The Top 10 Lessons of Wall Street Movies
A rush of new movies follow a Hollywood tradition -- taking an unflinching view of the financial industry.
Wall Street: Money Never Sleeps|
The Lesson: Beware of bubbles, figurative and literal.
At President Obama's recent town hall meeting a broker asked: Isn't it time to stop treating Wall Street like a piñata? Oliver Stone's answer: Not yet, punk. And now the controversial director has a brand new stick. Wall Street: Money Never Sleeps is the 23-years-in-the-making sequel to Wall Street, the movie that introduced us to trader Gordon Gekko (Michael Douglas) and his catchy slogan, "Greed is good." Hollywood has always agreed with Wall Street on that point -- that's why they make sequels.
While Douglas returns as Gekko, this year's Charlie Sheen is Shia LaBeouf, playing a young hotshot with designs on the big score, and also on Gekko's daughter Winnie (Carey Mulligan).
Stone is the kind of director who makes Michael Moore look subtle and here he's at his bludgeoning best, aka worst. More than once he includes shots of actual soap bubbles. For those who have come straight from a screening of Resident Evil: Afterlife, that's known as a visual metaphor. It's what some movies have instead of zombies. As befits the sequel to a 1987 movie, there's a retro feel to the whole thing -- a little bit of '80s flash, but now with derivatives.
"My favorite part of the film is the lesson that in the darkest days of any financial tragedy what matters most are love and family. Life goes on,"
says Lawrence McDonald, author of A Colossal Failure of Common Sense -- The Inside Story of the Collapse of Lehman Brothers, former Lehman Brothers VP of Distressed Debt, and contributor to Minyanville. "My second favorite part was Michael Douglas' vintage speech on his fictional book lecture tour. He emerges from prison and writes a best-selling book and is on stage at a university in New York. In about two minutes and 25 seconds he (and Oliver Stone) do a masterful job describing and explaining the financial crisis."
Despite being flattered by how many lines from his book are used in the movie, McDonald ultimately gives it a mixed review. "I noticed early on there was lots of excitement, applause, and laughter dancing around the theater, but at the end of the film everyone got up and left a little confused, with zero emotion," he says.
The movie, which opens today (September 24), also compares greed to a cancer. Stone can't be blamed for the wincing that will accompany that speech in light of Douglas' recent diagnosis. But at least the actor's feisty performance will remind us why we need to pray for his speedy recovery.
The Lesson: The 2008 crisis could have been avoided.
Inside Job is a documentary by director Charles Ferguson -- a onetime software entrepreneur and former senior fellow at the Brookings Institution -- that explores the causes of the 2008 financial crisis and features interviews with people to which Ferguson was granted extraordinary access. This list includes former Fed Chairman Paul Volcker, former New York State Attorney General (and disgraced governor) Eliot Spitzer, and legendary investor George Soros, to name a few.
Perhaps the best summation of the film's point comes from Ferguson himself, who told the Wall Street Journal, "I think the central argument is that deregulation, which began in the 1980s, led to the rise of what has, without any exaggeration, given rise to a criminal industry. American finance has become a criminal industry, particularly investment banking.
"The secondary thesis of the film is that as this industry has grown more powerful and wealthy, it has corrupted the institutions and people who should have retrained it -- obviously the political system, the regulatory system, and, less obviously but equally important, the academic and research discipline of economics."
Satyajit Das, a Minyanville contributor who appears in the film, agrees. The longtime financial derivatives expert and author of Traders, Guns and Money, says one of his favorite moments in the film is when Ferguson "exposes the participation of prestigious academics, who provided the age of money with seductive economic credibility. Harvard's Martin Feldstein and Columbia University's Glenn Hubbard earned large consulting fees from financial institutions. Confronted on camera, Feldstein glowered, squirmed, and smiled, in the words of one reviewer, 'like Yoda with a hemorrhoid.' "
For Das, the moral of the movie is this: "Trust no one with your money, including yourself. Most experts don't know what they are talking about and generally have so many conflicts of interest they develop mental conditions making them incomprehensible and financially illiterate except when calculating their own bonuses."
In short, Inside Job, narrated by Matt Damon, attests that the financial meltdown of 2008 could have been avoided -- but wasn't. Be prepared: The documentary, due to open Friday, October 8 and already called "a masterpiece" by some reviewers, will make you want to storm the palace -- or in this case, palaces.
