slight. ‘Wrong on all three.

[@midimusicforever]

I like the idea of them making the movie accurate instead of absurd.

[@gravydude1957]

well put together video and thx for the little tidbits. I was surprised at how well this movie was put together and the cast they assembled that I feel all played their characters very well. They have to spice up these financial movies appeal and I think Margin Call does that really well with building tension and basically these Wall Street types excepting they may crash the market to save the company or at least make money. Hope u do more of these videos

[@marclederman6206]

Just coming to your channel and really enjoy the content. Oh, and a belated congratulations on the birth of your baby. Hopefully you and Mrs. Bagel have been able to get some sleep by now. Keep up the great work!

[@khong6460]

Congrats on the second baby ! I knew Blinkist would be one of the things you needed to mention at the end, but defo didn't expect that! Happy for you !

[@noreenryan7487]

This is just a brilliant film and thank you for your indept explanation of the jargon used. Surperd acting by all.

[@tchaffman]

Hey Richard - A quick note at 13:54 that the piece played is not Chopin's Funeral March (Sonata No. 2 in B-flat Minor, Op. 35, Mov. 3) but it's actually Chopin's Raindrop Prelude in D-flat Major (Op. 28 No. 15). Similar key and vibes for sure - I would've believed you if I wasn't playing all 24 preludes right now lol! Loved the video though - I rewatched the movie after watching your analysis and appreciated having a bit more context. Thanks!

[@nabney7777]

I was about to write this myself. But can also add that this segment (the middle section of the prelude) was supposedly inspired by a funeral procession with monks on Mallorca (where Chopin wrote the preludes).

[@jdrancho1864]

Aside from the stumble of the gate, a exceedingly concise and transparent explanation of the movie's topic. One of the better ones on Ytube.

[@mpempy]

Congratz and welcome to your newest familiy member! Thanks for all the content you create. All the best!

[@sheliaswelttk2535]

I finally decided to do the responsible thing and buy in at the end of 2021, right at the peak of the market and only in "safe" index funds. Now I'm down 20% for the year. It's nice to get immediately punished for doing what you're supposed to be doing. I'm staying in it, and dollar cost averaging at a low level, but this is still painful. where can we put our investment money outside of the financial market, I have $45,000 left?

[@tomjason2495]

It’s always painful and you’ll think you’ve had the worse luck but as more time passes and you average in you’ll keep getting better. Also, call on a professional so you don't get ripped off on the market. They provide personalized advice to individuals based on their risk appetite, placing them among the best of the best. There are bad ones, but some with good track records can be very good.

[@williamskohler8337]

@@davidnewbury1721

[@williamskohler8337]

@@davidnewbury1721

[@gabriellewilson5625]

@@williamskohler8337 I’ve actually also been looking into advisors lately, The crazy part is that advisors are probably outperforming the market and raising good returns. I will give this a look up, lucky i stumbled on this thread..

[@Ahitoshit]

Sit tight, invest more now, give it 3-years and you're gonna be up 20% From your original investment

[@wittyroark]

This is a highly rewatchable movie. The actors are amazing, even the minor roles one.

[@ovidiusm7710]

Congrats on the baby

[@Harshit-Sharma08]

So many in-depth explanations! Really a gem for people who want to learn about the finance industry, especially of the US. Keep up the great work!!

[@chetanchavan7600]

The one reason i watch this channel because this person explains everything so clearly and vividly. Thanks for making such educational videos would love to see more. I never understood what was a CDO, Swaps but after this video i won't say this. Thanks again @the plain bagel

[@tom4156]

Terrific job as usual, Richard. Great stuff!

[@joelslavis]

This type of video is extremely helpful. Thank you for your explanation, and if you could do more of these types of video, explaining the downside of the market

[@stevenlasat4106]

Great review! I love the movie, but it was far more technical than for instance the Big Short. The cast of Margin Call is phenomenal… And congratulations on your second baby! :)

[@xavidub]

I love this film. Everyone is good in it. Deserves much more love. My favourite scene is Stanley Tucci explaining how the bridge he built saved commuters millions of hours in their cars, and Paul Bettany says "maybe they liked driving?"

[@prasoongupta12]

I have been honestly waiting for this video for years.

