Wednesday, February 11, 2009

My Response to Crooked Timber's Analysis of "Wall Street"

This one I have put off for a while, with no really good reason for doing so other than being busy. However, after buying the 20th anniversary edition of "Wall Street" (my 2nd favorite movie of all time!) on DVD and watching it over and over, I found this analysis on crookedtimber.org and felt compelled to respond to it. I think several components of the review seriously overlook basic facts established in the film. So let's start at the top.

First, I don't disagree with the ultimate hypothesis of this review -- that Gordon Gekko was ultimately acquitted on all charges of securities fraud. Bud Fox, on the other hand, I'm not so sure about. While I see the author's point, I think some of Bud's actions were clearly illegal.

In the second part of this review, I plan to examine some things about Gekko that are critical to my understanding of the man and his motivations. Part II will encompass more of what is considered a movie review.

The first 2 points as laid out by our author only minimally trouble me. The first big problem is with the 3rd of the 6 "general areas" of charges against Gordon Gekko -- trading in Fairchild Foods, Rorker Electronics and Morningstar. Bud Fox does not bribe the owner of Marsala Maintenance to get a job which allows him to wander through the offices of Roger Barnes' firm late at night. In fact, he proposes to Mr. Panos, the aforementioned owner, an arrangement in which he would make an equity investment into Marsala. His exact words, at 57:10 (20th Anniversary Edition on DVD), are "Let me ask you something - what would you say to some working capital and a partner?" He then goes on to lay out his idea, noting that Panos' business is so good that he doesn't have the resources to keep up with his current book of business, not to mention the business that Bud can bring in. You'll also note that Bud walks through the site with clipboard and pen, appearing to evaluate various facets of the business and performance of its employees. At no time does he even deign to pretend to be cleaning. He's an investor monitoring and managing his investment, or at least, that's the image he seeks to portray.

Clearly, Bud has broken the law by reproducing files of Marsala Maintenance's client. There can be no doubt about that. But his gaining access to the offices cleaned by Marsala Maintenance, Roger Barnes' included, are legal under the arrangement he proposes to Panos. Whether that is the actual deal, or some variant thereof, which Panos agreed to, we cannot know. However, you can even call it a bribe. But it was not a bribe just to become an employee. He had the money to at least backup some of his claims, and Panos, being an intelligent businessman, made a business deal to expand his operation.

The 4th general area that this review covers is the conduct (or lack thereof?) surrounding Teldar Paper. This is on Gekko's radar long before he encounters Bud Fox, so there is no impact. Bud is an observer to these proceedings. I will note the mention that Teldar Paper being "leveraged to the hilt, like some piss-poor Latin American country" also has nothing to do with Gekko. In fact, it is probably a large reason that Teldar is position to be raided by Gekko. This is the fault of the then-current management, Cromwell (played by Richard Dysart of "L.A. Law" fame) and his staff. How he could even use this point to implore the current shareholders in Teldar to turn down Gekko's tender is beyond me. It's really an indictment of his poor management. So I agree generally with our author regarding this point.

The 5th general area is Gekko's conduct regarding a buyout of Bluestar. Our author seems to have missed the conversation that Bud and Carl (his father) have around the 1:00:00 mark where Carl informs Bud that the "damn fare wars are killing us" and that he's losing 5 of his men to layoffs. The FAA decision is just one of many affecting the outcome for Blue Star. All it did was increase the airline's chances for success. The author (Daniel) also presupposes that Gekko's intentions at the outset were less than honorable. However, I think we can discount that theory based on the outcome of the meeting at Bud's apartment. Gekko is more than willing to let Bud carry the ball in courting the unions. He also proposes a buyout with employee stock ownership provisions and other incentives for success. Only after Carl lambastes the idea do we see the change in Gekko's enthusiasm. He is obviously crestfallen. Now, none of this is to say that Gekko did not have the breakup idea in his back pocket the whole time, but I think the breakup was not how he intended to enter into the deal. Instead, it became his way of making lemonade from the situation.

Daniel's thesis that Bud committed fraud in his dealings with Gekko regarding Bluestar is plausible. Since I am not a securities lawyer (especially in the late 80s, as I was 12 when the movie was released), I can't say.

I won't address the 6th general area, as my feelings are generally in line with Daniel's.

