Martin Scorsese’s film about a boiler-room stockbroker who managed to reach the major leagues of financial services industry swindling, The Wolf of Wall Street, has garnered both strong box office sales and heated denunciations. The critics, including the daughter of as associate of the movie’s huckster in chief, Jordan Belfort, argue that it glorifies depravity and criminality.
Now having seen the movie (yes, I saw it, as a piece of Wall Street iconography and separately because I enjoy Leonardo DiCaprio when he plays schmucks) it is a frenzied, sprawling, cynical depiction of how easily get-rich-quick scamsters who come across the right formula coin money to feed their outsized addictions (in this case, to the standard boy toys, sex on demand from as many women as possible, and way too many drugs, with cocaine and quaaludes the mainstays).
The picture focuses on the almost non-stop bacchanal of the men of the firm that Belfort built, Stratton Oakmont, before he and they were busted and went to prison for stock fraud and money laundering. They are shown as getting almost as high fucking clients as the many women they bought. The movie apparently hews more closely to real life than you’d expect, including the most outrageous-seeming scenes (nearly crashing a helicopter while operating under the influence and wrecking a luxury yacht while trying to get to Monaco to conduct some urgent private banking business).
Now it is true that this movie is one-sided: it’s told from the point of view of Belfort, so we see nothing of his financial victims. The casualties on his side (such as a suicide and a handful of other deaths) are mere barely-regretted asides. And we only get one shot in prison, that of him playing tennis.
Belford and his merry band of crooks’ antics are so insanely out of control that they make for great voyeurism (and that’s before the added bonus for many viewers of getting to see so many hot babes in considerable or complete undress). But they are also pathetic. They clearly need, or come to need, relentless risk-taking, overstimulation, and ginormous amounts of controlled substances just to get through the day. And they get stupider as they become more disinhibited. Some examples: one of the main characters gets in screaming match while making a cash delivery, leading the cops to intercede. Belfort not only recklessly meets an FBI investigator on his boat and tries bribing him in code (Belfort looks like at first like he’s just having fun messing which the agent, but then starts taking his sales pitch too seriously) but later welches on a deal cut with the SEC to save his hide, believing too much in his own twisted code of micreants’ honor (ie, unbridled id). Belfort also tried screwing some not cooperating stewardesses and generally carrying on loutishly in first class, leading him to be exiled to coach and forcibly restrained in his seat. And the scene where Belfort and his sidekick take too many ‘ludes and mayhem results is sure to become a classic.
But, the moralists will howl, this makes crime look glamorous and rewarding! Well guess what? Crime is rewarding, and if you can do it on a big enough scale, you can even buy some glamour. So why are you shooting the messenger?
If you are worried about the corrosion of American values, you are a good generation and a half too late. The glamorization of ill-gotten wealth began before the Reagan/Thatcher era, although it started getting turbo-charged in the 1980s. What about the crooked oil baron J.R. Ewing, the central character of the TV hit Dallas that ran from 1978 to 1991? How many corporate raiders, who were effectively co-conspirators of Michael Milken, were prosecuted? (trust me, the degree of collusion ran afoul of securities laws). And how about the polite lack of interest in Hillary Clinton’s implausible parlaying of $1000 in commodities investments into $100,000? (one of my colleagues was shown her trading records at the behest of some Congressmen; he said her results were completely impossible. She got the best price of the day every day she traded).
And during the period where the conduct of the rich and powerful was subject to less and less scrutiny, the poor and disadvantaged were being treated more and more harshly. New York City’s campaign against squeegee men and graffiti artists was seen as a model for policing for the US (it’s far more likely that the fall in crime rates was actually due to the removal of lead from gasoline; results across countries show dramatic declines roughly 23 years later and the evidence is robust). And the poor were the scamsters; think of Reagan’s ballyhooed “welfare queen” and Clinton’s ending of “welfare as we know it,” premised on the idea that impoverished people needed to be forced to work. So if the benefits of being rich and the (already considerable) costs of being poor were rising, and on top of that, no one was questioning the conduct of rich people all that much, why should we be surprised that more and more people would think it’s legitimate to tromp on other people in the pursuit of lucre? That’s become so routine in the US that it’s hard to overcome outrage fatigue on this blog.
And as to the narrower issue of penny stock fraudsters, boiler rooms have long been the sordid underbelly of American securities markets. So again, if you are offended by The Wolf of Wall Street, where were you when the Jumpstart Obama’s Bucket Shop Act was being passed, which makes it even easier for the Jordan Belfort wanna-bes to ply their trade? As we wrote at the time:
Obama seems determined to roll back the few remaining elements of the New Deal. As we’ve recounted, he’s keen to cut Medicare and Social Security; he said as much in a dinner with leading conservative luminaries shortly after his inauguration. And his JOBS Act, which guts securities law protections on smaller stock offerings, is touted as a way to increase employment by helping to fund smaller businesses. In reality, the only jobs it is likely to create will be due to the resulting explosion in stock scamsters and bucket shop operators.
