The Situationist

Archive for October 12th, 2010

The Recovery Within Us: The Human and Legal Situation of “Wall Street 2”

Posted by David Yosifon on October 12, 2010

The financial markets may fail, and personal lives may be wrecked, but as Gordon Gekko (Michael Douglas) says in Wall Street 2: Money Never Sleeps: “nobody likes a cry-baby.” Oliver Stone’s new film is a rally for the old American strategy of overcoming calamity through love, capital, and labor productively employed.

As the film opens in 2008 the world is on the edge of economic meltdown, but the kids are alright.  In the first Wall Street we watched a young stockbroker, Bud Fox (Charlie Sheen), back-slide from the straight path of his union-leader father, into a reckless life of corporate raiding and insider trading.  The sequel’s up-and-comer, Jacob Moore (Shia LaBeouf), has a more serious name and a truer purpose.  This twenty-something is smart, energetic, and idealistic.  From his post at a prestigious investment house he seeks out capital for an under-funded alternative-energy firm that maybe can change the world.  In the 1980’s Bud Fox was all too eager to snort cocaine with the first stranger he finds removing her blouse in a limo made available to him under uncertain terms.  Jacob Moore enjoys the nightclub scene, and likes his whiskey, but he loves Winnie Gekko (Carey Mulligan), has marriage on his mind, and faces down the temptations of money and flesh.

This is not to say that Jacob does not falter.  He meets secretly with the infamous Gordon Gekko, the estranged father of his fiancé, because he believes they need to repair their relationship before she can be fully happy.  This well meant scheme puts an unforeseen and potentially catastrophic strain on the lives of all involved.  Stone’s movie thus takes humanity in all its comprehensive frailty.  In life, as well as in economics, even where corruption does not get us, we are still vulnerable to stupidity (limited cognitive capacity) and over-confidence (motivated reasoning).

In the first film the social stakes in the wheeling-and-dealing balance were the jobs of the men and women who worked with Bud Fox’s father (played by Martin Sheen) at Blue Star Airlines.   After Bud helped Gekko acquire Blue Star, Gekko wanted to break it up and sell off its parts at a profit.  The heart-attack that Bud’s father suffers when he hears the news symbolized the devastation that the 1980’s take-over and bust-up market brought to the lives of American workers.  Gekko and Fox both end up in prison at the end of the first movie, convicted of insider trading.  But insider trading had little to do with the corporate dynamics behind the bust-up of companies like Blue Star.  In the real world nothing was done in the 1980’s or since to change state corporate law or federal securities laws to ensure greater protections for workers or consumers in corporate decision-making.  The failure to make such reforms is in part what made the more recent financial devastation chronicled in Wall Street 2 possible.

After eight lonely years in prison, Gekko emerges in the second film with profound insights about both himself and the market.  Having finally understood that it was greed that cost him everything — money, family, and freedom — it becomes easy for Gekko to see from the sidelines the madness going on in the debt markets all around him.  Everyone from the investment banks to Jacob’s real estate agent mom (Susan Sarandon) got swept up in the fantasy that investments in housing – through securitized sub-prime mortgages or just a couple of “spec” houses – could never go wrong.  Diagnosing this madness, Gekko knows that he can make billions by shorting the debt market (if he “only had the first million.”).

While some of Stone’s characters echo popular political sentiment and sneer at the idea of “making money on losses,” most scholars are agreed that short-selling (betting that a stock will go down) can aid the healthy functioning of the market.  After all, if the world knew that someone as savvy as a Gordan Gekko was betting against the housing market, they might begin to doubt their own certainty that housing will only go up.  For that matter, active short-trading might give us a better sense of just how confident we should be in the viability of Jacob Moore’s favored alternative-energy start-up.  As Gekko himself puts it in this film, “Bulls win, Bears win.  Pigs get slaughtered.”  It turns out that there were some savvy investors who were short on housing prior to the recent meltdown, but the short positions were structured in such a way as to avoid the federal securities laws, and were thus hidden from public scrutiny.  The signaling value of such short-positions was thus lost, as investors and consumers kept on marching towards the slaughter.  Some of the most important reforms to come out of the recent crisis are aimed at ensuring that sophisticated shorting is publicly visible so that it can serve this crucial informational function.

The human stakes of the recent economic collapse are said in the film to be dire.  But Stone’s picture is more interested in showing our capacity for renewal than dwelling on our failure. The film is an ode to human resiliency.  At the heart of the meltdown Stone’s camera follows Jacob to the ruins of the World Trade Center, but only for a reflective moment.  Far more screen-time here is given to the Empire State Building, proudly standing in for the Twin Towers, whose grandeur visually anchored the first film.  Confidence and hard honest work will never be enough if our laws and institutions are out of whack.  But Stone’s film seems to argue that if we can stay on this side of corruption, our other frailties will not do us in.

At one point in Wall Street 2 Gekko and Jacob find themselves in the back of a cab careening recklessly through mid-day traffic.  Gekko tells the cabbie that he will pay more if the driver will go slower.  This may be the best lesson we can take from the bursting of the housing bubble and the subsequent economic crisis.  We all might consider ourselves better off, and we might be willing to pay for it in forgone speed, if our rides up and down Wall Street were a bit more cautious.

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David Yosifon is a Situationist Contributor and Assistant Professor at Santa Clara University School of Law.

For a sample of related Situationist posts, see “Our Stake in Corporate Behavior,” “The Problem of Old Fears and New Dangers,”The Illusion of Wall Street Reform,” “The Situation of Mortgage Defaults,” “Posner on Keynes and the Economic Depression,”The Situation of the American Middle Class,” “The Situation of the Mortgage Crisis,” and “The Financial Squeeze: Bad Choices or Bad Situations?.”

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