Client 9: The Rise and Fall of Eliot Spitzer|
The Lesson: Righteous crusades and expensive hookers are a bad mix.
The new documentary Client 9: The Rise and Fall of Eliot Spitzer may already need a title update. Thanks to his media pundit role on CNN, the former governor of New York may be on the rise again. But the new documentary from director Alex Gibney (Enron: The Smartest Guys in the Room) attempts to shed new light on his remarkable climb and subsequent stupendous nosedive, a progress that took him from crusading attorney general to charismatic governor to whore-mongering talk-show punchline. In the best film tradition, Client 9 implies a conspiracy. And it involves a guy named Stone.
In this case it's not conspiracy-loving, Wall Street-hating Oliver, but a certain Roger Stone, a shady operative who may be the only man alive sporting a Richard Nixon tattoo. Although Gibney has no smoking gun, he builds a credible case that Stone was employed by at least a couple of Spitzer's Wall Street enemies to help bring him low. Of course, it wouldn't have worked if Spitzer hadn't handed those enemies an atomic warhead programmed to hit him square in the ass. The lesson of Client 9 may well be this: Righteous crusades and very expensive hookers are a bad mix. Whether Gibney's film, due in theaters November 5, helps or hurts its subject remains to be seen. This is one film whose sequel might play out on CNN.
Quants: The Alchemists of Wall Street|
The Lesson: Automated trading -- a deadly cocktail of speed, greed, and esoteric math -- is putting us at risk of another major crash
Since the flash crash of May 6, when a computer glitch caused the market to take a temporary 9% dive, the public has become fascinated with quantitative traders, or "quants." These mathematicians engineer the complicated algorithms that drive black-box transactions, often without human intervention.
If you're looking to get a handle on how such men think and operate, and what impact their formulas have had on the market, make 47 minutes in your schedule to watch Quant's: The Alchemist's of Wall Street, released in the spring of 2010. The film accurately depicts the wizards at work behind the scenes at some of Wall Street's biggest banks, including Goldman Sachs (GS), Morgan Stanley (MS), and Bank of America (BAC).
First bringing us back to the 2008 credit crunch, the documentary shows how computer programmers sit in the middle of the engine room that makes up Wall Street today. It features Paul Wilmott, a leader in the field of quantitative finance, Emanuel Derman, former head of quantitative risk strategies at Goldman Sachs (now a Columbia University professor of industrial engineering), and Mike Osinski, former Wall Street computer programmer known for creating the software that turned mortgages into bombs -- I mean, bonds.
These three, along with Reuters reporter Matthew Goldstein, fill the film with insight into just how fragile and corrupt our financial system has become. Wilmott, for example, reveals that big banks routinely tell their quants to change the formula for risk in order to make a portfolio look more balanced. "People [bankers] can use the models to hide risk," he says.
To conclude the film looks into the future of trading: These experts correctly predict that automated transactions will one day happen faster than the speed of light (a milestone passed since the film was made). They also predict that high-frequency trading could pull the market down more then 20% in one day.
The Lesson: Act as if.
Hey, remember 1999? The stock market bubble? Dotcom.dotcom? Those were the days, right? A real fin de siècle moment for Wall Street. If Oliver Stone's 1987 film, Wall Street, defined for a future generation the life of high finance, then Boiler Room flipped the script and defined for a new generation life on the subprime sales floors of the then-ubiquitous penny stock firms, the underbelly of finance, firms with names like J.T. Marlin; close, but not quite ready for white-shoe status.
The film is set in 1999 and follows Seth, a ne'er-do-well operator of a fairly successful illegal gambling operation, as he gives up that job to become a ne'er-do-well operator in a fairly successful illegal brokerage operation.
In the opening scene of the movie Seth's voiceover sums up the get-rich-quick mentality of the late 1990s whose legacy we're enduring today in the form of a housing bust, 10% unemployment, and the worst recession in more than 35 years. "The Notorious BIG said it best: 'Either you're slingin' crack-rock, or you've got a wicked jump-shot,' " Seth muses. "Nobody wants to work for it anymore. There's no honor in taking that after-school job at Mickey Dee's, honor's in the dollar, kid. So I went the white boy way of slinging crack-rock: I became a stock broker."
