Film2015
The Big Short
2015EssentialFilmStart hereAn evening
A rating is a model output, and a model rests on a correlation assumption.
The clearest explanation on film of what a CDO and a synthetic CDO actually were. Watch it for the mechanics rather than the swagger, and be ready to say why a correlation assumption was the thing that failed.
Where it shows up in a roomWhere it shows up in a room
Asked what got you interested in markets, the useful answer names the correlation assumption and what you read next, not the film.
Film2011
Margin Call
2011EssentialFilmStart hereAn evening
A risk limit is a decision about who has to be woken up.
One night on a trading floor as a firm decides to sell a book it knows is worthless. The best study anywhere of risk limits, a VaR breach and how bad information travels up a bank.
Where it shows up in a roomWhere it shows up in a room
It gives you a concrete answer to what a risk function is for, which trips up most candidates applying to markets divisions.
Doc2010
Inside Job
2010RecommendedDocumentaryIntermediateAn evening
Incentives ran through the ratings agencies and the academy, not only the banks.
The regulatory and academic capture story the dramas leave out. It argues a position rather than reporting neutrally, so treat its conclusions as a case to test rather than a settled account.
Where it shows up in a roomWhere it shows up in a room
Being able to say where you think it overreaches is worth more than agreeing with it, and interviewers notice the difference.
Film2011
Too Big to Fail
2011RecommendedFilmIntermediateAn evening
Illiquid and insolvent are different problems with different rescues.
September 2008 from the Treasury and Fed side. If you are asked why Lehman was allowed to fail and AIG was not, this is where the difference between an illiquid firm and an insolvent one stops being abstract.
Where it shows up in a roomWhere it shows up in a room
The Lehman against AIG question comes up in markets and risk interviews, and most answers stop at too big to fail.
Doc2009
Inside the Meltdown
2009For the curiousDocumentaryDeeper diveAn evening
Judge a decision on what was knowable at the time, not on how it turned out.
A contemporaneous account, made while the wreckage was fresh. Useful precisely because it has no hindsight: it shows what was actually known at the time, which is the standard any decision should be judged against.
Film1946
It's a Wonderful Life
1946RecommendedFilmStart hereAn evening
A bank run is a maturity mismatch, not a solvency problem.
An eighty-year-old Christmas film contains the cleanest bank run ever put on screen. Maturity mismatch, why a solvent bank can still fail and the reason deposit insurance exists, in about four minutes.
Where it shows up in a roomWhere it shows up in a room
It is the most memorable way to explain why banks are regulated differently from other companies, which is a standard opening question.
BookLowenstein
When Genius Failed
Roger LowensteinRecommendedBookIntermediate
Leverage turns a small mispricing into a large position, and a crowded exit into a forced sale.
The rise and collapse of Long-Term Capital Management, a bond fund whose partners included two Nobel laureates, which lost most of its capital in 1998 and was recapitalised by its banks in a rescue organised by the Federal Reserve Bank of New York. The clearest account there is of leverage, correlation and liquidity failing together.
Where it shows up in a roomWhere it shows up in a room
Asked about a risk model that failed, or why a fund’s leverage matters to the banks that lend to it, this is the case to name.
BookKindleberger
Manias, Panics, and Crashes
Charles P. KindlebergerRecommendedBookDeeper dive
Every bubble runs displacement, boom, euphoria, distress, revulsion.
The anatomy of a bubble, repeated across four hundred years. Once you have the sequence from displacement through to revulsion, you start seeing it in live markets.
Where it shows up in a roomWhere it shows up in a room
Asked whether something is a bubble, naming which stage it is in beats yes or no by a distance.
BookTurner
Boom and Bust
William Quinn and John D. TurnerRecommendedBookIntermediate
A bubble needs marketability, money and credit, and speculation together.
A newer and more data-led treatment of the same question. The fire triangle framing of fuel, oxygen and heat is genuinely usable in an interview answer.
Where it shows up in a roomWhere it shows up in a room
The three-part framing gives you a structure for the bubble question rather than an opinion about it.