Video [3:47 min]: Margin Call and BUBBLES...

Synopsis: Margin Call tells the story of a roughly 24-hour period at a fictional investment bank on the eve of the 2008 financial collapse. In a sequence of events that mirrors what really must have happened at several real-world banks, a lowly junior analyst discovers that his firm’s dangerously high-risk exposure to mortgage-backed securities could bankrupt the entire company and alarm bells ring right up the chain of command in an effort to avert disaster before it’s too late.

The next video - "The 1929 Crash Explained Without Panic" is an excellent film and if you were to watch only one video for this entire course - this is the video I'd recommend - so please watch it.

Margin Call examines the thoughts and motivations of individuals, instead of lumping everyone responsible for the disaster into some monolithic, single-minded group. Even when the CEO of the film’s fictional investment bank makes the decision to sell all the company’s toxic assets, an act that sets in motion the complete collapse of the entire American financial system, it's an understandable and difficult, choice. What else can the CEO do? If he doesn’t sell first and start the catastrophe, someone else will. The outcome is inevitable.

That is the conundrum of what economists call a collective action problem. If no individual person or firm’s actions can make a difference, the only reasonable thing to do is assume everyone else will follow their most selfish (and possibly destructive) instincts. Everyone has an incentive to follow the worst path they suspect others of also doing so. This explains not only why bubbles burst, but also why they build up in the first place.

Why did the investment banks start packaging and selling huge amounts of the mortgage-backed securities [MBS] that eventually triggered the crisis?

What ethical actions could one of the traders taken? What would the consequences have been?