[@simplelife4213]

Congratz on your 2nd baby! And you did an amazing job explain the movie and the financial jargons. Have a like

[@franticzenster8140]

16:34 Sam Rogers' dog represents his dying conscience. When his dog finally dies at the end, his conscience is fully dead.

[@DominicNJ73]

So, first off, you are the most investment analyst looking investment analyst I've ever seen...LOL But in all seriousness, thanks for the breakdown. I've been trying to wrap my head around the 2008 crash ever since it happened and as I watch these types of videos over time it makes more and more sense to me as I can piece it together in a way that makes sense to me.

[@jb_makesgames2264]

Well done. I used to work in risk and this movie is very factual and true. It's one of my favorites.

[@davids3313]

Thanks for the review, helped me understand the movie much better. This movie reminds me of someone I had a quick conversation with. She was excited about her new job, moving from engineer at NASA to gas trader with Enron. That was back about 6 months to a year before Enron fell. Sad.

[@riffrff]

great video and many many congratulations for the baby!

[@markmccormack1796]

Good explanation, relatively easy to understand what was happening. I wish you went into the real life consequences that happened due to these people.

[@joechang8696]

There is one thing none these movies mentioned. The Lehman strategy of highly leveraged mortgages with insurance done at moderate levels was viable (based on AIG maintaining their rating). But pushed too far, it distorted the entire real estate market. Around 09 or so, my taxi driver in DC told me he had 6 condo's in 08. When the market started turning down, he could have exited with 1 condo (largely paid?) but he hoped the situation would recover, and he lost all of them.

[@mechanomics2649]

The Big Short addresses this.

[@Eric-ku1bq]

Margin call was a great movie and Wolf of Wall Street was very entertaining. Love to see you explaining all those nuances!

[@alastairford7145]

This is one of my favourite movies, and bears watching a few times. Thanks for your explanations and contextualisation.

[@utunga]

Great summary thanks. Inspired me to rewatch it. I think, despite the names and such this is definitely about Goldman Sachs. They basically did exactly this. The only big broker dealer to escape *relatively* unscathed and all because - as in this movie - they were the ones to kick it all off. They were first out the door. And it got much much much worse after this.

[@corvus8000]

Yeah, my friends and I saw a lot of Goldman Sachs in it as well, main difference though seems to be the Lehman like “we gotta sell it all now” timeline whereas Goldman spent weeks resetting their position and also that in margin call they’re only selling/purging assets while Goldman got to a *net* non-losing position by both selling the junk assets they could and taking out credit default swaps on others

[@samsonsoturian6013]

People quote Wolf of Wall Street because he's the trader they wish was the norm. People don't quote Margin Call because they're the traders that actually exist.

[@MrSupernova111]

Finance is boring by nature. People don't want reality. They want fantasy and that's what they get with the Wolf of Wall Street.

[@samsonsoturian6013]

@@MrSupernova111 Except that movie ended with the protagonist in prison.

[@MrSupernova111]

@@samsonsoturian6013 . Where is he now? Free and still scamming people.

[@sleepless2541]

@@MrSupernova111 and millions in debt, that too

[@samsonsoturian6013]

@@MrSupernova111 that's silly. You deliberately imply he acted with impunity when we only know of his scheme because he went to prison and (nominally) got reformed. I did here he's in there with those crypto bros, unfortunately. We'll see him again soon.

[@tiredsentinel1724]

Thanks for providing an “inside” explanation into what happened.

[@jlb122587]

I just watched Margin Call this morning then came across this video this evening. I enjoyed the movie but must admit I struggled to grasp some of the technical terms they were throwing around. INterestingly enough, I too had the same question of what is a Margin Call and when did it happen in the movie. Good to know I didn't miss it!

[@athelasayb]

Very entertaining thank you! Some claim that this was what happened in Goldman, as they survived (judging by the CEOs comments in the restaurant scene, the guys here seems to have survived)

[@Thatscrazyyourecrazy]

I heard Merrill not GS 😅

[@1Zeus1]

Margin Call is probably one my favorite movies and your analysis of it is great. As always very nicely explained. I was quite interested in the part where Sam tells the traders “no swaps”. Do you happen to have a video where you go into swaps a little deeper? If not it would be a great idea for a future video!

[@EddingDefault]

Patrick Boyle has a few videos on swaps, as part of his series on credit derivatives. You can find a playlist about swaps on his channel

[@TheLaurentDupuis]

No counterparty risk.

