Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit.
When I was away, it seems greed got greedier. The mother of all evil is speculation, leveraged debt. The bottom line is borrowing to the hilt. And I hate to tell you this; it’s a bankrupt business model. It won’t work. It’s systemic, malignant, and it’s global, like cancer.
I’ve missed Gordon Gekko. The amoral and cutthroat corporate raider from the mid-1980s is back after serving a lengthy prison term for securities and tax violations. As you recall, in the first movie Gekko (played by Michael Douglas) spent his time trading on non-public information and acquiring control of public companies only to sell them off piecemeal for a quick profit. While insider trading is a crime, some view it as a victimless crime and breaking up businesses may cause job losses but it definitely is not illegal and may actually improve economic efficiency. In other words, “Gekko I” was a greedy S.O.B. but he did nothing that jeopardized the financial system and, let’s face it, he had style.
Gordon Gekko Hits Rock Bottom
The second movie opens with Gekko getting out of jail in October 2001 broke and alone. Gone are the swagger, the Armani suits, the white collared colored shirts, and the suspenders. All that’s left is an unshaven old man with nowhere to go – or so it seems. The movie than flashes forward 6 ½ years to June 2008 (right before the beginning of the global financial meltdown). Gekko has spent the last few years on the lecture circuit warning of a systemic financial collapse and writing a book entitled “Is Greed Good?” His book discusses the dangers of moral hazard in the financial industry, which he defines as the ability to “steal your money and no one is responsible.” At a FordhamUniversity speech early in the film, Gekko elaborates:
Hedge funders were walking home with fifty, hundred million bucks a year. So Mister Banker, he looks around and says my life looks pretty boring. So he starts leveraging his interests up to forty, fifty to one, with your money, not his, yours, because he could. You’re supposed to be borrowing not them. And the beauty of the deal: no one is responsible because everyone is drinking the same Kool-Aid. Last year ladies and gentlemen, forty percent of all American corporate profits came from financial services. Not production, not anything remotely to do with the needs of the American public. The truth is we are all part of it now. Banks, consumers, we’re moving the money around in circles. We take a buck; we shoot it full of steroids. We call it leverage. I call it steroid banking.
Many to Blame for the 2008 Financial Crisis
There is a lot of truth in this soliloquy, which at a minimum demonstrates Gekko’s financial insight, but it also suggests that he is a changed man who has found morality. It turns out that he isn’t all that changed, but that’s not really important to the movie’s message. What is important are the concepts of 50-1 leverage by investment banks using “other people’s money” (i.e., the public’s) and the moral hazard created by the Fed’s continual 1% interest rate policy after 9-11, as well as Congress’ pressure on Fannie and Freddie to use 100-1 leverage on their semi-private balance sheets to promote home mortgages to people who couldn’t afford them. It was these systemic events that changed the financial world for the worse since the 1980s and led to the 2008 financial meltdown. Gekko may have been a crooked trader that profited from insider information and manipulated stock prices, but he did it with his own money and his actions never jeopardized the entire financial system.
Director Oliver Stone originally did not want to make a Wall Street sequel because the responsibility for the 2008 financial meltdown centers on faceless institutions and exotic financial derivatives which are difficult for the public to understand or care about. Stone eventually changed his mind about directing the film, but his concerns remain valid as the sequel seems more like a history class than a gripping morality tale. In fact, some of it seemed like a repeat of the BBC television movie The Last Days of Lehman Brothers.
The Wall Street Plot Thickens
Of course, the film provides us with a financial villain to focus on. His name is Bretton James (played by the mediocre Josh Brolin) who is the CEO of Churchill Schwartz, a thinly-disguised combination of JP Morgan and Goldman Sachs, but his evilness seems petty in the face of the societal forces described above. We see James pressuring Louis Zabel (played by the awesome Frank Langella), the CEO of Keller Zabel, a thinly-disguised combination of mostly Bear Stearns and a little Lehman Brothers, into selling his failing firm for $3 per share a week after it had been trading for $75.
Later, we find out that James hastened the collapse of Keller Zabel by spreading bankruptcy rumors and personally profited by shorting Keller Zabel stock through an offshore hedge fund called the Lotus Fund. Big deal. It may have been interesting to actually see James engage in these nefarious activities in real time, but we only hear about them in retrospect which drains them of all excitement. It’s a shame that Langella (one of my favorite actors who also played Richard Nixon in Frost/Nixon) had such a small role whereas Brolin had such a large one. The movie would have been better if the reverse had been true.
