Securities Lawyers Mixed on ‘Wall Street 2’

According to four prominent securities lawyers, Oliver Stone’s latest film, Wall Street 2: Money Never Sleeps, may be a decent movie, but it took the wrong message away from the economic collapse of 2008.

The original Wall Street is perhaps best known for its villain, the iconic Gordon Gekko, who once proclaimed, “Greed is good.” In the sequel, which picks up roughly 20 years after the end of the first movie, Gekko, played again by Michael Douglas, has just gotten out of prison when he meets Jake Moore (Shia LaBeouf), a young stock trader who is about to marry Gekko’s daughter.

When Moore’s firm, Keller Zabel Investments, goes belly up thanks to rumors of instability spread by a competing trader named Bretton James (Josh Brolin), he asks Gekko to help orchestrate a way to get back at James. Gekko appears to have reformed since getting out of prison—but then again, it’s Gordon Gekko. The rest of the story proceeds against the backdrop of the economic collapse.

During a discussion following a screening of the movie on Friday night, Harvey Pitt, who served as chairman of the Securities and Exchange Commission during the attacks of Sept. 11, 2001, and is now CEO of Kalorama Partners, said that while he enjoyed parts of Wall Street 2, it unfairly argues that the proper remedy for the crisis is to send a handful of securities traders to prison.

“The issue is not whether people’s bets one way or the other were illegal. The issue was how their conduct conformed to existing requirements of fiduciary duty once it became clear that these markets were uncontrollable. Unfortunately, a lot of people were in the position to stop these things but that didn’t happen,” said Pitt, who represented Ivan Boesky, the real-life inspiration for Gekko.

John Sturc, a former associate director of the SEC’s enforcement division who now co-chairs Gibson, Dunn & Crutcher’s securities enforcement practice group, said, “In hindsight, we should have known better, but that’s not the nature of economics.” Sturc gave movie a thumbs-up.

William McLucas, a former director of enforcement at the SEC who now chairs Wilmer Cutler Pickering Hale and Dorr’s securities practice, said that some traders clearly violated the law with some of their trades and ought to be sent to prison.

“But the notion that we’re going to find the people who did this and put them in jail simply isn’t going to happen. Everyone, from the Treasury to the SEC to Congress to the Justice Department to the traders, bears some of the responsibility for what happened,” McLucas said.

He argued that the best approach would have been to step back and evaluate the economic crisis in a nonpartisan way and come up with a “reasoned and rational” set of policies to ensure it wouldn’t happen again. “That’s not what happened when Congress passed the financial reform bill,” McLucas said. He also gave the movie a thumbs-up.

Pitt agreed with McLucas and added that the financial reforms will not ensure that another crisis won’t happen. “There is going to be another crisis, and it won’t look anything like this crisis,” Pitt said.

Barry Goldsmith, a former executive vice president for enforcement at the National Association Of Securities Dealers and a former chief litigation counsel at the SEC, said that the post-crisis discussion of executive bonuses was a “perfect example” of how Congress missed the mark.

“Bonuses weren’t the primary cause of the crisis, but they received a disproportionate amount of the response because they were the low-hanging fruit. The real problem was that the whole system was out of whack,” said Goldsmith, who co-chairs Gibson, Dunn & Crutcher’s securities enforcement practice group. Goldsmith did not enjoy the movie.

One thing the movie did get right, McLucas said, was how dire the circumstances were in the days after Lehman Brothers collapsed. In one scene, the heads of several fictional banks sit around a table with the head of the New York Federal Reserve, saying that without a government bailout, the entire economy would collapse in a matter of days. “Even as we were going through it, there was very, very little comprehension about the degree of how close we were living to the edge,” McLucas said.

At one point during the discussion, John Hellerman, a name partner at the legal marketing firm Hellerman Baretz Communications, which hosted the event, asked Pitt to compare the 2008 downturn with the days after the 9/11 attacks.

Pitt said that while there were parallels between the two events, the difference was that “9/11 was caused by external events and the 2008 crisis was caused internally.” He said, “We did this to ourselves, and when that happens everyone wants to point fingers. The appetite for tolerance is much lower when tragedy is inflicted from within.”

Comments

[Keith]

Good grief. The crisis was caused by manipulation of the real estate credit market in an extension of the bubble economics used to "manage" the economy now for decades.

I saw interest only loans and reverse mortgages and said, "history repeats, here comes the Great Depression again, with all the known, specific antecedents."

Anyone who understands the Great Depression and how it was caused should have had red flags and sirens going off in their heads as Wall Street went down the same path... again. I sure did. Brain dead regulators and unconcerned bankers (or bankers seeing soem opportunity in a crash?) are the cause, along with the consumers that went with the roll.

[Paul Fisher]

The statement that we were close to the edge of collapse has been repreated ad nauseum but with absolutely no support other than quoting others saying it too. It's become a circular loop. Some bankers saw their own institutions on the brink and they generalized to 'the sky is falling' and the government then shoveled out the cash.