But know that your clients will never talk to you again. But J. And there is ample evidence from the crisis to lend credence to much of his oversimplified finger-pointing. In reality, dumping massive amounts of mortgage bonds in a heartbeat before everyone else had worked out they were toxic would have been nearly impossible.
But the fictional dilemma is one worth considering — at least for the director it was. His father was a senior executive at Merrill. Opinion Updated. Imagine if Merrill had been smart like Goldman. That is the core conundrum of what economists call a collective action problem. Everyone has an incentive to follow the worst path they suspect others of following, and so it becomes a self-fulfilling prophecy. This explains not only why bubbles burst, but also why they build up in the first place.
After all, why did the big investment banks start packaging and selling huge amounts of the mortgage-backed securities that eventually triggered the crisis? Because all the other banks were doing it. Even if they thought the securities might crash at some unknowable point in the future, it would happen regardless of their own decision whether or not to get involved, and in the meantime it was their job to get the timing right for their shareholders and lock in profits before that bubble bursts.
Virtue this was not. These courses of action were logical on the individual level. The problem was that collectively they made everyone worse off. The difficult truth is that with systemic failures like the one that caused our current economic crisis there is no one to blame because everyone is to blame. The only enemy in Margin Call is the system itself.
Through our government and through our own actions in the marketplace, we all set the rules, we all took advantage of the massive expansion of cheap credit and affordable housing and ballooning asset prices, we all benefitted from the upside of the bubble, just as we are all suffering from its aftermath today. After all, if such disaster can come about even when decent people are more or less trying to do their best, then the flaws of the system must run very deep indeed.
The kind of collective action problem that brought about the financial crisis is exactly the kind of market failure where some kind of outside intervention is most appropriate and necessary—where it should be in the interest not only of the general public, but also of the banks themselves, for the government to step in and establish rules to prevent anyone from starting off a competitive cycle of ever-riskier behavior.
And indeed, the bankers seemed to agree on this: After the crisis, all the major investment banks issued multiple statements supporting a move by the federal government to impose regulatory reform. The problem arises, of course, when theory gets translated to practice. In reality, dumping massive amounts of mortgage bonds in a heartbeat before everyone else had worked out they were toxic would have been nearly impossible. But the fictional dilemma is one worth considering — at least for the director it was.
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