February 09, 2016
icon Timothy Geithner's Semi-Charmed Life
Posted by Matt Bodie

Former NY Fed Chair, Secretary of Treasury, and tax scofflaw Timothy Geithner is in the news again.  The now-president of Warburg Pincus has set up a line of credit from JP Morgan to invest in one of his firm's private equity funds.  The move is fairly standard for both Morgan and private equity members looking to scale up their investment.  In fact, it may be evidence that Geithner is relatively worse off, financially, than many of his private equity compadres -- he's been called "one of the least wealthy Treasury chiefs in recent history."  But it comes in the wake of allegations that Senator Ted Cruz failed to properly disclose a loan from Goldman Sachs -- another instance of those with connections getting loans that most could never dream of.  And it's a reminder of the chumminess between the feds and the Street that the whole Bernie Sanders revolution finds repugnant.

Timothy Geithner is something of a Rorschach inkblot for modern economic politics.  You may see him as the son of microfinance advocate with an international upbringing who worked a series of modestly paid government jobs in service to a progressive economic agenda, ultimately saving the economy from complete collapse and worldwide depression.  Or you may see him as the son of a wealthy Mayflower descendant who skated through the financial crisis, landed the top job at Treasury despite opposition across the political spectrum, and now sits as president of an established private equity firm.  And this line of credit is in line with that duality.  As Matt Yglesias describes it:

There's no evidence to believe Geithner did any special favors for Warburg Pincus in any of his government jobs, and little reason to believe that JPMorgan had anything other than a basic business interest in advancing this line of credit. From JPMorgan's perspective, it's a no-brainer move to make, and if one bank hadn't been willing to do it, another bank would have. There's no quid pro quo here, and by conventional standards there's no scandal.

But even if there's nothing technically wrong with this setup, it is exactly why Sanders's message is resonating. By conventional standards it's normal for the Democratic Party to appoint someone like Geithner: a Treasury secretary who is also the kind of person who could comfortably be a partner at a private equity firm and get a line of credit from a major global bank to paper over the fact that he's not as rich as those colleagues. It's not a scandal; it's just how the game is played.

And for many Sanders supporters, that is precisely what's wrong.

The Sanders perspective may not seem to matter much here -- after all, President Obama went out of his way to appoint Geithner, and that's a pretty good validation of progressive bona fides.  But there is evidence that Sanders may not simply be a dismissable Socialist crank.  (We'll find out more tonight.)  If that's the case, Geithner may find himself as a pariah in the very party that ensconced him in power.  Regardless, he's a symbolic personification of the Janus-faced fiscal and economic policies that the current Democratic Party represents.

Permalink | Current Affairs, Financial Crisis, Politics | Comments (View) | Bookmark

icon CFP: ABA Section of Business Law's Committee on LLCs, Partnerships and Unincorporated Entities
Posted by Christine Hurt

At the request of Tom Rutledge, chair of the American Bar Association Section of Business Law's Committee on LLCs, Partnerships and Unincorporated Entities, I share this call for proposals.  I presented The Limited Liability Partnership in Bankruptcy at this gathering in 2014, and I can guarantee it is the most engaged and informed audience I've been in and in front of in while.

While the dates are still being resolved, this October, 2016, the Committee of LLCs, Partnerships and Unincorporated Entities will again be sponsoring a two-day LLC Institute in Arlington, Virginia. This program brings together more than 100 high-level practitioners and academics to review a variety of issues involving the law of unincorporated business organizations. In recent years presentations have been made by Joan Heminway, Carter Bishop, Dan Kleinberger, Colin Marks, Michelle Harner and Benjamin Means. I think each will vouch for the quality of the program.

We are actively soliciting proposals for panels. If you are working on something, or if there is something you would like to discuss before an audience that I can guarantee will be “hot”, please let me know.


