Posts Tagged ‘Finance’

Long Form Review: The Wolf of Wall Street

Tuesday, April 29th, 2014

Purely considered as a movie, The Wolf of Wall Street is another excellent film from Scorsese. Although it is too long by about an hour, it is engaging and never really boring (just repetitive — I mean how many shots of people snorting coke off of call girls’ asses do we need?). It has a tremendous amount of energy in some sequences. It’s difficult to call the acting “good” since everyone involved gets into the spirit of things and chews the scenery with relentless abandon. Dicaprio is fine, Hill is fine and newcomer Margot Robbie is great as Naomi.

On its merits, I would probably give the movie an 8 out of 10.

But …

The Wolf of Wall Street is not a fictional tale (at least not completely). Jordan Belfort is a real life person who went to real life prison for bilking real life investors out of hundreds of millions of dollars with penny stocks and pump-and-dump schemes. The movie barely touches on this. In fact, in a condescending fourth wall scene, the movie Belfort simply waves off the details by saying the audience isn’t interested. The vast majority of the movie simply revels in the excesses of drugs, booze and sex that Belfort’s millions created (although I suspect some of that is exaggerated). Large parts of the movie play like a high-power rave.

Dicaprio and Scorsese, perhaps having realized the danger of glorifying the hedonistic lifestyle of a stock swindler in the current economy, have claimed it is a cautionary tale. I didn’t see any caution. I never saw that Belfort suffered for his crimes or was ever really undone by his lifestyle. The movie portrays his life as a non-stop party and even serious problems are cast in a darkly comic light. The only time the movie turns even a little bit grim is when his second marriage breaks up. I doubt even Belfort thinks his life was that awesome.

Frankly, I’m tired of movies that glorify Wall Street brokers. I’m tired of the glorification of Wall Street, full stop. I do not regard the high-powered end of the financial industry as something worth celebrating. There’s an early scene — probably the best in the movie — where Matthew McConaughey, in another great performance, explains how the stock broker industry works. The goal is not to make money for the clients. The goal is to keep them trading and paying commissions. No stock broker ever beats the markets consistently. This has been obvious for thirty years. Michael Lewis wrote a book about his time on Wall Street (Liar’s Poker) and speculated that the industry could not possibly last because people would eventually figure out that it was all a sham — that the brokers making massive commissions weren’t any more clued in than the clients. In fact, 20/20 (I think) once did a bit where they had a stock broker pick stocks, had a kindergarten class pick them and had a monkey pulls cards out of a rollodex. The broker came in last place and not by a little. Why is this an industry worth glorifying? Is it because it is a shadowy parallel of the equally empty and vainglorious entertainment industry?

There’s a tendency — and the movie encourages this — to say that the primary victims of Wall Street are rich and can afford to lose their money. There’s some truth to that. Some time ago, I got into a debate over Bernie Madoff’s victims. Some people insisted they had to know that his returns were ridiculous and there was something fishy going on. I agreed but pointed out that they probably didn’t know it was fraud. My basic take on human nature is that we are good but we are easily tempted. It was just so easy, with so much money being made, to persuade themselves that it was legit.

But the thing is, rich people aren’t the only victims of guys like Madoff and Belfort. Financial schemes like pump and dump affect an open market that is invested in by hundreds of millions of people, including mutual funds and pensions. Swindles undermine confidence in the entire system. Maybe you could argue that some of the victims deserved what they got. But they weren’t the only ones.

The movie doesn’t even hint at this. There’s a phone call, possibly fictitious, where Belfort persuades some middle class guy to sink his life savings into a penny stock, but even that is portrayed as triumphant.

No, I’m sorry. The context matters in this case. The movie itself I give an 8/10. But for glorifying a convicted financial criminal and, more importantly, the environment of recklessness that has sent our economy on a three-decade-long roller coaster ride while Wall Streeters made billions, I have to knock at least a point off.

Mo Money, Mo Problems

Sunday, January 13th, 2013

A couple of week ago, I had some Twitter discussion about lottery winners. The impetus was the horrible story of Jack Whittaker, a very successful businessman who won the powerball lottery and watched his life go completely to hell. It’s a truly tragic story, especially for those of us who are fathers and enjoy indulging our daughters. Not only did he descend into booze-fueled chaos, he ended up divorced with both his daughter and granddaughter dead.

Whittaker’s story may be extreme but it is not that unusual. Just in the last week, another story broke about a lottery winner who was likely murdered by someone close. Scientific research on the subject is, at best, mixed. But even that doesn’t capture the fullness of the issue: it’s possible that lottery winners are, on balanced, happier. But it seems like they have an increased chance for the lives to go horribly wrong.

Why does this happen? Two reasons, I think.

First, money changes the people around you. Dave Chappell talked about this a lot: how the fame and fortune brought by his wildly successful show made him distrust the people around him, made him worry that no one would criticize him because of his money.

