Today’s WSJ covers Hollywood’s treatment of business. And so, of course, they went to the Source (link added):
Hollywood has been famously left-leaning for decades, even as it teemed with shrewd business operators. Larry Ribstein, a professor of law at the University of Illinois who wrote a paper called “Wall Street and Vine” about the historically negative portrayal of business in film, concludes that the ongoing antipathy to corporate execs in films has nothing to do with politics. Rather, many creative types—notably screenwriters and directors—are expressing their own perennial resentment of bottom-line focused studio heads, who often seek to dilute a film’s message for mass-market appeal.
Orson Welles, director of the 1941 classic “Citizen Kane,” about a ruthless media mogul based on William Randolph Hearst, detested interference and famously refused to allow studio executives to visit the set. “He was feeling that artist resentment,” says Mr. Ribstein.
The Journal article has interesting background on the current “Margin Call,” which it describes as unusually fair to business, and suggests it’s because the director’s (J.C. Chandor) father, worked for Merrill Lynch:
A low-budget movie with a high-powered cast, its Wall Street characters are flawed, cynical—but, for once, actually human. * * *.
Mr. Chandor says he wanted to draw a more balanced portrait of the financiers who were being demonized in the media for causing the global economic collapse. The caricatures of executives being denounced by politicians at the time bore little resemblance to Mr. Chandor’s dad, he says.
I wonder how sympathetic the film comes out. I remember another director whose father worked in the securities industry — Oliver Stone. (My article about Wall Street discusses, among other things, all the father-son threads in the movie).
Brad DeLong’s timely insight
Yet that day of getting serious about building a model that could match the time series never came.
Moreover, I would say that it will not come.
Any rational-expectations model must match the ex post distribution of economic outcomes to the ex ante expectations of economic agents. Thus if it analyzes the post-World War II U.S., it must now must assume that 2008 was always in people’s minds as a possible outcome that had some significant probability.
But, in fact, 2008 was a close-to-zero probability event.
James Cayne and John Fuld each lost about $1,000,000,000 and destroyed their firms in 2008–if they had seen any significant possibility of that coming, they would have acted very differently. The investors in and holders of options on Citigroup lost 93% of their money as a result of 2008. The investors in and holders of options on Bank of America lost 85% of their money as a result of 2008. The investors in and holders of options on Morgan Stanley lost more than 75% of their money.
It is not the case that the senior executives of these banks understood the risks that they were running, gambled, and lost. They had no clue that they were holding as much mortgage risk or house price risk or AIG risk as they were. They had little clue that the lower tail of the house price change distribution was as large as it turned out to be–and they confidently expected the Federal Reserve to save them and the economy and keep them out of that lower tail. They were not stupid. It was just that the world turned out to be stranger than they, given who they were and what their life-experience had been, imagined. As one former major Wall Street CEO once told me: you never know what your beta really is, because there is always some important of systemic risks that eludes you.
Any rational expectations econometric analysis of the U.S. financial sector will hae to assume that economic agents had an average expectation that 2% of the time the next year would be like 2008. And that is simply wrong: the expectation that 2008 would come was 0.02%, or at most 0.2%.
So it simply can’t be done. The rational expectations assumption that agents anticipate the probability distribution of outcomes predicted by the correct economic model is simply wrong.