Nobody wants to work for it anymore. Indeed. That message is reinforced by Ben Affleck's character, Jim Young, a trainer of new stock brokers, early in the film. "There's an important phrase that we use here, and think it's time that you all learned it. Act as if. You understand what that means?"
If Stone's Wall Street gave an earlier generation the granite-chiseled mantra, "Greed is good," then Boiler Room gives it a post-modern spin for a new generation: "Act as if." Yes, act as if you can afford that house. Act as if you can afford that car. Act as if.
The Lesson: The camera may love it, but greed isn't good.
Oliver Stone's 1987 movie Wall Street is one of the few successful, realistic films about finance. Its lesson wasn't hard to decipher. Stone set out to tell a morality tale about the destructive values of American capitalism; immoral money manager Gordon Gekko mentors the young stockbroker Bud Fox, whose hyper-ambition for money destroys his life and those of the people around him. Greed is not good. That lesson, in real life, went largely unheeded.
"It did not show Wall Street in its best light, yet Wall Street was, by far, the movie's most enthusiastic audience," author Michael Lewis, not a stranger to the financial business, wrote recently. "It has endured not because it hit its intended target but because it missed: people who work on Wall Street still love it."
Case in point: The wheeler-dealers in the 2000 film Boiler Room sit around and watch Wall Street, reciting Gekko's lines by memory. Michael Douglas, who won an Academy Award for the role, has expressed astonishment at how often Wall Street males tell him he inspired their career choice. A morality tale about the young Fox instead sparked hero worship of Gekko and his "greed is good" philosophy.
The movie still got the era right. There are the colorful corporate raiders of 1980s Wall Street, the chaotic trading floors, the young stockbroker making cold calls, the bad music and bad art, and hyper-materialism. It also unintentionally foreshadowed the Wall Street crash of 1987. Some of the fashions, and certainly the tools of the trade (like Douglas' cell phone), may look antiquated compared to Wall Street today, but the moral of Stone's story is only more relevant, and still ignored.
Glengarry Glen Ross|
The Lesson: A-B-C: Always Be Closing.
How did the 1992 David Mamet film, Glengarry Glen Ross, even make this list? It isn't really even about Wall Street. It's about four real estate salesmen and their varying degrees of panic and desperation after a representative from the corporate office blows into town to deliver a simple message: The bad news is you're all fired; the good news is you've got one week to regain your job.
A younger Alex Baldwin delivers that message, and even though this film isn't technically about Wall Street qua Wall Street, there's a good chance just about anyone who works on Wall Street has seen it, if only for Baldwin's one crucial scene.
This is the infamous "Always Be Closing" scene, and anyone who's ever been a salesperson on Wall Street, whether at a big wirehouse or a small independent firm, knows the reality of that scene and the character Baldwin plays runs deep through Wall Street's cultural DNA.
"We're adding a little something to this month's sales contest," Baldwin's character says. "As you all know, first prize is a Cadillac El Dorado. Anybody wanna see second prize? Second prize, a set of steak knives. Third prize is you're fired."
In fact, the Baldwin scene was so influential on Wall Street culture that it would reappear in paraphrased form eight years later in the film Boiler Room, where a character played by Ben Affleck delivers a similar message to new brokers at the fictional firm J.T. Marlin saying, "You have to be closing all the time."
Enron: The Smartest Guys in the Room|
The Lesson: If it's too good to be true, and too complicated to be explained, it's probably fraud.
It took Enron 16 years to go from $10 billion in assets to about $65 billion in assets.
And it took them 24 days to go bankrupt.
In the 2005 documentary Enron: The Smartest Guys in the Room, (which was co-produced by Mark Cuban, who is now being re-investigated by the SEC on insider trading charges), we see former CEO Ken Lay saying, with a straight face, "Enron is a company that deals with everyone with absolute integrity" and former COO Jeff Skilling professing ignorance of what went on behind the scenes during a congressional hearing.
Based on the best-selling book The Smartest Guys in the Room by Fortune reporters Bethany McLean and Peter Elkind, and directed by Alex Gibney -- who was also at the helm of Client 9, about the meteoric rise and rock-hard fall of Eliot Spitzer -- the film recounts how Enron executives used systematic fraud, even creating fake entities, to inflate the company's value on paper. It's hard to imagine how Gibney managed not to drop the camera from sheer disbelief when Skilling said -- also with a perfectly straight face -- "We are the good guys. We are on the side of angels."
