John Tuld: “If you’re first out the door, that’s not called panicking.”

Photo of Jeremy Irons, who portrays "John Tuld" from "Margin…(#53e2) -…

“Margin Call” is a 2011 film that follows the key people at an investment bank, over a 24-hour period, during the early stages of the financial crisis.

Written and directed by J.C. Chandor, we learn from the firm’s CEO, “John Tuld” (played by Jeremy Irons) that successfully running a banking business can come down to three principles: “Be first. Be smarter. Or cheat.”

Obviously, being first is preferred.

In Papp and Wattenhofer (2020) (“Sequential Defaulting in Financial Networks”, https://arxiv.org/abs/2011.10485) we quickly learn from default dynamics there exists a system where a bank “A” only obtains its highest possible recovery rate in the final state of the system if bank “A” is the first bank to report a default.

More generally, default strategies matter, for debts or credit default swaps. Stabilization time in a curable model can heavily depend on the ordering of announcements.

Also more generally, the ordering with the smallest (or largest) number of banks ending up in default is an NP-hard problem. Simply put, not easy to demonstrate.

An interesting paper for “Margin Call” fans everywhere.

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