The Wolves of Wall Street

Deputy Editor reviews the film ‘The Wolf of Wall Street’ and what it can tell us about the recent financial crisis

Matthew Knott

Matthew Knott

“My name is Jordan Belfort. The year I turned 26, I made 49 million dollars, which really pissed me off because it was three shy of a million a week”.

If the old saying ‘sex, drugs and rock & roll’ could sum up Scorsese’s movie, The Wolf of Wall Street, there is a truth even more shocking that we can take out of this mind-blowing film. Let’s be honest, 49 million dollars a year is quite an achievement, but what matters here though is not the end but the means. Despite personifying the shameless and opulent Wall Street broker leading his immoral clique, Jordan Belfort’s acts and conducts are quite relevant to our recent history. Although the movie is set in the late 1980s and early 1990s, The Wolf of Wall Street raises a simple question: are financiers really like that?

Since the outbreak of the subprime mortgage crisis in 2007, a popular consensus has focused on the bankers’ rapacity and debauched lifestyles as a key trend behind the crisis. Undeniably, the years leading up to the financial crisis saw avaricious mortgage agencies such as Countrywide – not dissimilar to Belfort’s Stratton Oakmont – selling contracts to millions of NINJA buyers (No Income, No Job, No Assets). Eventually, financial institutions re-invested these highly illiquid bonds, very often aware, like Belfort and his gang of brokers, of their poor quality, thus creating a global network of highly toxic securities. We all know the results.

On the one hand some bankers got tremendously rich, while on the other hand millions lost their jobs and homes. Richard Fuld Jr., Chairman and CEO of the now wound-up Lehman Brothers for example, received a $22mn bonus in 2007. Like Belfort, he encouraged his troops before trading: “I’m lovable but what I really want to do is reach in, rip out their heart and eat it before they die”. Similarly, Bear Stearns’ CEO Jimmy Cayne often left office by helicopter to attend golf weekends and bridge tournaments. Raj Mahal, a former Wall Street trader in the 2000s even reported that he once went to a party “where dwarfs were hired to dress up as leprechauns” and where his friends snorted a “whole eight-ball of coke”. Not too different from Jordan Belfort’s midget tossing is it?

Notwithstanding the abuses and greed, the causes of the financial crisis are far more complex. The Federal Reserve, under Alan Greenspan’s leadership, promoted deregulation, and in doing so arguably bestowed to financial institutions almost total unregulated freedom. Similarly, the Security and Exchange Commission chose not to intervene in the massive leveraging (amount of debt used to finance a firm’s investments) that set up the financial crisis.

Notation agencies such as Standard & Poor’s even attributed AAA notes to toxic securities in the hope of higher returns. To a larger extent, American consumers are also to blame. They bought far too much, living beyond their means. Private household debt soared from about 60 per cent of income in 1982 to more than 130 per cent in 2007. Finally, the Bush administration had something to do with this, in its extolling the right of car and home ownership, and only fuelling consumption. The wolves were not only on Wall Street

As a result, Scorcese’s controversy strikes a scarier truth; that Belfort’s incredible lifestyle is neither a thing of the 80s or just of the movies. However, at the end of the day, The Wolf of Wall Street can still teach us something, and it’s this: whether you want to be a multi-millionaire broker, a successful politician or a happy wife, don’t take drugs; it’s bad.

5 comments

  1. 29 Jan ’14 at 1:26 pm

    Not business at Nouse

    Snored coke? This article is crap, it’s written badly and so lacking in knowledge of the financial industry. It isn’t Scorecese’s last film either. Fucking moron.

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  2. This article makes me nearly as angry as the film did.

    Ditto that it’s probably not Scorsese’s ‘last’. Get better at writing.

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  3. “Notation agencies such as Standard & Poor’s even attributed AAA notes to toxic securities in the hope of higher returns.”

    Why would you attribute AAA ratings in the hope of higher returns? A triple A rating classifies a security as very low-risk and so investors would require very low returns.

    What is a ‘notation agency’ or an ‘AAA note’?

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  4. Famous notation agencies, also called credit rating agencies are Moody’s, Standard & Poor’s or Fitch Ratings.
    Their job is to assess the creditworthiness (quality) of both debt securities and their issuers.

    These agencies collected higher fees from the different institutions it noted for structured products. Therefore, financial institutions paid higher fees to these notation agencies to give AAA grades, in order to attract investors seeking to buy structured products because these assets seemingly offered high expected returns with a small probability of default / risk.

    As a consequence notation agencies over-rated certain toxic assets.

    The word “return” doesn’t concern investors but notation agencies.

    Hope this helped

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  5. How did this article get past the editing stage?

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