Tom Rutledge

Permalink | Administrative | Comments (View) | Bookmark

February 08, 2016
icon Steve Eisman Opposes Breaking Up The Banks
Posted by David Zaring

Media observers will be a little curious about the timing of an op-ed that isn't really asking for much, even though it sort of serves as a rebuke to one of the themes of the Bernie Sanders campaign.  Still, Eisman, the Big Short protagonist, on why breaking up banks is a bad idea:

It’s no longer accurate to say that the large banks pose a systemic danger to the American economy. Some argue that they should be broken up solely because they are too politically powerful. Perhaps so, although that power hasn’t managed to prevent regulators from dismantling bank leverage and risk. Furthermore, no advocate of a breakup has come forward with a plan on how to do it. Large banks are global, complex, integrated institutions. Breaking them apart would be incredibly difficult, long and disruptive, and the banks might have to freeze loan growth during the process, slowing our economy even further.

He thinks that banks were too risky because they were overleveraged, but now that they are not levered up, they are safe.  You will note that safety isn't the only reason to break up the banks.  Apart from the politics, there's the antitrust problem, and maybe large financial institutions discourage experimentation. Moreover, maybe even low leverage banks are prone to bank runs. I'm not convinced by this, but it's always nice to see another unicausal theory of the financial crisis. 

Permalink | Finance, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

February 05, 2016
icon The Financial Crisis Penalties Will Never End
Posted by David Zaring

Today the Fed issued a $131 million penalty against HSBC for playing fast and loose with some of the evidence designed to support its mortgage foreclosure documentation, which it amped up in the wake of the financial crisis.  It got the bank to agree to a consent order to stop doing that in 2011, and took its sweet time in assessing a fine.  But don't worry, it wasn't just HSBC:

The terms of the monetary assessment against HSBC are similar to those that were part of the penalties issued by the Board in February 2012 and July 2014 against six other mortgage servicing organizations that reached similar agreements with the U.S. Department of Justice and the state attorneys general.

Matt Levine observed only yesterday that "The supply of pre-crisis mortgage misconduct seems limitless, the statutes of limitations are flexible, and the mortgage-lawsuit industry may be too large and lucrative ever to really end."  It turns out that we are still in business on post-crisis foreclosure dodginess, too.

I wrote an article that was meant to serve as a pretty comprehensive overview of the way that the crisis has played out in the courts.  And I still like the article.  But it turns out that I wrote it in media res.

Permalink | Administrative Law, Financial Crisis, Financial Institutions | Comments (View) | Bookmark

February 03, 2016
icon You are your employer
Posted by Matt Bodie

. . . when it comes to the company's reputation.  At least, that's what I argue in this piece over at Quartz.  

Permalink | Employees | Comments (View) | Bookmark

icon Could A Plaintiffs' Lawyer Join The Chancery Court?
Posted by David Zaring

If the governor flips a coin, there's a 50% chance that a plaintiffs' lawyer will be the next Chancery Court appointee.  And not just any plaitniffs' lawyer, but one leading the charge against investment banking conflicts of interest in Delaware.

Mr. Friedlander, a litigator, is best-known for representing shareholders in big class actions. In 2014, he won more than $75 million in a buzzed-about case against RBC Capital Markets LLC over the bank’s M&A advice.Mr. Friedlander, a litigator, is best-known for representing shareholders in big class actions. In 2014, he won more than $75 million in a buzzed-about case against RBC Capital Markets LLC over the bank’s M&A advice.

I don't follow the state, but I don't think this sort of thing is very common.  You could certainly see the Royal Bank of Canada getting upset about it.


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icon Could the GRE Compete with the LSAT? Or Replace the LSAT?
Posted by Christine Hurt

Via Paul Caron, I saw that ATL was mocking Wake Forest University School of Law for experimenting with having applicants use the GRE for admissions purposes instead of the LSAT.  Instead of cheering experimentation and a possible break-up of the LSAT monopoly, the headline screamed "This Law School Will Pay You to Take the GRE to Save its USNews Rank From the Dreaded LSAT."