Green Energy and Poor Diversification
With the causes of the global financial crisis explained, the rest of the movie is a hodge-podge of con games and payback. Enter Jacob Moore, a protégé of Louis Zabel who works on the Keller Zabel proprietary desk trading energy. Moore is not like any prop trader I’ve ever known; he actually seems to care about society and supports clean energy. His pet project is a company called United Fusion, which aims to create energy out of seawater, but needs $100 million to continue its research (good luck with THAT). Anyway, he gets a $1.45 million bonus from his boss and invests it back into Keller Zabel stock right before it goes under. Stupid, stupid. Asset allocation 101 tells you to diversify your investments; do NOT invest your earnings back into the stock of the company where you are employed. If you get nothing out of the movie other than that lesson, you’re ahead of the game.
What a Coincidence!
Life is full of coincidences (especially in the movies), so it turns out that Moore is dating Winnie Gecko, Gordon’s estranged daughter and operator of a left-wing anti-Wall Street website called Frozen Truth. Winnie hates her father not so much for being a crook but for neglecting her brother who died of a drug overdose. After Moore attends father Gecko’s speech at FordhamUniversity, they strike up a relationship. Like the true Wall Streeters they both are, Moore and Gecko agree to a trade: Moore will help Gecko reconcile with his daughter in return for Gecko helping Moore exact revenge against James for destroying Keller Zabel and his beloved mentor Louis.
Oh, and there is a $100 million trust fund in Winnie Gecko’s name just waiting to be claimed in a Swiss bank account. Winnie claims that she doesn’t want any of it (that’s right, not even a little of it to help support the baby in her belly). Funny how that is the exact amount needed by United Fusion. Let’s just say a lot of people are involved in the money chase and it doesn’t end up where you initially think it ends up.
The money chase, corporate revenge, and Gekko family reconciliation subplots were pretty routine and not that interesting to me. None had any of the moral gravitas of the “money vs. people” conflict between Bud Fox and his blue-collar labor union father Carl in the original movie.
Long Island Greed and Chinese Energy Hunger
I did enjoy, however, a few isolated scenes which captured important themes. First up is the small role of Moore’s mother (played by Susan Sarandon who I’ve loved ever since The Rocky Horror Picture Show). The mother is a Long Island real estate speculator/realtor who gave up a meaningful job as a nurse to make more money flipping properties. As the real estate market sours, her business collapses and she continually seeks a bailout from her son. Watching this former nurse beg for money is like watching a junkie beg for a fix. It’s a powerful reminder that the financial crisis was not caused just by greedy investment bankers on Wall Street but also greedy common folk on Main Street.
Second, there is a great scene in a conference room at Churchill Schwartz where James and Moore (who briefly works for James as part of his revenge plot) host a group of Chinese businessmen looking to invest in alternative energy. Most of the Churchill Schwartz bankers want the firm’s official recommendation to the Chinese to be a solar energy company, but Moore argues that the solar energy technology is not proprietary whereas the technology of his fusion company is. The Chinese agree with Moore and show more interest in fusion energy, but just have one question: how is the fusion explosion kept under control? Moore refuses to answer, saying that is a corporate secret.
I liked this interchange between Churchill Schwartz and the Chinese because it meshes so well with current global economic realities. Right now, both sovereign wealth funds and state-owned enterprises in emerging markets are frantically making energy investments worldwide in order to help supply their growing economies. I felt like the scriptwriters had consulted Yiannis Mostrous and Elliot Gue, editors of the Stocks on the Runshort-term trading service, concerning their new book The Rise of the State which covers in detail the rise of China and its acquisitive thirst for commodities like energy.
Gordon Gekko Teaches Us All an Important Investment Lesson
Lastly, I enjoyed watching Gordon Gekko himself get back into the game. He started the movie with nothing but didn’t give up and came back strong. I won’t tell you how he came back, but he has a short cell-phone conversation near the end of the movie while he’s buying a set of expensive shoes that helps explain his success:
Think positive, pal. When most people lose, they whine and quit. You’ve got to be there for the turns. Everybody’s got good luck, everybody’s got bad luck. Don’t run when you lose. Don’t whine when it hurts. It’s like the first grade. Nobody likes a crybaby.
This advice is excellent, not just for aspiring corporate raiders and hedge fund managers, but for regular investors like you and me. When the stock market dropped into the abyss in March 2009, panicking and selling out at the bottom was the worst thing you could have done. Those investors with emotional fortitude and the discipline not to quit when the going gets tough will come out ahead in the end.