[@Dandhk]

Actually, this part of the explanation was not entirely accurate. “Swaps” in the context that Sam uses means exchanging one security for another. Sam wants to reduce risk; selling a security but buying another security (and netting off the cash difference between the values), presumably of a similar profile, doesn’t reduce risk, or at least not as much as an outright sale for cash. Hence, “no swaps”.

[@camiloguzman1801]

Men, Great job from You and your team, a flawless analysis of this finance classic.

[@NickPeters-zc2ms]

Enjoyed the video. Have seen Margin Call a few times, each time understanding a little more. Seeing the ruthlessness of good employees getting canned is never an easy watch, the movie captured the emotion of the moment(s) really well. There's always another crisis around the corner, most recently the crypto one that could in turn push a recession nearer to the edge, if it's not already in-play as I speak. If anyone is on the receiving end of a redundancy in the coming months/years, just remember things will improve/get better, even though it might not feel like it at the time.

[@Billwzw]

I think this is a great movie to understand Wall Street thinking. A shoutout to some of the lesser known, but still great dialog, such as : Will Emerson on making 2.5 million - "It goes quite quickly. You know, you learn to spend what's in your pocket." and Will Emerson again "You know, the funny thing is, tomorrow if all of this goes tits up they're gonna crucify us for being too reckless but if we're wrong, and everything gets back on track? Well then, the same people are gonna laugh till they piss their pants cause we're gonna all look like the biggest pussies God ever let through the door. "

[@Ratstranger]

"It's just going to suck for a while and then you'll be fine" Will is absolute beast. Paul Bettany nailed it.

[@Travie68]

This was such a good video! Keep it up bro! Youre doing amazing

[@michaelswami]

I loved the video and congrats on the family update.

[@Viviko]

Good job. I actually wasn’t aware why they wanted Eric Dale so badly. I kinda thought they wanted him to help deal with the situation or something. Didn’t think they just wanted him to keep his mouth shut.

[@earthling_parth]

True, I had the same notion 😅

[@dyingearth]

They casually told him that they can hold up his severance and health insurance if he doesn't play ball. As it is, he's getting paid millions for doing nothing in that room with the scapegoat.

[@Bravid_2.0]

I've been looking forward to your thoughts on this. One of my favorite movies. Very cool.

[@fitfirst4468]

gay

[@Bravid_2.0]

@@fitfirst4468 lol

[@The_Couch_Critic]

Great job, this is my first time to your channel and I'm impressed...and congratulations for your second baby...

[@JimmieCochran]

dude your videos explain this stuff so well!! Great job and thanks

[@deidryt9944]

I always thought the movie was based upon Goldman Sachs rather than Lehman Bros. due to the company being the first bank to move off their position.

[@simonxag]

Lehman Brothers no longer exist. They cannot sue. They cannot cause KZbin to suppress a video.

[@thatguyshaq7053]

Congrats on the newborn and thanks for this review.

[@fredbloggs5902]

It’s worth mentioning that the casting and acting in ‘Margin Call’ is excellent.

[@flavioralves]

This Movie is higly underrated,but it's great.i'm not a finances guy,but i don't know what is about this movie,but i believe i''ve watched it about 3 or 4 times already,and somehow i've stubbled on this video explaining terms and the plot itself.Great work man! I'm starting to see the others videos about the big short and others!! Keep up the great work!

[@_Thomas_69]

Not related to the video ,but do you think you will ever do another QNA livestream? The last one was very informational.

[@gh8066]

as someone who watched this movie several times and thoroughly enjoyed the performance of the cast, this was a very good explanation and summary

[@lokyinphotography]

Congratulation to your new born baby, really love your videos. Hope you rest well.

[@abdulrafaykhan]

Awesome video!! Was waiting for a very long time for this! 😊 Congrats on the new comer!! 😇😇

[@huaijiutv]

Hi Great Analysis on this film. Could you do a series on the comic book "Largo Winch" please? (Not the movie, but the comics) The publications spanned across a decade but it covered pretty much all aspects of the coporate and financial world(some are fictional). And there's other titles like "Hedge Fund" and "Shadow Banking" with similar topics, if you really wanna go into it. Would love to hear your insights on those titles. Thanks!

[@mtunofun1]

“There has always been and always will be the same percentage of winners and losers, happy farts and sad sacks, fat cats and starving dogs in this world.”