Ugh.  Putting aside the clickbait headline, there is something interesting going on here.  First of all, WF isn't paying random people to take the GRE and apply, it's paying its own graduates to take the GRE, so it can analyze a group of folks with LSAT scores, law school grades and bar passage information who also took the GRE.  Researchers often use monetary incentives to get subjects to enroll in studies, and taking the GRE is a four-hour commitment.  So, $50 and lunch for four hours of pretty intense concentration doesn't seem like excessive bribery to me.  To incentivize serious test-taking, WF will pay $25 more if your GRE score is within 20 percentile points of your LSAT score, which seems quite generous and aimed merely to weed out the "I put my name down" crowd.  If the study finds that the GRE has predictive value for success in law school and/or bar passage, that would be awesome and perhaps give some competition to the LSAT.

Though ATL quotes its "tipster" as saying "How can this be read as anything other than borderline panic about the future of legal education?" I have a completely different read.  How cool!  

I haven't talked to anyone at WF about this, but my intuition as a faculty member is that proving to the ABA that the GRE is as predictive as the LSAT has a lot of benefits (and not mere instrumental USNWR gaming).  What we have seen in admissions is that a lot of stellar undergraduates are choosing not to apply to law school (and not to take the LSAT).  These people must be doing something else instead, and chances are many of them are taking the GRE and going to a different graduate program.  If you could get that cohort to apply to law school easily, then you might be able to persuade them that law is still a great career path.  If they've already taken the GRE, then they can use that score and not worry about studying for the LSAT or plunking down $1k for a prep course.  In addition, recruiting folks already in graduate programs or who have completed graduate school to apply may be easier if they don't have to take a different test.  Even trying to recruit someone who has taken neither test to apply to law school would be easier if they could take the GRE.  The GRE is given on a rolling, year-wide basis around the world and even on your own computer.  I just looked online, and I could take the GRE as early as Monday (less than a week from now) a few miles from here or even sooner if I drove 30-45 minutes.  I would have my scores in 10-15 days.  The LSAT, however, is given four times a year (with alternate dates for Saturday Sabbath observers and Spanish speakers).  Test-takers must register a month in advance and wait a month following the test for their scores.  I find it strange that the LSAT schedule has not changed since I took it in 1989.  

So, I think it would be great if applicants could use either the GRE or the LSAT to apply to law school.  Perhaps then the LSAT could change with the times and become more computer-friendly and flexible.  (The GMAT is also given year-round, and I could make an appointment to take it a week from Monday if I so chose.  The MCAT is not given year-round, but there are 18 test dates between April and September.)  Either way, having applicants submit GRE scores would not serve to let WF or any other law school game the system.  I'm sure if the ABA allowed law schools to use the GRE as an alternative to the LSAT, then USNWR would figure out how to rank GRE scores also.


Permalink | Law Schools/Lawyering | Comments (View) | Bookmark

February 02, 2016
icon Family Film Blogging: Kung Fu Panda 3
Posted by Christine Hurt

Having avoided seeing the most dreaded sequel this season (Alvin & the Chipmunks 4 -- Really, 4???), we did find ourselves in a rather sparse theater Friday evening watching Kung Fu Panda 3.  I can't believe I'm admitting this, but when Kung Fu Panda 2 ended, I did sort of want to know if Po would find his panda Dad.  I've kind've been wondering what was taking these Dreamworks people so long, ending the "2" sequel on such a cliffhanger.  Well, now I can go on with my life -- Po and his dad are reunited.

I don't feel weird admitting that I generally have really liked the Kung Fu Panda franchise.  Jack Black is great as Po, the chunky, cuddly panda who saves kung fu fighting and is named the "dragon warrior," even though he has to start learning the ancient art from the beginning.  The ensemble cast of the "Furious Five" led by Dustin Hoffman's Shifu is also really entertaining.  The dialogue is witty, and the plots interesting.  But, the "3" sequel is not as sharp, not as funny.  It is not bad, like painfully bad (see Minions), but it just doesn't live up to the other two movies.

