I watched the film Margin Call the other night on my own, when everyone else was in bed.
I've been recommended to me by Grace, my eldest, based around my love of The Big Short, and also my fascination with what happened in the financial crash of 2008-2009.
Obviously, I lived through that crash; in fact, I just started my own two businesses for the first time ever in 2008. Exactly, and almost right when the markets entirely collapsed.
I have a very simple view of economics, although I'm interested in economics in a deeper way, but in essence, economics is really quite simple.
You don't have enough money, you're broke.
In the crash of 2008/9, basically what happened was the Ponzi scheme collapsed in on itself, and very, very few people were left holding any money at the top. In a very short space of time, they wiped out $3 trillion off the world economy; it was probably much more than that in the end, and the government bailout of banks (another Ponzi scheme) was necessary to make sure financial markets didn't collapse.
In my world, what happened is that one guy loaned to another guy, who loaned to another guy, who loaned to another guy, who loaned to another guy, and when everything got called in, there was someone left standing at the end who had no money, because it wasn't there, and it collapsed.
The problem with Ponzi schemes like this is that they're made in such a way that we feel stupid and we don't want to ask the questions, because we're scoffed at and laughed at, and people say, “Well, you don't get it”.
But the characters in the film Margin Call are fantastic at explaining how this works. To my mind, the best character is the one played by Jeremy Irons, who's head of the financial house, who are working on the Mortgage products which lead to the economy collapsing.
In effect, they've been selling these products for years and years, have bundled different graded mortgages together, which are absolute trash (think of the Big Short).
What they do when they realise that everything is going under is they sell first, and Jeremy Irons talks about the only way to make money in this business, which is to be first, to be smarter or to cheat. He says that he doesn't cheat, so he intends to be first, and what they do over a morning is sell billions and billions and billions of dollars of these products, which they know are worthless to people who don't understand.
Straight after that, all trust was burned, and they collapsed, but they hadn't lost the money; other people had lost the money.
The lesson here is to believe yourself in the fact that the Ponzi scheme exists, and also that it doesn't work.
My father-in-law always used to say to me, “If it looks too good to be true, it probably is”.
And so in my world, there are Ponzi schemes everywhere, and there are characters like Jeremy Irons who believe that they are cleverer than me, who are going to make the money now, and to hell with everyone else, but in the end, that is the most soulless way to live. When you're sat there with the big walls around your house (I absolutely know a dentist like this who did this), trapped in there with him and his wife, very few friends, if any, and all the time in the world to count the money that he will never spend (he doesn't even have children).
Better to build something worthwhile where everybody wins, isn't it?
That's what Adam Smith's capitalism was about, not many people understand that anymore, because they've changed their view of what capitalism is, but they're wrong.
Blog Post Number - 4460
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