Simon Johnson was of the same view:
In other words, you will be ripped off more. Knowing this, any smart investor will want to be better compensated for investing in a particular firm – this raises, not lowers, the cost of capital. The effect on job creation is likely to be negative, not positive.
Sensible securities laws protect everyone – including entrepreneurs who can raise capital more cheaply. The only people who lose out are those who prefer to run scams of various kinds.
Similarly, do you breeze past Richard Smith’s ongoing series on international frauds? They are exactly the same type of predator as Belfort. Richard became interested because a friend of his was suckered by one, not once, but multiple times, even after Richard had dug up incriminating information and warned him.
And vastly worse that Belfort’s liberal use of drugs and whores for his own amusement is their widespread use as sales tools in the much bigger ticket parts of the securities industry. Where is the upset over the revelation in the Academy award winning movie Inside Job that major Wall Street firms routinely run bills for prostitutes and drugs through the company as research expenses?
And if you have any doubt that these sales tools resulted in penny-stock-equivlant dreck being sold on a mass scale with resulting serious social costs, you have to look not further than the CDO business, which as we described long form in ECONNED, was the product that turned what would otherwise have been a S&L level subprime crisis into a global financial system meltdown.
Those deals depended critically on placing the junkiest layers, not the AAAs (which had ready buyers) but the AA to BBB tranches (much of that was rolled into other CDOs, but some was placed with actual real buyers). If those parts could not have been sold, the entire CDO machine and the subprime origination business that depended on it, would have died in the 2004-2005 period when the Fed increased interest rates.
Some of these lower tranche CDO investors were simply completely clueless, or in the industry nomenclature, stuffees. But their buying power collectively was too limited to provide an large enough outlet
A good chunk was placed directly as a result of the use of what amounted to bribes in the form of big ticket “entertainment”. If you have any doubts, read the barely-fictionalized account (no doubt due to UK libel laws) of former Goldman CDO salesman Tetsya Ishkawa in his book, “How I Caused the Credit Crunch.” One memorable scene: The young protagonist, “Andrew,” is told to get close to the members of a bank’s team in the hopes of influencing his heretofore impossible-to-sell boss through them. His target, a German banker named Dirk, makes it clear he can influence the boss and actually states that it’s a shame banks don’t entertain them more. Andrew offers to take him out for a weekend, all expenses on his firm (Andrew’s manager has already authorized this). Dirk, who is married, tells Andrew the cover story (they are at a conference) and then tells him how to drive to a palatial German estate called FKK, which is populated with model-gorgeous naked women serving drinks. The buffet, bar, pool and spa were covered by the entrance fee. The girls were not, and Dirk rounded up a group and went off to a room. A line from that scene when Dirk emerges and asks for more money:
I was pissed off…but I quickly reminded myself that the man standing in front of me naked with his groin at my eye level was my client.
And a Wolf of Wall Street plot twist: at this point, Andrew has a girlfriend back in London, a Brazilian escort he’d met through work, natch. He hadn’t been strongly inclined to take advantage of the girls at FKK until one who looked like the younger sister of his girlfriend chatted him up. He found both the conversation and the fantasy of cheating with his girlfriend’s sister far too tempting.
He learns much later she was his girlfriend’s sister.
Consider: as deplorable as the conduct of Belfort is, the Wall Street institutional investors who take bribes like the one Dirk solicited to put the money they manage into dreck are just as crooked. Fund managers have a higher duty of care to their investors (they are fiduciaries) than mere brokers do (who are generally held to the lesser standard of “know your customer” and suitability).
So if you are unhappy about the glossy treatment of Jordan Belfort, you should direct your ire at better targets. It’s weak enforcement of securities laws that allows people like him to suck money out of the greedy, gullible and actively complicit. Most salesmanship is huckesterism, as James Surowiecki reminds us in the New Yorker:
Con artists are independent and typically self-made. They don’t have to kowtow to a boss—no small thing in a country in which people have always longed to strike out on their own. They succeed or fail based on their wits. They exemplify, in short, the complicated nature of American capitalism, which, as McDougall argues, has depended on people being hustlers in both the positive and the negative sense. The American economy wasn’t built just on good ideas and hard work. It was also built on hope and hype…The greatest business icon of our era, Steve Jobs, was legendary for his “reality-distortion field,” which allowed him to convince people that improbable outcomes were not just possible but certain. Jobs’s endless rehearsals for his public presentations and his scripting of every moment for maximum effect—these are all straight from the con artist’s playbook.
Jordan Belfort is therefore a worthy object of study. The public should want to understand how predators like him work their chicanery so they can vaccinate themselves against their narcotics and use his behavior to support a call for tougher laws and enforcement.