[@samsonsoturian6013]

That's so true there's actually centuries of historic data behind it. The biggest land lord in London are these nobles who received a charter by William the Conqueror in the 11th century. They pointed out that housing costs is always a multiple of income and regardless the era people of a similar status in life lived in similar houses. Likewise, the amount of gold that paid a Roman soldier is about the same that would pay an American soldier, although industrialization and automation has brought down the cost of most basic goods and services.

[@jayd016]

Despite the absence of the term "Margin Call" in the movie, the entire concept was a big margin call anyway... If a firm is in a negative liquidity position, and since there were counterparties to the securities on their balance sheet that were imploding, by definition it was a margin call. If the call is not satisfied, they meet Mr. Liquidation - the result of not meeting "The Call..."

[@BeeeHonest]

Really good explanation. Make everything more sense, thank you.

[@a.e.9445]

Correction: VaR shows the MINIMUM loss that is expected over a period of time, not the maximum. A 5% weekly VaR of $10m means that the company expects to lose AT LEAST $10m, 5% of the time over a week.

[@sebastiandonickler.6715]

No, it is the maximum expected loss under normal conditions with a given confidence level. And the confidence level means in your example, that 95% of the weeks will show a loss below that amount, and that a 5% of the weeks can go over that amount but the VaR cannot tell you how much or how bad it can be, to see how bad you can use a measurement call short fall. Hope it helps you clarify the concept.

[@a.e.9445]

@@sebastiandonickler.6715 You are saying the same thing as me. 5% of the time the loss exceeds $10m in my example. The $10m is not the maximum loss but the minimum loss experienced 5% of the time over the referenced time frame. To find the average loss after the VaR is triggered, we can use cVaR, which takes the average of VaRs from a historical pov.

[@a.e.9445]

@@sebastiandonickler.6715 I now understand what you mean. You consider the 95% as 'normal conditions', so the expected loss during those times will not exceed 5%. Same thing from a different perspective.

[@SmithCommaBenjamin]

I loved the movie, and how it actually portrayed the CEO as a great leader who made the best decision he could with the information he had, as well conducting his company with an iron fist, trying to be just the entire time. The monolog of "why he makes the big bucks" is so good. It's his job to listen to the music and know when it starts and stops, and all anyone can do is survive. He's a product of his time in the industry, and has been formed by countless ups and downs over the decades

[@kunwoododd2154]

I used to think that as well about the CEO, but on closer inspection there are lots of signs that the top three executives knew for a year about the risk of their products and schemed together to hide it from the rest of the company. The CEO knows the music because he already knew for a year that this was going to happen. But now that the rest of the company figured it out he knows the whole world will find out too and he needs to go in damage control mode.

[@danieltodorov7753]

You completely missed the point.

[@ale_xsuisse]

THANK YOU FOR UR VIDEO! This has been my favorite finance movie and watch it at least once a month. I am a seven figure investor but never understood the jargon of the movie. Thanks for the class...I'm going to watch the movie right now with a new understanding!!!

[@ale_xsuisse]

We're the bonuses offered to the staff for unloading the bad debt realistic?

[@earthling_parth]

This way really well explained Richard! Thank you.

[@peter_ausnit]

Wonderful video, Richard. What do you think about the morality of what went on in Margin Call? The movie implied that Tuld was doing something wrong by selling. I thought Tuld defended himself well and pointed out that these were fair prices to willing buyers. What do you think?

[@Mr1995Musicman]

I agree, I think this movie did a particularly good job showing the gray of the situation. What they are doing isn't good and will hurt people, and they don't seem to care that much, but also what other choice do they have? If they did otherwise, they wouldn't be saving anyone and just torpedoing themselves, so maybe a lot of the callous attitude is somewhat justified

[@JanBruunAndersen]

Morality had very little to do in a situation like this. If the trading firm is publicly traded, management actually has a legal fiduciary duty to do what serves the shareholders best. Trying to act morally, trying to protect 3rd parties, the economy, or the country, will expose them to lawsuits, fines, and maybe jail time.

[@dyingearth]

@@JanBruunAndersen They're also NOT breaking any law. At the executive meeting, Sam Rogers warn that by the afternoon, SEC would be trying to slow them down, but Legal did said they can slow but not stop their fire sale.