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Wall Street is wrong I’ve just watched the film Wall Street for the very first time. I know I’m a few years late, but c’est la vie. The movie subjects viewers to the economic fallacy that asset stripping does not create wealth.
When financiers asset strip a company, they do something very useful. They take assets that are not being used efficiently, and change their use to something more valuable. It may not be nice for those employed by the company, but the country as a whole is better off as a result.
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It’s been a while since I’ve seen Wall Street, but I don’t think Stone was trying to say that asset stripping is inefficient. He may very well agree with you on that point. The main theme of the movie: Efficiency should not be sought at the expense of morality or ethicality.
The whole point of the asset stripping was to make you feel bad for the dudes who had schlepped for the airline (Blue Star? Blue Sky?) for their 20 odd years. Capitalism/greed bad. Poor hapless workers, good.
its a bleedin film what are you going to write next week – about how Saving Private Ryan makes the errounous assumption that all Germans are naziz
Assest stripping isnt always good, so its a fair premis, it just is as a sysemt
First – Please do not interpret this as a defense of anything produced or written by Oliver Stone. He is either incapable of distinguishing fact and fiction, or else he inhabits some parallel dimension and periodically empties his literary trashbin here.
Having said that, and adding that I have not and will not see his movie, I have to say that your comment that:
“When financiers asset strip a company, they do something very useful. They take assets that are not being used efficiently, and change their use to something more valuable.”
is a little simplistic. It may be true or it may not. It all depends on what the financiers then do with the assets, and whether the assets shrink in value when they are detached from the now defunct body of the company. It certainly is not obvious that this is always a gain.
One other consideration is that in a boom period, when assets have a greater price under the “greater fool theory” than they do in terms of anticipated production of wealth, a greater long term value may not preclude their being liquidated to realize a lesser short term profit. I believe, (although to be honest, I do not know), that most asset stripping goes on during booms so that this situation is more likely the norm than the exception.
In short, it may be useful to make a distinction between financiers and entrepreneurs. Asset strippers may not always be both simultaneously.
Assets are the useful qualities of a thing … to remove the assets is to assume that the thing can no longer function as a whole.
The equivalent in the natural world would be a predator or a vulture. Not a good sign for any company!!!
Whether an asset stripper is a good thing or a bad thing is dependent on whether the company as a whole could be successful with its assets – that is more down to good managment than anything else… as good management would insure that the company remained as viable as possible given any economic climate.
An asset stripper is really only useful in a case of extreme bad management… otherwise its just a case of greed and the film would therefore be correct 🙂
Well that’s my take anyway.. OK that’s a wrap, so cut , print and flog the cameras 😉
For a pro-asset stripping movie, try Danny Devito’s “Other People’s Money.”
“A corporate raider threatens a hostile take-over of a “mom and pop” company. The patriarch of the company enlists the help of his wife’s daughter, who is a lawyer, to try and protect the company. The raider is enamoured of her, and enjoys the thrust and parry of legal manoeuvring as he tries to win her heart.”
Great speech during the stockholder’s meeting at the end. All about nostalgia vs. profitablity. Plus Danny gets his mack on with Penelope Ann Miller.
The main economic idiocy in the movie Wall Street is the preposterous ‘fixed wealth fallacy’ when Gordon Gekko says ‘it is a zero sum game’. Sorry but that just shows what an ignoramus Oliver Stone is… what he is saying is that wealth creation is actually impossible and economics is actually just a matter of wealth redistribution. This is the economic equivalent of ‘flat earth theory’.
As Bradley Hardacre once said lustfully, “… to strip away the underused assets to reveal the vital, throbbing, profitable form below.”
It’s been to long since I saw Wall Street for me to remember most of it but one thing stuck. As a teenager I thought the “Greed is Good” speach was way cool.
I believe the quote is actually:
“Greed… for want of a better word… is good!
It makes the remark significently different.
It seems that all the carping above about asset stripping can be reduced to the statement that “asset stripping done stupidly is not good.” I think we can all agree on that.
Let’s review Oliver Stone’s general intellegence where economics and finance are concerned. I think this quote sums it up:
Oliver Stone on Fidel Castro: “We should look to him as one of the Earth’s wisest people, one of the people we should consult.”
On the point of asset stripping I think T. Hartin sums it up nicely.
Greed IS good. It’s the drive to better one’s self that creates the engine of capitalistic growth. If I want a Porsche (I could be called greedy for one), I cannot obtain it by killing its owner, stealing it, etc, but by providing something of use to society and receiving its returns. Back to the invisible hand.. the butcher & baker aren’t doing their services for public interest, but their own motives, yet public gain results.