At the end of KFP2, we see an older male panda get a "message from the universe" that his son is alive.  We have already learned that Po's dad (the goose) found him in a radish crate and raised him as his own.  KFP2 has a subplot of Po dealing with this news.  So, you sort of know going in that KFP3 is going to feature Po's panda dad.  But, Po finds his dad, Li, in the first few scenes of KFP3, in his own family restaurant.  So, there's not a lot of suspense or interest there.  Also, Li is not that interesting of a character.  He's not even that likeable.  Or funny.  

The main conflict then is that an ancient villain, Kai (J.K. Simmons), has returned from the Spirit Realm, where he has learned how to take other beings' chi.  He sets out to take the chi from all the kung fu masters, including Shifu and the Furious Five.  Shifu learns that centuries ago, a village of pandas (Po's village) was able to control chi, meaning that Po might be able to beat Kai.  Li declares that the pandas in his village know how to control chi and that if Po returns with him, Po will learn this skill.  However, Li is not being truthful with Po, and disaster ensues.

I wish that Li had been a more interesting character, but maybe that's too much to hope for in a short animated feature.  The fun Furious Five also don't get a lot of screen time because their chi is taken pretty quickly.  So, most of the movie involves really cute pandas (that all look very similar) doing pretty cute things, but I missed the banter between Po and the gang, particularly Angelina Jolie's Tigress.  And, I'm not waiting anxiously for KFP4!

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January 29, 2016
icon Better Bankers, Better Banks, By Hill and Painter
Posted by David Zaring

Over at Concurring Opinions, I'm participating in the Claire Hill and Richard Painter symposium on Better Bankers, Better Banks.  A taste:

I’d like to put Claire Hill’s and Richard Painter’s fine proposal in the context of how we think about the purpose of financial regulation more generally.  Specifically, how should we think about reforming the financial system to avoid the problem the financial crises? The question is one of the most central to regulation in general, and has been a preoccupation of policymakers ever since the last such crisis. Many look to forestall financial crises with institutional reform.  In the case of banking safety and soundness, that dictates regulation designed to strengthen the balance sheets of banks. Since 2010, American banks have been required to hold more money on hand so that they are ready for shocks, to limit their proprietary trading, to hive off their derivatives arms, and so on. Each of these requirements, of course, have been the subject of regulatory battles and industry pushback.  But all of them are about banks as institutions.

But what if the solution is not to change what banks do, but rather to change what bankers do?

Go give it a look!

Permalink | Books | Comments (View) | Bookmark

icon Startup.Com founder languishing in Colombia jail
Posted by Usha Rodrigues

I show startup.com to my Lifecycle of the Corporation course.  Those of you who teach entrepreneurship have probably already seen it--if you haven't, go rent it right now.  As I told the class this Wednesday, I've seen the movie about 10 times now, and I still love watching it. It covers the drama of raising money and growing a business, and in the end it's all about the relationships.

I stop halfway through the movie each year, and of course the student in the intervening days look up the fate of govworks.com and the film's protagonists.  I hadn't really kept up with the career of Kaleil Isaza Tuzman, except to know that he was advising startups. One of my students just emailed me with some recent news of Kaleil. 

Quoting from Forbes:

Preet Bharara, the U.S. Attorney in Manhattan, indicted Tuzman in September for market manipulation and accounting fraud, claiming that Tuzman misled investors about the health of KIT Digital, the publicly-traded New York-based company Tuzman oversaw until 2012. But in addition to filing an indictment, Bharara’s office went to the unusual length of getting authorities in Colombia, where Tuzman has a major business venture, to arrest Tuzman and detain him pending extradition proceedings...

