The movie “Margin Call,” which opened this past weekend, advertises that it was inspired by a true story. 

The fictional head of a Wall Street firm “John Tuld” (a composite character resembling Merrill Lynch’s John Thain and Lehman Brothers’ Dick Fuld and played by the wonderfully villainous Jeremy Irons) is told that the firm is drowning in toxic mortgage-backed securities. Tuld orders his traders to rid the firm’s balance sheet of the junk by dumping it on unsuspecting counterparties and customers. 

Tuld is told: “You’re selling something you know has no value.” He replies: “Be first, be smarter or cheat.” 

As the New York Times review of the movie noted: “There are no hissable villains here, no operatic speeches condemning or celebrating greed. Just a bunch of guys, and one woman, Demi Moore, in well tailored clothes and a state of quiet panic trying to save themselves from a global catastrophe of their own making.” 

The movie doesn’t inspire fury, as documentaries about the financial crisis do, but “rather a mix of dread, disgust, pity and confusion,” the Times said. 

Those powerful emotions inspire gut-churning questions for the audience: Is this how Lehman Brothers crumbled? Is this how Merrill was rescued from ruin by Bank of America? Are these just thinly veiled depictions of Goldman Sachs, Citigroup and JP Morgan, who have paid combined fines of over $1 billion for betting against their clients while selling them these same worthless securities? 

Unfortunately for investors, the answer is “yes” to all of the above. 

As the Times correctly noted, one of the running jokes in “Margin Call” is that the higher up an executive is on the corporate totem pole, the less likely he is to understand how the firm and its traders cook up the toxic brew of mortgage-backed securities. Their ignorance seems almost a point of pride for the executives. Various lords of Wall Street tell us, “I don’t get any of this stuff,” at key points throughout the film. 

That ignorance will be on view again if they make a horrifying sequel. Call it “Bailout,” where the plotline has taxpayers footing the bill to save risk-taking firms that were swirling the drain. And no one—not even Jeremy Irons—goes to jail. 

The movie hasn’t even been written, and already I’m filled with dread, disgust, pity and confusion. 

Interview




Mike Mayo on Volker Rule and Margin Call