Wall Street was a vilification of the T Boone Pickens and Henry Kravis’ of the 1980s, which is nothing more than a rehash of the mistrust of ‘fat cat’ financiers. If capital is not earning a high enough return, than it probably can be more profitable be employed if returned to its owners and redistributed, rather than languishing in corporate treasuries. To say asset stripping is bad is similar to claiming that downsizing government and returning tax dollars to taxpayers is bad, because it costs jobs, etc. If you look at what LBOs (MBOs in Europe) have actually done, they have not razed the company to the ground, rather they have redistributed assets to those who believe they can employ them more efficiently. Sure, they haven’t always been successful, but no businessman is perenially succesful, and to expect each LBO to yield positive results is about as foolish to expect each stock/share you ever invest in over your lifetime to gain you profit.
Frank, Greed is taking the step beyond fair desire. Greed is where you have worked for a slice but eat half the cake. When someone comes to you with big greedy eyes its time to kick them in their little greedy nuts and put some perspective of reality back in their wish list 😉
As for:
“To say asset stripping is bad is similar to claiming that downsizing government and returning tax dollars to taxpayers is bad, because it costs jobs, etc.
Well nooo – that’s totally different altogether!
And if I invest in a company of course I expect it to keep producing a profit – what other reason is there for investing in it… masochism?
Joe: I agree with your general comments, but realize: the one thing we are confident of when assets are ripe for stripping (e.g. undervalued by the market relative to their productive capacity) is that current management sucks. This is almost axiomatic.
Whether the assets need to be carted off in pieces or whether they can remain in place as a single corporate unit with better management is the open question.
Also, “fair” is a totally subjective term, and not a very useful one. If I’m willing to work very hard towards the achievement of a legal goal, and someone is willing to pay me a salary that the two of us agree upon without coersion, what right does anyone have to interfere with that transaction?
“When financiers asset strip a company, they do something very useful.” This is sometimes true, but not always. Often, a company’s most valuable “assets” take the form of things that are not well-recognized by those who lack a detailed understanding of the business–customer relationships, key employees, emergent technologies, etc. Many companies have been harmed or destroyed by those who failed to understand these matters.
My wife used to work in M&A at a major City bank. She had some pretty horrific stories of what the analysts would do to ensure they could take over businesses, down to private dectectives reports on the personalities of key managers and what information they could use to get stock control.
The other phrase she came to hate was “rationialisation” which generally meant that a lot of people were about to loose their jobs.
Sometimes things are improved, MBO’s can have a massive impact on businesses. Often, however, the senior management are simply bought and the supporting organisation make a massive commission. The viability or future profit has, I suspect, become secondary in some of these mergers as witnessed by lunacy like AOL/Time Warner.
A curiosum of Wall Street is that it is very difficult to see what the Charlie Sheen character does that is illegal. Overhearing a conversation in a lift does *not* make one an insider (there was actually a question on this in the Securities Institute exams once) and it is not at all clear whether his father is an insider within the legal definition.
Jonathon, I agree more or less in agreement with you regarding management but I’m going to stick with “fair”.
Subjectivity is at the heart of all individual negotiations. The more subjective the terminology the more freedom we have. Provided a contract doesn’t ignore the basic rules of humanity… then for an employer or employee to willingly agree a different boundary to these rules for specific gain which doesnt impinge on anyone else then that too would remain “fair”. The downside is that it relies more on personal integrity… so the basic tenets must be rigidly enforced if it is to have any real meaning.
Dsquared, by US law, hearing inside information does make you an insider, meaning you cannot act on or knowingly transmit (if someone overhears two directors speaking in an elevator, I think that’s dismissed). US v. Chiarelli (in which a printer who was printing up M&A offer documents acted on that information was found to be guilty of insider trading) and O’Hara v. United States (an unsuccessful appeal of a conviction for insider trading in which O’Hara, a litigation attorney who overheard something at his law firm, traded on it) state this.
Asset stripping and spin-offs are returning money to share holders, money that would otherwise be inefficiently used. In that way, they are the same as a tax rebate. My point about profit is that not all investments will make you profit, just as not all LBOs make their investors profits. You can’t expect a 100% success rate.
On ‘fair’, I love that term in the market. Take fairtrade.
Joe: I couldn’t agree less with your contention that “subjectivity is at the heart of all negotiations.” Have you chanced to read Fisher, Ury and Patton’s “Getting to Yes,” which is considered part of the canon for Sales People? In it, the authors stress the importance of steering wherever possible towards objective, mutually-agreeable standards by which to come to common agreement. Bullying, threats and arbitrary hissy-fits are to be avoided and left unrewarded in all situations. The successful negotiator is encouraged to understand the opposite party’s needs and creatively ideate all possible options which satisfy the needs of both parties, and negotiate the best from among them.