According to the court-filed document, after Tuzman was arrested, he was placed in an overcrowded jail called a Martires and became ill because he was exposed to the elements for 16 hours a day. He was transferred to La Picota in the middle of September, where he is housed in a 90 square-foot cell with two other inmates who are wanted for drug trafficking and murder. The redacted letter strongly implies that Tuzman has suffered violence or the threat of violence at the prison. In addition, Tuzman has no access to the outdoors and little to no access to natural light. Running water is available for two hours a day. Tuzman has lost 20 pounds in prison and his food is often spoiled. There are shared latrines located next to the food service area and he was once forced to use water from the latrines to wash dishes, the court-filed letter says.

A subsequent Forbes article states that Kaleil has been moved to another prison:

The conditions in which Tuzman was being held at La Picota angered Paul Gardephe, a federal judge in Manhattan, who urged federal prosecutors at a recent court conference to find a creative solution to the situation. The next day, Tuzman was moved out of La Picota and into the Attorney General’s facility because Colombia’s Attorney General, Eduardo Montealegre Lynett, had heard about Judge Gardephe’s concerns. Federal prosecutors want Tuzman to go through a Colombian extradition proceeding that could take six to nine months and fear he is a flight risk

In describing Tuzman’s move in court papers last week, federal prosecutors said the detention facility in which Tuzman is currently being held is designed to hold only 14 inmates, including high-profile defendants, and grants Tuzman access to a common room with a television, an outdoor patio, and visits from private physicians. Federal prosecutors said that Tuzman is also able to order and pay for meals from certain approved restaurants.

But Tuzman’s lawyers contrasted the rosy description presented by federal prosecutors. They claim that Tuzman is being housed in a 65 square-foot cell and for almost all hours of the day he is locked in solitary confinement in his cell and an adjacent 15-foot long corridor and 100 square-foot common room. There is no natural light in the confinement area so Tuzman cannot distinguish between day and night, except for the short periods he is escorted to a small patio area, Tuzman’s lawyers claim. His direct human interaction is limited to 10 minutes per day and the lights being broadcast into his cell mean it’s difficult for him to sleep. “He is displaying signs of depression and mood swings that are entirely out of character for him,” write Tuzman’s lawyers, who want the U.S. government to act to have Tuzman returned to the U.S. quickly.

I have to say, I'm saddened by this.  In the movie Kaleil comes across as a brash, sometimes foolish entrepreneur.  Market manipulation and accounting fraud?  Maybe.  But a jail in Colombia doesn't sound like the right fate for him.

h/t: Kaden Canfield

Permalink | Entrepreneurs, Entrepreneurship | Comments (View) | Bookmark

icon Latham, SoFi and the Student Loan Disconnect
Posted by Christine Hurt

Generally, in personal or corporate lending, interest rates reflect individualized risk.  A seasoned company with years of positive cash flow and great collateral will have a lower cost of borrowing than a company with a rocky history that is highly leveraged.  And, of course, anyone who watches cable TV can assume that an individual's credit score will affect the interest rate they will pay for a car loan, mortgage, personal loan, etc.  However, federal student loans come in universal interest rates for undergraduates and graduate/professional students, regardless of the student's school, degree program, grades, or eventual job offer.  And, these rates are fairly high, even though they were lowered under the Obama administration.  The rates for law student federal loans are now 5.84% and 6.84%.  Considering that the prime rate is 3.5% and a 30-year fixed mortgage rate just a smidge above that, these rates seem sort of crazy for low-risk students.

Last Spring, I was at a conference at UC-Santa Cruz (finance department), and the keynote speaker was Mike Cagney, CEO of SoFi (Social Financial).  The backstory of SoFi as he told it was that he realized that students at Stanford (I think Stanford Business School) were paying the very high federal student loan rate, but that there had not been a default of a domestic Stanford (business?) student in 20 years.  So, he arranged for peer-to-peer lending between Stanford alumni and students to refinance those loans at a more competitive rate.  With interest rates so low, it was not a hard sell to the alumni that they could get a low-risk investment that returned 2.5% and helped out a fellow Stanford alum.  Now, SoFi is venture-backed and no longer peer-to-peer.  It has also grown and spread into other lending areas where there is a disconnect in this low-rate investing but strict criterial lending environment.  Cagney also spoke of how banks' criteria is biased against his favorite low-risk group -- HENRYs (High Earners, Not Rich Yet).

