Problems- From a Finance Student

I tend to agree with some of the points you make (Finance Student) but only in part. I also do think there are definitely a few 'flaws' in the movie and its depiction of the Street.

I, too, found it a bit absurd that Will and Sam didn't really (or at minimum, seemingly) understand the risk management reporting, VaR and deltas of their book. Will was a senior trader managing a large daily pad--he was buying and selling risk all day. Sam was head of the entire desk (they never really specified if it was Mortgages, Structured Products -- but in any case, a managing director senior to Sam -- and should be a part of risk management meetings, understanding desk p&l, etc. I think one thing they kind of glossed over (among many) is that they didn't separate out distinct roles for sales vs. trading on a desk...). This was kind of irksome when Will goes direct w/ the Street trying to unwind his book rather than using the broker market and/or having sales people push accounts (HFs, asset managers, etc). Minor technical detail but a bit irksome.

I actually do think Jared Cohen (Simon Baker) and certainly Tuld (J. Irons) not knowing is reasonable to a degree. Actually, Jeremy Iron's line about explaining it to him like a child and that how he got to where he was was probably one of the better lines and sharp moments in the movie, IMO. Also, Tuld very easily could have risen to the ranks from IBD or even if s&t could have been equities, etc....A lot of guys in other products, but especially more traditional markets like equities or futures might not understand structured correlation desks and tranched risk.

I also think it is unlikely that Sam/Will had a CFA and even if they did it is largely irrelevant to the problems they face. CFA is more common for equity research analysts and not as common on sales/trading desks. Its focus on accounting, financial statements and asset management is much more so than on risk on a mortgage book or hedging delta, gamma/convexity exposure, etc. Also, you can actually get it in <2 years if you run the table Dec, June, June cycle.

Good luck in your 'studies'...

Traders may be CFAs but its probably less than 40% have this designation. The CFA is more common among research analysts and asset managers.

The senior guys are sharp and know how to run the business, they know the forest but over time it becomes inefficient for them to know the trees. In other words they can read a presentation, but not necessarily navigae the latest software showing some risk model, that is what the juniors "who work longer hours" are for. This is realistic, notice how when the presentation was printed up, the exec committee was very on the ball.

CEOs like to play dumb, and they are social they are not going to sit there and read a presentation when they can talk to you. Plus he wasn't showing his full hand, notice that he knew exactly what was going on without opening the presentation, and was asking leading questions. Also he most likely, already had inside information which is why he was so forceful in his decision.

the writers were not fools at all... having been and known a number of people like Sam and Will, I can tell you that they definitely know the forest better than the trees, typically do not have CFAs, their analysts are continually creating new reporting mechanisms utilizing new technologies that present the info in new visual ways...

As the analytical techniques are developed you have programmatic creep... the tools are developed by CFAs that used to be rocket scientists... they poor over them for days week and months, slowly morph them, then present them to management who understand the business in a big way, but have never looked at these new tools before and have to be led in.

From my experience I found the movie to be spot on.... Will and Sam were highly effective management that understood the biz, certainly better than the analysts, but were presented with new ways of looking at the biz that were not easily digestible....

I remember having the same exact thoughts as you when I was in grad school... and I ended up be continually surprised by the management savvy of people who couldn't keep up with the reporting I was showing them... then I got enough experience to be one of them and it all made sense..

The movie was spot on, don't underestimate these guys when you get out there, and good luck in your career....

I work in the financial field and I can tell you this: the people at the top now exactly WHAT they're selling, but have a limited knowledge of HOW it works. The problem is that they might have graduated in the field, but the products keep changing and a couple of crash courses will not fix what you lack in hands on experience (which the people on the workfloor do have).

This chick Marla Singer did NOT have testicular cancer.

This is not at all a glaring flaw. All the exotic debt instruments, CDOS, MBS's etc, are incredibly difficult to understand. At the first big financial briefing at the time of the Lehman collapse when this film is set, Ben Bernanke himself asked the same questions as John Fuld asked in the film. Not one of the big snouts in the trough knew.

The whole derivatives market is constructed in such a way as to be all but incomprehensible. If it was easy no one would have undertaken the risks - don't forget they were talking about a potential exposure of $8 trillion. And at the moment the figures are so huge that although nobody can put a precise value on the potential debt it is considered that it could be anything up to $150 trillion, or in other words many times more than the global economy for many years.

It is absolutely not a question of the heads of these institutions being incompetent. They may be many things, but stupid is not one of them. You don't need to know the intricacies of computer engineering to use one.