Just like Gordon Gekko.
Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit.
When I was away, it seems greed got greedier. The mother of all evil is speculation, leveraged debt. The bottom line is borrowing to the hilt. And I hate to tell you this; it’s a bankrupt business model. It won’t work. It’s systemic, malignant, and it’s global, like cancer.
I’ve missed Gordon Gekko. The amoral and cutthroat corporate raider from 1985 is back after serving a 1engthy prison term for securities and tax violations. As you recall, in the first movie Gekko (played by Michael Douglas) spent his time searching for and trading on non-public information and acquiring control of public companies only to sell them off piecemeal for a quick profit. While insider trading is a crime, some view it as a victimless crime and breaking up businesses may cause job losses but it definitely is not illegal and may actually improve economic efficiency. In other words, “Gekko I” was a greedy SOB but he did nothing that jeopardized the financial system and, by George, he had style.
The second movie opens with Gekko getting out of jail in October 2001 broke and alone. Gone are the swagger, the Armani suits, the white collared shirts, and the suspenders. All that’s left is an unshaven old man with nowhere to go – or so it seems. The movie than flashes forward 6 ½ years to June 2008 (right before the beginning of the global financial meltdown). Gekko has spent the last few years on the lecture circuit warning of a systemic financial collapse and writing a book entitled “Is Greed Good?” His book discusses the dangers of moral hazard in the financial industry, which he defines as the ability to “steal your money and no one is responsible.” At a FordhamUniversity speech early in the film, Gekko elaborates:
Hedge funders were walking home with fifty, hundred million bucks a year. So Mister Banker, he looks around and says my life looks pretty boring. So he starts leveraging his interests up to forty, fifty to one, with your money, not his, yours, because he could. You’re supposed to be borrowing not them. And the beauty of the deal: no one is responsible because everyone is drinking the same Kool-Aid. Last year ladies and gentlemen, forty percent of all American corporate profits came from financial services. Not production, not anything remotely to do with the needs of the American public. The truth is we are all part of it now. Banks, consumers, we’re moving the money around in circles. We take a buck; we shoot it full of steroids. We call it leverage. I call it steroid banking.
There is a lot of truth in this soliloquy, which at a minimum demonstrates Gekko’s financial insight, but it also suggests that he is a changed man who has found morality. It turns out that he isn’t all that changed, but that’s not really important to the movie’s message. What is important are the concepts of 50-1 leverage by investment banks using “other people’s money” (i.e., the public’s) and the moral hazard created by the Fed’s continual 1% interest rate policy after 9-11, as well as Congress’ pressure on Fannie and Freddie to use 100-1 leverage on their semi-private balance sheets to promote home mortgages to people who couldn’t afford them. It was these systemic events that changed the financial world for the worse since the 1980s and led to the 2008 financial meltdown. Gekko may have been a crooked trader that profited from insider information and manipulated stock prices, but he did it with his own money and his actions never jeopardized the entire financial system.
Director Oliver Stone originally did not want to make a Wall Street sequel because the responsibility for the 2008 financial meltdown centers on faceless institutions and exotic financial derivatives which are difficult for the public to understand or care about. Stone eventually changed his mind about directing the film, but his concerns remain valid as the sequel seems more like a history class than a gripping morality tale. In fact, some of it seemed like a repeat of the BBC television movie The Last Days of Lehman Brothers.
Of course, there is a main financial villain in the film named Bretton James (played by the mediocre Josh Brolin) who is the CEO of Churchill Schwartz, a thinly-disguised combination of JP Morgan and Goldman Sachs, but his evilness seems petty in the face of the societal forces described above. We see James pressuring Louis Zabel (played by the awesome Frank Langella), the CEO of Keller Zabel, a thinly-disguised combination of mostly Bear Stearns and a little Lehman Brothers, into selling his failing firm for $3 per share a week after it had been trading for $75 a week earlier.
Later, we find out that James hastened the collapse of Keller Zabel by spreading bankruptcy rumors and personally profiting by shorting Keller stock through an offshore hedge fund called the Lotus Fund. Big deal. It may have been interesting to actually see James engage in these nefarious activities in real time, but we only hear about them in retrospect which drains them of all excitement. It’s a shame that Langella (one of my favorite actors who also played Richard Nixon in Frost/Nixon) had such a small role whereas Brolin had such a large one. The movie would have been better if the reverse had been true.
