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RISK MANAGEMENT
Marginal Movie Offers Risk Reminder
Posted by Sarah Johnson | CFO.com | US
October 27, 2011 11:00 AM ET

Anyone responsible for risk management at their companies may want to skip the new movie Margin Call -- especially if they're seeking cinematic escapism. Their real-life expertise and experiences will make the financial thriller hard to watch. Complex subjects are rolled into simplified statements and f-bombs to get across the message that the senior executives at an investment bank reminiscent of Lehman Brothers are in serious trouble, both careerwise and, in some cases, moralewise. (Various movie critics have characterized the characters' constant demand for explanations in plain English as a running gag. More likely, these moments are an acknowledgement by the filmmakers that yes, they know this stuff is complicated and they're afraid of making you nod off with buttered popcorn spilling out of your mouth.)

It's a tough story to sell. The film, released last weekend on a small number of screens, covers just over 24 hours of time, starting with a huge layoff and a junior risk manager's discovery that he works at a firm whose out-there, worst-case-scenario model has just about come true. The bank is sitting on toxic, mortgage-related assets, and the outside world hasn't yet got a clue. If the i-bank doesn't offload the financial products within hours, its total losses will outweigh its total market capitalization. We all know how this story ends.

The interesting parts come when these characters interact throughout the night, mainly because the actors playing them are either likable or compelling (the cast includes Stanley Tucci, Kevin Spacey, Paul Bettany, Demi Moore, and Jeremy Irons). It's easy to get sucked into the dynamics between managers and their higher-ups and wonder how they all got to this point. In this way, the movie surpasses HBO's Too Big to Fail, which was even more ambitious by trying to address as many angles of the financial crisis as possible. In Margin Call, apparently, no one person is to blame for this huge mess. Rather, most everyone comes across as a villain in some way.

At the same time, the movie will be frustrating for real-life executives and risk managers. Beyond the all-too-recent familiarity of the plot is the realization that, most likely, not much has changed over the past three years. "It's still the case that bankers are not measuring risk properly," says Sim Segal, a member of the Society of Actuaries and the president of SimErgy Consulting, which specializes in enterprise risk management. Segal, who was frustrated by parts of the movie, says financial firms are not taking a big-picture view of their risk exposures. And few if any at the trading level are expected to identify the risks they're taking, never mind measure them. As a result, firms "are not disclosing their exposures to shareholders through risk disclosures, and they're not measuring the level to which an individual trader exposes the firm to risk," Segal says. "That's why these folks are incented to take huge risks and gamble with other people's money."

Despite its faults, Margin Call offers a reminder useful to anyone, through Moore's position as chief risk officer: listen to the warning signs. And when you get them, relay that information. She pays the price for not doing so.

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