PBS called The Smartest Guys in the Room a "tale of greed, hubris, and betrayal [that] reveals the outrageous personal excesses of the Enron hierarchy and the moral vacuum that led [Lay] -- along with other players including accounting firm Arthur Andersen, [Skilling], and Chief Financial Officer Andy Fastow -- to manipulate securities trading, bluff the balance sheets, and deceive investors."
When Enron's "sleight of hand accounting and unethical trading eventually meet the realities of balance sheets that don't balance and products that don't exist," we see some of the biggest victims of the Enron fiasco -- the company's own employees. With 401(k) accounts tied up completely in Enron stock, in some cases, many people's life savings were completely wiped out. Enron employee Max Eberts recalls, "It was kind of like being on the Lusitania. The torpedo had hit with 20 minutes to get out."
Gibney sums up the film thusly:
"I felt that the film would give me an opportunity to explore some larger themes about American culture, the cruelty of our economic system, and the way it can be too easily rigged for the benefit of the high and mighty."
The Lesson: Don't fight the market (or break the law, or hide your mistakes, or try to run).
How quaint, how simple a sentiment: Don't fight the market. Any money manager could tell you that. In the movie Rogue Trader, it's advice that comes too late and goes unheeded.
The film, released in 1999, is a semi-fictionalized account of the Nick Leeson story. It shows how, from 1992 to 1995, Leeson, as a futures trader for Barings investment bank, worked on the floor of the Singapore Monetary Exchange taking risky unauthorized positions. Betting Barings' capital on the Nikkei Index, he initially made millions for his iconic employer.
When the market turns however, Leeson is caught out. His losses mount, and the 27-year-old whiz kid falls victim to denial and magical thinking. Certain he can regain the millions that have gone down in bad trades, he hides his mistakes in the bank's error account and attempts to move the market by purchasing ever-larger contracts, being so bold as to request additional funds from Barings. In the film, Leeson, played by an endearing Ewan McGregor, is depicted as a banking outsider who gets a little too high on the excesses of the expat lifestyle. In fact, if the market had gone the other way, even if he had held out another year, history shows, the trader would have been heralded as a genius.
But the not-so-sexy truth is that Leeson's actions led to $1.3 billion in losses for Barings, causing the 233-year-old bank to fold. Leeson was given a six-and-a-half year sentence in Singapore's Changi Prison. During his jail time, Lesson's wife divorced him and the young man was diagnosed with colon cancer, which he's survived.
Leeson was released and allowed to return to the UK just a month after the film hit British theaters. Since then, Leeson has finished a psychology degree, remarried, and become general manager of Galway United FC. He now spends much of his time presenting corporate talks on risk management, according his official website.
Meanwhile the film has been mostly forgotten by the general moviegoing public -- "It had the raw excitement of doing my tax returns," said one reviewer -- but it remains popular with traders who appreciate the few nail-biting scenes and the successful depiction of an Asian trading floor during a volatile period. Watching the film in 2010, it's hard to imagine that future traders would choose to go rogue and make all the same mistakes.
The Lesson: In the market as in life, there are only accidental coincidences.
Among the many themes addressed in director Darren Aronofsky's feature film debut Pi, arguably the most prominent is the link between money and religion. The 1998 psychological thriller equates life's pursuit of the almighty dollar with the search for a divine leader. Simple for those grandfathered in, worthless for some who can't justify the cost. But it's the obsession of both the spiritual and financial journeys that drives societies forward and dictates how the devout live their lives -- for good and for ill.
The protagonist, Max Cohen, is fixated on using his mathematical genius to find patterns in the stock market, convinced that every form of nature can be condensed to a series of numbers. As he grows closer to discovering an answer, the solution is coveted by both a clandestine Wall Street firm looking to corner the market and a group of desperate Hasidim who believe Cohen is the link to invoking the Messianic Age. Ultimately, Cohen destroys his mental prowess because the quest is killing both his body and his mind.
Pi represents the fruitlessness of finding accidental coincidences in unmitigated chaos. Encapsulating the innumerable variables in worldwide financial markets is equivalent to linking the formation of the cosmos to a series of ancient fables. It's pointless, impossible, and doesn't hold up to scrutiny. Living your life by these arbitrary and archaic codes clouds your judgment, ruins relationships, and is a severe detriment to a broader logical mind.
Like Cohen, it's enough to take a power drill to your temple.
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