Latham & Watkins is in the news this week for seeing the same disconnect in its new associates, who were knee-deep in high-interest student loans but were low-risk due to stable, high-income employment.  So, Latham arranged with First Republic Bank and SoFi to refinance $13M in student loans for over 100 associates (that's a lot of debt-per-associate) at "rates as low as 2.5%."  The details were not in the news, but it would be interesting to see what credit support Latham gave, if any.  First Republic might have seen this as a private banking opportunity, just as many commercial banks lend to law firms to get the private banking business.  Or, Latham may have provided some sort of guaranty support.  That seems fairly risky for Latham, though.  Also, I wonder if the bank loans are contingent on the associates remaining employed at Latham.  The SoFi refinancings seem more like SoFi's stock-in-trade.  (SoFi seems to sell its student loans into the securitization market.)

I wonder why other employers don't see the same opportunity.  I can see in a cynical way that employers may like associates with high debt because then "golden handcuffs" may appear even more golden, but a lower interest rate probably isn't going to enable associates to retire early to write that novel.  I could also see employers with a lot of cash refinancing the loans themselves.  With paycheck withdrawals, the loans would be pretty low-risk, and it's hard for most law firms to make 2.5 to 3.0% on their money these days.  I also wonder why more law schools with large endowments don't self-finance for the same reason.  (Though, according to Vic Fleischer, schools with super-large endowments pay hedge fund managers to get a higher return than that.)

And yes, I understand that law school grads who refinance give up the benefits of the federal student loan program -- deferral for unemployment and health reasons, discharge for disability or death, and income repayment and forgiveness plans. 

Permalink | Law Schools/Lawyering | Comments (View) | Bookmark

January 22, 2016
icon The Resource Extraction Rule and Requiring Cost Benefit Analysis At The SEC
Posted by David Zaring

There's talk in the Senate of imposing new rulemaking restrictions on the SEC, and over at DealBook, I take a look:

The legislation would require more math and permit less flexibility by those regulators. But it would also limit Congress’s own ability to require the government to embrace good governance values like “transparency” and “honesty,” if the S.E.C.’s most recent rule-making is any guide.

The senators have suggested that they would impose cost-benefit analysis requirements on America’s financial regulators. No important rule could be passed without establishing that the dollar impositions on the financial industry would not be outweighed by the dollar benefits created by the rule.

The S.E.C. has, because of a series of adverse court decisions, grudgingly embraced a version of this sort of cost-benefit analysis in its rule-making proposals.

Now you can take a look too!

Permalink | Administrative Law, Securities | Comments (View) | Bookmark

icon The Battle To Unionize WalMart
Posted by David Zaring

I'm no expert on labor law, we leave that to Matt, but one pays attention when the decision of an Administrative Law Judge makes the paper.  You can't fire workers for trying to unionize, and I really don't understand WalMart's defense of its decision to fire workers who tried to unionize.

Most of the allegations related to a coordinated set of strikes collectively referred to the "Ride for Respect" because they involved traveling by bus to the company's headquarters in Arkansas for protests at its shareholders' meeting in June 2013.

WalMart called this an unexcused absence and disciplined or terminated the workers who went on the Ride.  To me it looks like an effort to unionize, and I didn't think that was a legal firing offense.  But it sounds like the firm prefers to fire workers who try to unionize and face the consequences.

