There’s plenty of excitement in the financial blogosphere about the The Big Short — the new movie about the credit crisis of 2007-08, based on the book by Michael Lewis, and starring Christian Bale, Steve Carrell and Brad Pitt. Frustratingly, I still have a few days to wait before it’s released in the UK, but for me (and I suspect many of my generation) the quintessential financial movie was Wall Street.
The film is best known for its central character, the broker Gordon Gekko, played by Michael Douglas, who memorably declared that “greed is good”. (“Lunch is for wimps” and “You need a friend, get a dog” are other Gekko-isms that have stuck in my memory.)
Wall Street is very much seen today as a film of its time, a critique of the quick-buck culture and the excess prevalent in the financial industry in the 1980s. But are things really so very different now than they were then?
There’s certainly more regulation today, which by and large has benefited the consumer. But, in real terms, salaries and bonuses are far higher than they were 30 years ago. Since 2008, the industry has paid out more than £150 billion in fines for misconduct — equivalent to the annual economy of Greece or Portugal. The sorts of shenanigans that Gekko got up to seem fairly tame in comparison to recent misdemeanours.
One of the most fascinating things about specialising in the area I do is that many prominent advocates of evidence-based investing and client-focussed financial advice have personal experience of that “get-rich-quick” culture. In a recent blog post, Nilus Mattive, Editor of Easy Street Investing, recalls a job interview he attended that could have been a scene from Martin Scorsese’s The Wolf of Wall Street.
It went something like this:
“You get in early, and read The Wall Street Journal to get up to speed on what’s happening in the markets.
“Then you start making phone calls. We mostly target the UK first since they speak English and it’s later in the day there.
“You pitch the ideas we give you. And you keep doing that all day.”
Nilus then asked what the firm’s recommendations were based on — a question his interviewer chose to ignore, before launching into telling him about one of the firm’s recent recruits:
“Two years ago he was hopping the subway turnstiles to get on the train. Dropped out of high school. Didn’t know a thing about investing.
“Today he’s one of our best producers. Just bought a condo on the Upper East Side, has money coming out of his ears, and is engaged to a very attractive girl now.
“All you have to do is follow the approach I just told you about and you can be there too.”
The culture of an industry is hugely important. It was primarily cultural issues, for example, that caused the financial collapse. That’s why it’s so disappointing — and alarming — that the UK regulator, the FCA, probably under pressure from the Treasury, has just decided to shelve its inquiry into banking culture.
We mustn’t delude ourselves. Most of the financial industry primarily exists to enrich itself, not the customers it’s supposed to serve. The fact that only 25 out of more than 200 members of the UK’s Investment Association have signed a Statement of Principles committing them to put clients’ interests ahead of their own tells us all we need to know.
Author Dan Solin recently wrote in the Huffington Post:
“Movies like The Big Short do a great job of exposing the underlying greed that pervades the industry. But don’t be fooled. While the financial crisis dealt a devastating blow to the retirement dreams of many, it pales in comparison to the daily plundering of assets that occurs when investors listen to the recommendations of those who claim an ability to ‘beat the market’.
“There is a way to ‘win’ as an investor. It starts with the realisation that doing business with “market-beating” stockbrokers and advisers is designed to enhance their retirement at your expense.”
Wall Street apparently inspired many of my contemporaries to work on Wall Street and in the City of London. It might be a vain hope, but who knows, perhaps The Big Short will have the opposite effect.
Gekko was wrong. Greed isn’t good. But it remains alive and well in the financial industry.
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Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
