This weekend, I saw Margin Call on DVD. Jeremy Irons plays a CEO of a small Goldman Sachs like company.
A young analyst at the firm discovers that their highly-leveraged, massive mortgage bets are based on a VAR formula that’s flawed. It failed to consider volatility ranges beyond historical distributions. With the market swinging, his calculations show a 25% move in the underlying holdings will wipe the company out and then some.
Irons ends up giving a speech to Kevin Spacey towards the end of the film — no spoilers here — its just a fascinating digression, that goes something like this:
“Its just money; its made up. Pieces of paper with pictures on it so we don’t have to kill each other just to get something to eat. It’s not wrong. And it’s certainly no different today than its ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987 — Jesus, didn’t that fuck up me up good — 92, 97, 2000 and whatever we want to call this .
It’s all just the same thing over and over; we can’t help ourselves. And you and I can’t control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong.
And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there’s ever been. But the percentages-they stay exactly the same.”