I'm writing from a slightly different perspective and probably thus a different opinion. I have an MBA from one of the best business schools in the world (once #1 on WSJ rankings) and have a designation in insurance. I worked in insurance for 10+ years, but also in many other fields. First, in MY experience, the people at the worker bee level are the ones who know what's going on, as in the movie. As you go up the ranks of management, the level of ignorance increases exponentially. Managers make decisions based on whims, misinformation, and sexual attraction. Very rarely does objective goal-oriented decision-making rear its ugly head. If you recall 2007-08, that was exactly the problem: the largest banks in the world were betting their very existence on products they didn't understand. Do you REALLY think they would have bought this stuff if they really understood what it was??? No way. They were clueless. Secondly, the Demi Moore character had it just right—she pointed out the risks and problems in meetings and was ignored. This has happened to me too often to count. Management doesn't want to hear the truth, they want subordinates to carry out their crazy half-baked ideas. And of course in the end, Demi was blamed, as non-team players usually are, regardless of whether they were right or not. I personally believe that in each of these banks there were meetings where some brave soul put up his/her hand and said, "Wait a minute. This is a crappy investment. If things head south, we're totally screwed." But they were ignored and probably fired. Just like 9/11 or the Benie Madoff mess. The lower ranks in the FBI and SEC were clamoring for permission to investigate, and it was the bureaucratic upper management that ignored or stopped them. It wasn't that NO ONE knew what was going on. A lot of people knew. It's just that no one in power bothered to listen. A third point is the ethical dilemmas posed to various characters at various stages. A constant in my entire working life, from high school teaching through dealing with companies worth almost a billion dollars, is the compromises you have to make with your own sense of right and wrong. You're constantly calculating how much it takes for you to sell out. Do you inform on a colleague who is cheating? What if your company refuses to re-call a vaccine they know is ineffective? What if your company is actively de-frauding customers? I've been in all these situations, and a lot more. If standing on principal causes almost four years of unemployment, you can bet the next time you are faced with an ethical decision the bar is a lot lower. And for most people, there is no bar at all. Anything goes. Thus our current situation.

A few more comments the next day...twenty years ago I dealt with the insolvencies of life & health insurance companies. Insurance companies, by state law, are required to hold certain classes of assets as reserves. A company in Louisiana (I can't remember the name offhand) held, as part of its assets, buildings owned by members of its board (this is illegal in itself). The real problem, however, was the inflated value of the buildings. The board members simply sold the building multiple times among themselves at increasing prices ($1 million, $5 million, $10 million, etc.) until the insurance company bought it for even more (so in other words, the "real" cost of the building might have been $1 millon, but the insurance company eventually bought it for $20 million). So the directors all got rich and the company eventually became insolvent because of their greed. All illegal. Do you honestly think that NO ONE in that company noticed what was going on? Sure they did.

Another company is really my favorite. Guaranty Security Trust, in Jacksonville Fla. Two stockbrokers from Louisville KY, of all places, bought the company (using credit, naturally), and immediately put what must have been a pre-conceived plan into action. Too many details to go into here. You can look it up! But part of it was using junk bonds as assets (illegal...) which they got around by having Merrill Lynch buy the junk bonds back in December (when the required statements were created) and sell them back to them at a pre-determined price (illegal, of course) in Jan. You might say to yourself, "Where were the auditors?" In the company's back pocket, that's where. Coopers & Lybrand. When they objected to the illegal transaction, the company threatened to get a different auditor. The Coopers partner played ball and approved the transactions. Later the national Coopers firm disavowed the partner in Jacksonville. But that's not how it works...you can't simply disown a partner as a rogue player. Another nifty touch with Guaranty Security Trust was that they owned several companies outright--Chautauqua Airlines, Spinning Jenny clothing stores, a plastics company in Pittsburgh...and my personal favorite, a chain of strip clubs in Florida. All illegal. They weren't allowed to own companies. How did they do it? Easy. For the Spinning Jenny, for example, the guys brought in the skipper of their private yacht in the Caribbean and sold him the company for $1...of course including a clause that they could buy it back anytime they wanted for $1. Then the insurance company they controlled made loans to Spinning Jenny (the loans = pocket money for the guys...) that they counted as assets on the insurance company's books. Really creative. Capitalism at its best.

Are you kidding me here people?

1. Who cares who you are.

2. The film made it pretty clear that the chief knew very well what was going on. They were just playing "golden retrievers".

Seems that finance education doesn't provide ability to concentrate nor brains. Maybe just a knowledge of cool acronyms.