Margin Call: A Lesson For Occupy Wall Street?

Economics

 

I watched the new movie Margin Call over the weekend. Margin Call is set at a major financial institution on the day that the firm realizes that their vast holdings in subprime mortgages are essentially worthless (for a good primer on the subprime debacle and its role in creating the Great Recession, read Michael Lewis' book, The Big Short). The movie is a good little psychological drama set around the firm's decision to dump their multi-trillion dollar position in subprime mortgages onto the market in a single day, knowing that this will have a devastating effect on Wall Street, the nation and their careers. There's an interesting scene of two traders discussing what will happen shortly before trading opens on the day of their great sell-off. The more senior of the pair launches into a monologue about how as the market collapses, traders like themselves will be vilified; yet, in his mind, he and his fellow traders were merely creating the economic system that the public demanded, a system that let average Americans live well beyond their means – buying houses, cars and creature comforts they would otherwise never be able to afford. People were willing to suspend disbelief and not ask questions about how the market operated, how it could seem to create money from out of the air, so long as they were able to have this illusion of prosperity, yet now they would ask the tough questions as the wheels came off the money machine.

 

It was a wholly self-serving excuse for his firm's reckless behavior, yet like all self-serving excuses, it contains a nugget of truth. It is difficult today to find an American without some level (often some quite high level) of personal debt: mortgages, car loans, student loans, credit cards balances, and the list goes on. In fact, we are encouraged to take on debt as a way to “build our credit scores” and are told that just like cholesterol, some debt is actually good for us. The subprime mortgage situation was the natural outgrowth of our debt culture – there's no way that an $8/hr clerk at the local burger joint could buy a house without the financial trickery of a subprime mortgage. But many people who should have known better were willing to buy into the idea that they too could be a homeowner despite the reality of their personal financial situation. Coincidentally, this is also the reason why I find the political argument that Congress should run the federal budget like Americans run their household budgets ridiculous; running up a $14 trillion debt seems to be more in line with the financial behavior of Joe and Jane Public than does some mythic idea of “living within one's means” spouted by some politician.

 

Perhaps then, there is a message in Margin Call for the Occupy Wall Street protesters. Without a doubt, there are many aspects of Wall Street's daily operations to rail against – the wild disparities of wealth between the CEO class and the average citizen, the Street's animus against any type of public oversight (trust us, we know what we're doing, except when we don't as dramatized by the “flawed model” at the heart of the Margin Call collapse), and a system that puts short-term profits ahead of the long-term fiscal health of an organization; all are good elements to protest against and to demand action upon. But there is also a kernel of truth at the heart of the trader's monologue – the Wall Street structures that OWS currently protests against came about from the average American's desire to have a lifestyle they could not afford.

 

I know the counterargument will be that the financial trickery of subprime mortgages and easy credit are a tool used by the elites to perpetuate the idea that the masses can enjoy the good life as well is a way of papering over the great and growing disparities of wealth in this country, and to obscure the fact that wages for the Working Class that have remained largely stagnant for the better part of three decades now. There is some truth to that argument as well. Yet the reality of the situation is that repairing the economic damage done to the country during the laissez-faire years leading up to the Great Recession will take more than sending a few of the more reckless Wall Street traders to jail or giving haircuts to the financial packages of a few CEOs. We will have to make some fundamental changes to the core of the economic system, and to our own expectations as well. The sad truth is that not everyone can, nor should, go to college; not everyone will be able to own their own house, or for that matter their own new car; not everyone will be able to afford flat screen TVs and luxury cruise vacations. And maybe that's ok. Many members of earlier generations of Americans raised families and lived happy lives from rented apartments, never owning a car, and never vacationing abroad, yet felt their lives were rich and prosperous anyway. Perhaps our overly-materialistic mindset is in need of an adjustment.

 

Just as the environmental lobby needs to drop the pretense that we can all continue to live our energy-intensive lives fueled solely by renewable resources if the country would only get serious about “green energy” (we can't), we also need to drop the pretense that we can tweak the existing system and continue to live lives of pseudo-wealth. It can't be done without the financial slight of hand that got us into this mess in the first place. It is a difficult message to try to sell to Americans who have been raised on tales of ever-growing prosperity, but it is an important one to spread. Along with the calls for economic justice, et al., perhaps OWS should start discussing how America - and Americans - need a change of mindset as well.  

 

 

Follow Ed on Twitter @EdwardHancox

 

 

Green, Occupy Wall Street