Margin Call .. Film Review

Margin Call .. Review 

Margin Call is the best imaginary behaviour of the present financial crisis. It's altogether larger to Oliver Stone's hollow Wall Street: Money Never Sleeps and in the same class as Charles Ferguson's revealing, piercingly intelligent documentary Inside Job. In fact, it stands up to comparison with the 1992 film of David Mamet's superbly dirty play Glengarry Glen Ross, which in many ways it look like, not least in containing a peerless ensemble cast that includes Kevin Spacey. Glengarry Glen Ross takes place during a couple of days in a seedy provincial branch of a national company where anxious salesmen peddle worthless real estate. Margin Call, also set over some 36 hours or so, initially appears to be located in an altogether more honourable and affluent place, the Manhattan headquarters of a respected investment bank. But the year is 2008, the sub-prime crisis is under way and except for their Hugo Boss and Armani suits and the stainless steel and plate glass skyscraper they work in, there's little to differentiate the flat workers making $1m trimmings on Wall Street from the grifters in Glengarry Glen Ross.

To turn shareholders’ wants into a drive is to be mortified of a rational confusion.  Like eating food to survive because food is necessary condition of life. But if we lived mainly to eat, making food a sole purpose of life, we would become gross. The purpose of business is not to make a profit; it’s to make profit so that the business can grow and do better in future.

The movie is as fascinating and button-holing as a first-rate thriller and starts with the company's newest round of brutal firings. One of the victims, veteran risk analyst Eric Dale (Stanley Tucci), hands over a file on which he's working to new employee Peter Sullivan (Zachary Quinto), a 29-year-old former rocket scientist now doing much the same job for a rather larger salary at the bank. What Sullivan finds in the file is a forecast of the company's future that makes a twig of explode look like a two-penny firecracker. The company has been buying and passing on worthless packages of mortgages, and it is on the brink of the biggest bank collapse of all time. As night falls, word passes up through the hierarchy from Sullivan to his slick British superior Will Emerson (Paul Bettany) and on to the head of sales Sam Rogers (Kevin Spacey), a basically decent middle-aged man whose main current problem is that his much-loved dog is dying of cancer. Rogers’s dailies back to the office to consult his boss, the cool ruthless 43-year-old Jared Cohen (Simon Baker). Not surprisingly they call in the almost God-like CEO, John Tuld (Jeremy Irons), who reaches by helicopter at midnight. His name is not entirely unlike to that of Richard Fuld, the infamous CEO of Lehman Brothers, one of the chief targets of Ferguson's Inside Job.

At this point the grey areas get darker, the ironic understatements become covered with free-floating obscenities, scapegoats find themselves risked out, the rich protect their backs and get richer, and the public gets screwed. Chandor's language is as exact and undoubted as Mamet’s; the realism never slips into cheap cynicism and, as Jean Renoir says in La Règle du jeu: "The awful thing is this. Everyone has his reasons."

The film showed the main problems of financial crisis which is happening now a days in the business industry. It also gives the opportunity to tackle the root of the main problems that cause current financial crisis. There is a lesson to learn after watching the film about how to handle businesses. Its keeps an audience thinking and assuming their own opinion about what is going to happen next. Apparently this is not the only reason of economic crisis; there are other reasons such as lack of strategy and lack of corporate governance.

Concept of an Optimal Capital Structure

Concept of an optimal Capital structure

 

The optimal capital structure for a business is one which proposals a stability between the model debt-to-equity choices and reduces the company's cost of investment. In theory, debt financing usually bids the lowest cost of capital due to its tax deductibility. Though, it is rarely the optimal structure meanwhile a company's danger mostly raises as debt rises. A company's relation of short and long-term debt must also be measured when investigating its capital structure. Capital structure is best often referred to as a firm's debt-to-equity ratio, which offers understanding into how dangerous a company is for possible stockholders. Influential an optimal capital is a main obligation of any firm's corporate finance department.

The company could be backed through two behaviours: debt by getting loan or delivering bond and equity by distributing shares.  The cost of equity is much higher that cost of debt finance, which makes the equity a higher risk. Equity finance is very expensive, as equity requires high return on projects undertaken in order to generate wealth to the shareholders.  Shareholders do not like to take the risk because they do not want to take the risky decisions which affects the profits of the company and the also affects the money which is coming in the business. However if company use debt to finance their own activities rather than equity they might be paying lower return, because debts are lower risks thus they are lower costs and they are cheaper.

 Therefore the company might invest on projects, which has lower internal rate of return because of lower WACC. So the firms have different mix of capital structure planned by WACC, which could effectively change how they set the return. After all the Debt finance is cheaper they also have the tax advantage because of the tax reductions.  The lenders require a lower rate of return than ordinary shareholders.

Capital structure is the second most rigid. Firms alter their capital structures through various means (e.g., Fama and French 2005), and this happens more frequently than changes in the corporate charter, board composition, or other factors affecting governance stringency. However, security issuance that is driven by the capital structure seems less opportunistic and more rigid than real project choices. ( Anjan V. Thakor 2011).

So for instance what a business needs to do for borrowing is increase the borrowing in such a time where there is less risk of financial distress. There is a less chance of recession. During the period of recession people tends to save more and spend less. Decision making about it changes with the time for example in 2006 a supplier of a company use to see 80% finance through debt as normal, but roll on three years in 2009 the same supplier  sees 80% of the finance through debts bad.

Before the recession in the UK it was easy for the companies to get loans off the government. But after the recession it is hard for the banks to give out the loans to the companies or someone else. Similarly the loan which the UK home students get for their education was approximately £3000, but now it is £9000. This means they will have to give back more than the students use to give back in 2008 as the debt is increased by £6000.

Too much debts can also have a bad impact because companies have to pay the interests, it doesn’t matter they are getting high profits are low profits. They will have to pay the interest. Therefore More debts decreases WACC as it is cheaper than equity but there should be a complex relation between debts and company’s capital structure.

How shareholder reacts upon this further finance might have an influence on how the company make or abolish value and what their hope about that occurring. It might be vary since one person to another as everyone is different in their own way and one business to another as the different businesses takes different decisions at different situations.it drives extremely on the subject of social investment. The impartial of gearing and capital structure is receiving to that optimal point where growth quantity of debt businesses are attractive in such a point overall obligation of equity holder might remain encountered.