Permalink | Administrative Law | Comments (View) | Bookmark

January 15, 2016
icon Family Film Blogging (Oscar Edition): The Big Short
Posted by Christine Hurt

So, not a lot of R-rated movies appear here in my reviews, but I couldn't stay away from The Big Short, having absolutely loved the book.  My teenage son, a big Michael Lewis fan, also wanted to go, so I smuggled him in as well.  If he begins talking like a sailor (or an investment banker), it's my fault.

The Big Short has gotten a lot of love from the Academy Awards (Best Picture, Best Supporting Actor (Christian Bale), Best Adapted Screenplay), and it is well-deserved.  From reading the book, it is hard to understand how it could be turned into a movie.  This isn't The Blind Side, with lovable characters and a heartwarming story.  The star of the book is the credit default swap, which is not only not as attractive and lovable as Sandra Bullock, but very few people understand what a CDS is.  Not to mention the antagonists of the story, the collateralized debt obligation and its evil twin the synthetic CDO.  However, the movie does an absolutely amazing job creating these "asides" where the narrator or cameo spokespeople (no spoilers here), explain these Frankenstein products and the risks involved.  Genius may not describe this.

The nonfiction book follows the select few who understood that the residential housing market was going to crash, taking the mortgage-backed security market (and CDS and CDO markets) with it.  From the book, I most remembered Michael Burry (Christian Bale), the physician-turned-fund manager with Asperberger's, who is more comfortable with numbers than people.  The book and movie also follow two young "garage band hedge fund" managers (Charlie Gellar and Jamie Shipley) who have parlayed their personal funds into millions and now want to short the MBS market. Ryan Gosling plays Jared Vennett, a slick investment banker who sells the short positions.  Finally, Mark Baum (Steve Carrell) runs a hedge fund inside of Morgan Stanley, and he and his team are quickly sold on the idea that the banks have massively overreached in the MBS market.  Baum's story takes center stage in the movie, with the audience getting glimpses into his motivations, fears, and hesitations.  Burry is an enigma in the movie.  We only see him in his office or basement at home, blasting loud music.  We do not see inside of him at all, which I think of as a downside.

When the stories of these guys first appeared in the Vanity Fair, I recall the tone as "here are the guys that bet against America."  Lewis didn't skewer them, but there seemed to be a bit of shame in the story -- these guys made hundreds of millions, maybe billions, by predicting the Titanic would sink.  If anyone would have listened to them, then perhaps the crash could have been cushioned somewhat.  When a guy comes into your bank and asks to bet $200 million against your portfolio, maybe you should question your portfolio instead of doubling down, thinking you are taking advantage of an idiot.  Even still, the "heroes" of the book profited from the collapse of the world economy, so there was some unease in glorifying "the big short."

The movie, though, throws the shame away in way that I don't recall the book doing.  This telling of the story makes our Cassandras twist in the wind for much of the movie -- no one believes them, then they lose a lot of reputation and money having to make collateral calls to their counterparties while the CDOs (the subject of the swap) remain mispriced even though mortgages are tanking.  Our heroes are almost ruined.  Even at the end, when their swaps are worth billions, you wouldn't know it from the movie.  The movie depicts our heroes scrambling to close out their positions while counterparties still have cash.  If you go to the bathroom at the wrong time, you would believe our heroes lost money.  But they didn't.  They made out like bandits.  But in the movie, they are sad, even devastated.  Charlie and Jamie sneak into Lehman, showing the viewer first-hand the depressing sea of employees leaving with cardboard boxes and the empty trading floor.  Charlie earlier frantically called his mom to tell her to protect her savings, which would be more moving if he hadn't just made $80 million.  Mark Baum is at home, as if he has lost his job, on the phone with his analyst, pressuring him to close out his position (to the tune of over $1 billion).  Burry is alone in an empty office floor, looking as if he is bankrupt, though his fund gained almost 500%.  Baum gives a speech about greed and fraud on Wall Street.

