John Feehery: Speaking Engagements


Margin Call

Posted on September 15, 2008



            When I was in college, I worked summers at a commodities firm in Chicago.  My desk was right next to the Margin Call department.


            Back then, many commodities traders would put a small amount of money down for a trade, with the promise of putting more money down if the trade turned out bad. 


            The margin call department was made up of tough guys who would collect when the trade went bad.  They would scream and rant and rave to get the money.  They didn’t go out and bust anybody’s knee-cap, but they promised the financial equivalent if the customers didn’t pay up.


            The Margins Department was a stressful place to work, and the guys that worked there were all big drinkers.


            I was thinking about the Margins Department as I watched what was happening on Wall Street.  Basically, pretty much all of Wall Street is getting their own margins call, and they are turning to the Federal government for help, because they can’t make the payments.


            They all made the same bets.  That housing prices would continue to climb.  In other words, they bet the house on housing prices.  But housing prices couldn’t continue to climb at the rate they have been climbing, because nobody could afford to buy them.


            Now the Feds have to find a way to let the air out of the balloon slowly, in such a way that it doesn’t blow up the economy.


            Wall Street traders are a remarkably unsympathetic lot.  First, most of them are Yankees fans, and they are used to winning, so they have that arrogant swagger.  And like A-Rod and many other Yankee players, they have been overpaid for what they actually contribute to society. 


            Now, Wall Streets firms are coming to Washington to ask for help.  Basically, these firms are facing their own margin calls and they can’t make the payments.  So, unlike what happens to their customers, who are forced into bankruptcy when they can’t cough up the dough, the firms are looking to the Feds for help.


            I understand why Hank Paulson and the Treasury Department are working overtime to find a way out of this mess.  If left untreated, this virus could infect everybody everywhere. 


            But that doesn’t make me feel suddenly sympathetic to those who for years have been getting rich making their own margin calls on small-time investors. 


            It makes me wonder what the future will hold for the financial markets.   If Wall Street continually goes to the government when times get tough, how can they complain when the government goes to them for additional tax payments when times are flush?







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