With the causes of the global financial crisis explained, the rest of the movie is a hodge- podge of cons and payback. Enter Jacob Moore (played by Shia LaBeouf), a protégé of Louis Zabel who works on the Keller Zabel proprietary desk trading energy. Moore is not like any prop trader I’ve ever known; he actually seems to care about society and supports clean energy. His pet project is a company called United Fusion, which aims to create energy out of seawater, but needs $100 million to continue its research (good luck with THAT). Anyway, he gets a $1.45 million bonus from his boss and invests it back into Keller Zabel stock right before it goes under. Stupid, stupid. Asset allocation 101 tells you to diversify your investments; do NOT invest your earnings back into the stock of the company where you are employed. If you get nothing out of the movie other than that lesson, you’re ahead of the game.
Life is full of coincidences (especially in the movies), so it turns out that Moore is dating Winnie Gecko, Gordon’s estranged daughter and operator of a left-wing anti-Wall Street website called Frozen Truth. Winnie hates her father not so much for being a crook but for neglecting her brother who died of a drug overdose. After Moore attends father Gecko’s speech at FordhamUniversity, they strike up a relationship. Like the true Wall Streeters they both are, Moore and Gecko agree to a trade: Moore will help Gecko reconcile with his daughter in return for Gecko helping Moore exact revenge against James for destroying Keller Zabel and his beloved mentor Louis.
Oh, and there is a $100 million trust fund in Winnie Gecko’s name just waiting to be claimed in a Swiss bank account. Winnie claims that she doesn’t want any of it (that’s right, not even a little of it to help support the baby in her belly). Funny how that is the exact amount needed by United Fusion. Let’s just say a lot of people are involved in the money chase and it doesn’t end up where you initially think it ends up.
The money chase, corporate revenge, and Gekko family reconciliation subplots were pretty routine and not that interesting to me. None had any of the moral gravitas of the “money vs. people” conflict between Bud Fox and his blue-collar labor union father Carl in the original movie.
I did enjoy, however, a few isolated scenes which captured important themes. First up is the small role of Moore’s mother (played by Susan Sarandon who I’ve loved ever since The Rocky Horror Picture Show). The mother is a real estate speculator/realtor who gave up a meaningful job as a nurse to make more money flipping properties. As the real estate market sours, her business collapses and she continually seeks a bailout from her son. Watching this former nurse beg for money is like watching a junkie beg for a fix. It’s a powerful reminder that the financial crisis was not caused just by greedy investment bankers on Wall Street but also greedy common folk on Main Street.
Second, there is a great scene in a conference room at Churchill Schwartz where James and Moore (who briefly works for James as part of his revenge plot) host a group of Chinese businessmen looking to invest in alternative energy. Most of the Churchill Schwartz bankers want the firm’s official recommendation to the Chinese to be a solar energy company, but Moore argues that the solar energy technology is not proprietary whereas the technology of his fusion company is. The Chinese agree with Moore and show more interest in fusion energy, but just have one question: how is the fusion explosion kept under control? Moore refuses to answer, saying that is a corporate secret.
I liked this interchange between Churchill Schwartz and the Chinese because it meshes so well with current global economic realities. Right now, both sovereign wealth funds and state-owned enterprises in emerging markets are frantically making energy investments worldwide in order to help supply their growing economies. I felt like the scriptwriters had consulted Yiannis Mostrous and Elliot Gue, editors of the Stocks on the Runshort-term trading service, concerning their new book The Rise of the State which covers in detail the rise of China and its acquisitive thirst for commodities like energy.
Lastly, I enjoyed watching Gordon Gekko himself get back into the game. He started the movie with nothing but didn’t give up and came back strong. I won’t tell you how he came back, but he has a short cell-phone conversation near the end of the movie while he’s buying a set of expensive shoes that helps explain his success:
Think positive, pal. When most people lose, they whine and quit. You’ve got to be there for the turns. Everybody’s got good luck, everybody’s got bad luck. Don’t run when you lose. Don’t whine when it hurts. It’s like the first grade. Nobody likes a crybaby.
This advice is excellent, not just for aspiring corporate raiders and hedge fund managers, but for regular investors like you and me. When the stock market dropped into the abyss in March 2009, panicking and selling out at the bottom was the worst thing you could have done. Those investors with emotional fortitude and the discipline not to quit when the going gets tough will come out ahead in the end.