There’s also a huge difference between someone who earns money through their own means and someone who has a ton of money dropped on them from space. The Whittaker article talks about star athlete and how many of them burn out at younger levels because they can’t handle the fame and fortune. Those who do succeed surround themselves with good people early on so that they have a “team” of people they can trust to look out for their interests, usually people who have been around wealth and fame before and so aren’t phased by it.

Second, money also affects people themselves. Sudden surges in income can produce sudden surges in spending to match. There’s a theory, often propounded by Clark Howard, that people are mentally calibrated for a certain amount of wealth. And when they suddenly get more income, they spend to get themselves back to that familiar frame of reference. It takes time for them re-calibrate and realize that they don’t have to spend every penny. Indeed, this is one of the things that keeps poor people poor: when they do get some money, they instantly blow it because they are so used to money just disappearing. Most of the lottery winners have never had a lot of money or income before. They are not used to the idea of putting money away. And so they revert quickly to bad habits — buying cars, houses and shady business deals.

You combine these two and you get the real problem: wealth and fame — like many other things in life — put strains on a person. If the person is already psychologically strong and has surrounded themselves with good people, money can bring happiness and fulfillment. But if they have character flaws — really big character flaws — they will crack and crumble like a faulty bridge. This is especially true of a sudden unexpected fortune. Looking over the story I linked above, you see Whittaker simply indulging himself and everyone around him — lavishing gifts on his granddaughter, buying expensive cars, leaving cash lying around, throwing money at everything: precisely the behavior one is not supposed to engage in.

The gripping hand is that people who are psychologically strong and have surrounded themselves with good people tend not to play the lottery. Lottery is well-known to be the vice of the poor; state lotteries are a heavily regressive tax. And, generally, people who are happy and balanced aren’t looking for the escape hatch that the lottery provides. Obviously, that’s a generalization: plenty of happy people play the lottery. But they’re doing it mostly for fun. They’re not doing it in the hopes that it will rescue their lives or solve all their problems. They might play, but they also know that wealth and happiness is more likely to come to them through good living, reliable friends, hard work and perseverance. If they win the lottery, that’s gravy on a life that is already well-lived.

So would I like to win the lottery (if I played)? Well, if it were a modest amount, sure. Enough to pay off my house or squirrel away for retirement. Maybe even enough that I could write full time. But I can’t help but think that suddenly crashing into a LOT of money — millions or hundreds of millions — would expose my own character flaws, would expose those of the people around me, would allow me to indulge my own daughter as much as possible.

I don’t play but if someone bought me a lottery ticket and it won (my mother, most likely), I’d probably donate a significant fraction to charities. I’d endow chairs for my wife and I at a chosen university. I’d establish trusts for a handful of people. And that would pretty much be it. I’m not into fancy cars; my practical Camry is just about the perfect car for me. I don’t want a huge house — maybe something newer and less drafty than my current residence. And while I might like to play around with some business ideas, I would only do those if I could stand to lose the entire investment (which is what usually happens).

Hell, I probably wouldn’t even quit my job, no matter how much I won.

It was Robert Heinlein, I think, who said that most Americans don’t want to be rich. They don’t want the single-minded devotion that real wealth accumulation usually requires. What they want to be is well-off. Comfortable. With a nice house and no real worries about the future, able to support causes they believe in and people they love.

Friday Linkorama

Thursday, August 23rd, 2012

Long-form

  • I encountered this problem with my own child. Some pediatricians are simply obsessed with child growth charts, even to the point of stupidity. We had one pediatrician — who we quickly dumped — freak out because Abby was supposedly way too short for age. It turned out they’d put her height in as centimeters instead of inches. It was simply bizarre watching this medical professional insist that our daughter, one of the tallest in her class, was dangerously short. We quickly switched to one who uses the charts for reference but is not defined by them.
  • The most telling part of this story, about Iran banning women from certain college majors, is the note that Iranian women were massively outperforming their male counterparts. Can’t have that, can we?! Looks like the Islamists are figuring out what the Communists did: when you educate a person, they are halfway to freedom.
  • I’m of two minds about peoples who have not contacted civilization. On the one hand, I don’t like forcing civilization on people. On the other, there seems a bit of condescension in the “don’t disturb their culture” mentality.
  • This article, in which Megan McArdle argues that we like to be conned, seems dead accurate to me. Gregg Easterbrook has made the same argument. Bubbles don’t happen because people are stupid. Bubbles happen because people are greedy. They know, deep down, it’s an illusion; but they keep hoping the roof won’t cave in on them.
  • The IPO

    Tuesday, May 22nd, 2012

    Two things about Facebook’s massive faceplant:

    1) Anyone could have seen this coming. The hype was so intense there was no way FB could live up to it. For a company not turning a profit, a $100 billion market cap was just absurd.

    2) It’s just three days.

    I’m always astonished by the manic pace of financial news. I think our economy would be a lot better off if we just ignored them and worked.