So that's it. Bud Fox, an ambitious young stockbroker breaks several laws in order to curry favor with the high powered financier he idolizes, until his own world is threatened by his ambitions. He then has a change of heart and turns on his mentor. While ethically, Gekko's actions are questionable, I think they are far from being illegal overall, while Bud Fox has quite clearly crossed the line into illegality.

If you made it this far, you're probably wondering why I wrote this. Honestly, when I found the crookedtimber.org analysis, I was searching generally for information about the movie and stumbled upon it. However, if you watch the movie closely, as I have innumerable times, the points I make above stand out like a sort thumb compared to our reviewer's analysis. This was my attempt at setting the record straight.

In part II, I'll delve into what I think is the motivation behind Gekko. Until then...

2 comments:

Dan Davies said...

Good point on Marsala Maintenance - viewing the film again you're clearly right. But I don't think Gekko ever really intended to make Fox the CEO of an airline. He isn't really a venture capitalist - he's a corporate raider. And although you're right about the "damn fare wars" quote, surely this makes it even more unlikely that he would be interested in Blue Star (as opposed to its pension fund).

After I wrote the review, it was pointed out to me that the real anomaly in the film is that Fox is marched out across a crowded trading floor, in handcuffs, but Gordon Gekko, Mister Information himself, seems to be unaware of the fact and agrees to meet him in Central Park.

Very much looking forward to part 2 - watching the film again a couple of months ago, I'm amazed that I thought that the "Jews vs WASPS" theme was arguable or debatable - it's obvious. The line "Not bad for a City College boy" is absolutely key to Gekko's character IMO.

Khyron said...

Dan,

Thanks for the comment! I honestly didn't expect you to respond (as I figured you'd moved on to far more important things). Nice to know I got your attention (to me personally).

You know, it is entirely debatable whether Gekko truly intended to install Bud as president of Bluestar. Who knows, right? We never went down that branch of the decision tree. The thing that leans in your direction w.r.t. this matter is the look on Gekko's face as he ponders the deal aboard his private jet. Recall, he then tells Susan to have someone "look into it" (the exact name escapes me right now). Something has clearly caught his eye, but we can't be certain what it is.

However, taking over Bluestar is not outside the realm of a corporate raider if he thinks he can increase value for later monetization. It's the very heart of the private equity business, except the principal would be the PE firm instead of a single personality. (Or not. Look at Icahn or Kravis or Schwarzman. The Cult of Personality rears its head in PE too.) While the primary MO is liquidation, I doubt it's the only tool in the box. Gekko is hardly an altruistic character, so I doubt he's indulging Fox's desire to take over BST because he's a nice guy. Again, it's one of those open ended things we get to speculate about. While probability is with your argument, possibility is with mine. :)

(Don't they call these types "activist investors" now? Gekko would surely get that label today.)

Yes, the biggest anomaly is the fact that Gekko has not heard of Fox's arrest. In fact, it's a gaping hole in the movie. I wish Stone had addressed it in the director's commentary on the 20th anniversary edition.

Then again, maybe Gekko knew of Fox's arrest and yet (arrogantly?) figured that it wouldn't matter to meet with him (obvious setup) and say what he did (again, no context w.r.t. an SEC investigation). Consider this, and it's just a hypothesis: Gekko could have been working on those deals w/o Fox's involvement or knowledge, so he could have funneled information about his trading to Fox. (Again, we can't be clear on the motivation for Gekko to do so; maybe it was payback for something Fox did prior.) I have to wonder if this would be illegal, then or now. Here's a client, who obviously has other means to trade, telling a broker he works with that he's taking positions in these other firms. Even if it is illegal, could this be proved based on the information we have/know to exist?

I think I lack context for the Jew vs. WASP debate. Why would City College qualify him for being Jewish? Call it my naivete. I'd vote for Gekko not being Jewish, based on the proclivities we observe about him. His wife, his ex-mistress, his dress and drink. We can't use what he didn't say (since we don't know what he didn't say). Besides the CCNY/WASP points, there's no there there. I would contend that his remarks about WASPs were an observation, not a criticism. He says it somewhat matter-of-factly (though you can argue that he has the sound of disdain in his voice) and he tells Bud that this is worth remembering. Again, who knows?

Finally, let me comment on the 80s kitsch you mention. Yes, stapling up the cornice in the "Changing Rooms" (your name) scene is horrible. I cringe every time I watch that, and I agree that the TRUE theft lies therein.

Thanks for playing along! I'm working on part II now.