Problems- From a Finance Student

Dude, I'm a Finance student myself (2nd year of my MBA) and while I agree that the CEO or the HOD must understand the situation, they are not really required to really delve into it. At that higher post, you are not really supposed to know the tiny details but rather managing the people under you and making sure everyone is achieving the targets.

BTW, I'm 25 and I'm considering giving the first level of CFA next June. Have you given it?

RISE

It's fairly simple:

1) The average audience member doesn't know the terminology or the industry, so some exposition needs to occur, otherwise the audience is just going to waste 2 hours listening to people speak gibberish.

2) If you can explain a complex concept in simple language, then you actually understand the concept. It's a way to filter out the BSers and the competent people.

It's called "exposition" - it has to be explained to the audience via characters who say they require an explanation.

[deleted]

I saw their ignorance as a necessary plot device. Someone has to be stupid so that the theater audience can keep up to speed on what is happening. When the CEO wants things explained as if to a three year old, he's doing it for the benefit of those in the meeting and for the benefit of those in the audience. The writers don't stop there though. The CEO continues on to use analogies that people can understand, with the music stopping in musical chairs. The managers do the same thing as they escalate the problem.

What I found unrealistic was the way the company came to life between midnight and six a.m. I'd expect under normal conditions it would take 24 hours to implement a fire sale like that. Incidentally, most people talk about Lehman, but I recall that one big firm did liquidate its holdings in one day by surprise in Spring 2008. Just can't recall who it was.

To be honest I don't think your point has much weight because if you remember that in a scene with Irons and Spacey they refer to each other as salesmen. I have worked in a financial firm before as a consultant and in our training, I remember our division head posed us with a question which strikes me to this day. He asked what was the most important thing about being a consultant/salesmen, I replied in the class that the most important thing is the ability to be able to ANALYZE the market. He told me (the division chief) that it was the LEAST important thing to know, the most important thing is building relationships.Consultants/Brokers build the relationships and the analysts are left with the job of analyzing packages suited to the client's specific needs. Very few brokers have a CFA, I would estimate probably 10% (if that) have it. The people you mentioned specifically (Tuld, Will and Sam) are people who follow into the first Category while it is the job of Sara Robertson and people like Eric whose job is to decipher the patterns and draw projections on these packages they sell. I practiced in Canada where if you passed the CSC (Canadian Securities Course) and held a job at a financial firm (such as Investor's Group), you were authorized to sell these packages if you received the proper registration from the MFDA and other organizations (depending on how many types of products you wanted to sell), for futures and options you would have to pass the DFC(Derivatives Fundamentals Course) to sell them. None of these courses are even 5% as hard as the CFA which is more popular among analysts. Thus, the movie actually seemed very realistic to me having worked in the business for a year. You also pointed out that the Head Engineer obviously knows and fully understands engineering, but engineers don't usually become the CEO of a construction company. I loved the movie but I also understand your concerns regarding the flaws that may make it implausible.

I disagree somewhat with your point: "The HEADS of a trading floor are going to understand the business".

The problem was discovered by Risk Management. And their numbers and methodologies (eg, VaR) (RAROC) (Basel III Risk wtd capital) keep changing for different these kinds of reporting requirements: (US, Internal Performance, and BIS).

Plus, banking's a daily numbers game. I wouldn't expect the higher ups to know the intricate details of every spreadsheet that goes through every department. Yes, upper management get daily back office reports from each area, but I don't think the "keep it simple" remark is off base at all.

Not at all like say engineering or physics or the "hard sciences" where the theory is written in stone and empirical. Finance is all about variable human behavior.

Would you expect managers to know about the algorithms in HFT today?

I don't know if others have said this, (but I agree that the heads would understand the data and its implications), but it was how the writers let the audience not get lost in the complicated jargon, so they used the "dumb" heads as their proxy.