For you and I to resign ourselves to different “subjective” definitions more or less guarantees that we will not see eye-to-eye. You may succeed in bullying me into accepting your terms, or vice versa, but I will not truly be bought into the win-lose solution you inflict.
I maintain that the the term “fair” like “aloha” and “shalom,” has so many possible meanings as to be meaningless in a conversation between two disagreeing people. A loud belch conveys more actual information (though to be fair, the precise meaning varies culturally).
It is far better for society to set an objective set of beneficial goals and let the participants set out to achieve them using all legal means, modifying the laws if necessary to prevent gross abuses, than to constantly intervene with subjective notions of “fairness,” handicapping the most successful players halfway through the football match.
dsquared:
There are things that Sheen did that are illegal but shouldn’t be, and things that he did that were illegal and rightly so. The spotting of Stamp’s character with the ‘heavyset beancounters’ in a restaraunt and the overhearing of conversations in elevators are examples of the former, and his entry into offices through fraud and subsequent espionage are examples of the latter.
The illegality of the latter is easy to see, but the former takes some explanation. Insider trading is trading on information that isn’t public, and the key to understanding is to recognise the snarling egalitarianism inherent in the meaning of ‘public information.’ Public information is composed of two things: first, the content of official publications (government, media, etc) and that which can be gained by observation of activities in public locations that *any* member of the public can go to and expect to see. The snarling egalitarianism comes into it on both counts: for the first first, persons with connections are barred from profiting from them merely because others DON’T have these connections (ie direct access to those who know what’s in the books etc); and for the second, making observations in places that one generally *doesn’t* expect to be able to gain market-sensitive information from is in essence getting lucky. In both cases, making profits from having non-public material information is wrong because it is ‘unfair.’ The ‘market integrity’ argument is just the same thing restated because it presumes that egalitarianism is expected by the hoi polloi – ie this argument is mere appeasement founded on expediency.
In the movie, Sheen broke the insider-trading law in both ways, by having connections and by observation in places that are, for the purposes of the law because of their unrelated nature to the firm whose securities were traded, not public. This is of course in addition to the B&E by artifice (pretending to be a consultant to that cleaning outfit) and actual espionage. Gecko is guilty of the same for getting Sheen to do all this, plus that he actually engaged in trades and got others to do the trades.
btw, I will be taking that Securities Institute exam in a few months’ time – C3, I take it?
As to asset stripping, I think we can all concur with T Hartin. The next issue is though what constitutes ‘stupidly.’ Stupidly is where it is carried out without proper investigation to the profitability over all, ie done for petty-politics or bloody-mindedness etc. It is stupid because it endangers profits, NOT because it causes job losses or harms the economy. There is nothing inherently wrong with acting to make profits for the self interest of oneself and one’s principals.
JJM
Jonathon, I don’t understand how you are contriving to explain the notion of “fairness”… without relation to subjectivity. The ideas you supply from the book “Getting to Yes” are completely compatible with my ideas.
Being subjective does not resign either party in a negotiation to completely opposing views in which neither can see eye to eye…. that only occurs when only one specific outcome is imagined with no freedom to change what is being negotiated. When the whole trade is subjective – it allows freedom to offer a full spectrum of options within what can be traded and also how it can be traded. This leads to more chance of a win win outcome, an outcome in which both parties come away happy.
The only term for fairness worth bothering about is the basic general understanding that it is wrong for one party to try to screw the other party… and that if they do they will suffer consequences. Whether those consequences come from the aggrieved party or any larger overseeing group is irrelevant.
That single basic notion of fairness is all that is required.
Exactly the same notion of fairness exists in football and is well understood by everyone it doesn’t handicap anyone… if some idiot successful or not thinks he can get away with murder -and if the ref doesn’t stop him -regardless of his “talents” somebody else soon will – usually in a more painful manner. Such is fair.
Beyond that basic definition – The subjectivity of what is allowably fair is entirely dependent on the game or negotiation in hand.
With this in mind then there are only three real levels of subjectivity in fairness: For a deal to be agreeably onsided as when playing games with a child; Or as is more usually the case- it should be extremely open, honest and on a level playing field; Or as in the field of love- a total hardball game where everything goes and no holds barred 😉
Provided the level of fairness is known in advance – all the rest of the negotiation should be as subjective as possible allowing for the greatest freedom in negotiation….. of course there will be constraints upon either party as to what can and cannot be offered – but that is where good sales skills come in handy 😉
Of course it is now into the small hours of the morning and being tired I may have misunderstood your last post – in which case I will probably not have been fair to you and possibly far too subjective 😉