Brad Pitt, who plays mentor to Charlie and Jamie and the integrity of the movie, chides them at one point for celebrating when they get bankers to laughingly sell them CDS's on AA MBS.  He reminds them that they just bet against America, and that if they are right people will lose their jobs and people will die.  "Just don't dance."  The movie has effectively inoculated our heroes from our scorn.  I have no problem with this, but I point it out for its masterfulness.  Well played.

In addition, the movie sets up other villains we might hate instead:  Wall Street bankers.  The ratings agencies.  Seriously, when Mark goes to see S & P, the executive is literally wearing BLINDERS because she has had her eyes dilated at the eye doctor.  That's pretty strong symbolism right there.  And, in about 2 minutes she has admitted that S & P sell ratings to the banks so they won't go to Moody's.  Also, the SEC.  This one was a bit of a stretch, but in Vegas, Jamie meets with an acquaintance "who works at the SEC."  This young woman appears poolside, flirting with a banker from Goldman so she can make a career move.  So, the ratings agencies are willfully blind, and the SEC is a floozy?  OK, but the scene isn't as clean as the S & P scene.  Jamie asks what the SEC is doing about MBS, and the woman merely responds that the SEC has had its budget cut.  True, but it gives the impression that with enough money, the SEC could police the private offerings of MBS more effectively.  I'm not convinced of that given that our heroes could ascertain from the prospectuses what the MBS's were made of, but a lot of ink has already been spilled on that point.  GreenspanBernanke, and The White House get some hand-waving directed their way, but not much.  However, the movie makes the claim that fraud was at the heart of the crash of the residential housing market.  The mortgage broker fraud is highlighted, but Wall Street fraud is made the big villain.  All our parties believe that fraud keeps the CDOs mispriced.  This villainy was a strange scapegoat to me, but I"m willing to go along.

All in all, it's a great movie, and given that it is a movie about something as obscure, complex and mind-numbing as collateralized debt obligations, it's pretty amazing.

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icon Family Film Blogging (Oscar Edition): Brooklyn
Posted by Christine Hurt

I actually saw Brooklyn in December when it was first released, but missed blogging about it during the crush of finals, travel, etc.  I saw this movie with my law school colleagues, not my kids, but I think at least the teenage daughter might enjoy it.  Now, of course, it has been nominated for several Academy Awards (Best Picture, Best Actress, Best Adapted Screenplay), so I thought I would dust off my opinions of it and write a review.

Eilis (sounds like A-liss), a young woman in Ireland living with her widowed mother and older, unmarried sister, sets off for America for a chance at life away from her small village.  Eilis is tired of the small-mindedness of the people, particularly the young men, and looks forward to her new life where she might find a career.  However, she is unprepared for the homesickness she feels living in a boarding house, taking bookkeeping classes and working in a department store.  Eventually, her fog lifts as she makes friends and even meets a young Italian man, Tony Fiorello.  Tony and his raucous family have great dreams beyond Brooklyn, planning on building homes on a plot on Long Island.  Eilis is very happy with her prospects until her sister suddenly passes away, sending Eilis back to Ireland for an extended visit.  Strangely, things have changed in her hometown, and she suddenly is presented with a better life wrapped up in a nice bow, forcing her to decide whether her home is in New York or Ireland.

To the ending, I believe that we are supposed to see that Eilis is evolved and now must make an informed, grown-up choice among her two options.  However, at the end of the movie, I would argue that one choice is foreclosed to her, making her "choice" not as voluntary as it may seem.  However, she embraces her choice whole-heartedly, which I suppose is almost as meaningful.  The movie is a great vehicle for a strong actress, and we all become great fans of Eilis.  The movie is not a gritty depiction of Irish immigrants in New York; Eilis is very fortunate to have her way paved for her by a compassionate Catholic priest and a network of helpful parishioners.  She lives in a lovely house with a kind but strict housemother of sorts; the girls in the house are catty but kind enough; her retail clerk job at a fancy store seems to pay handsomely; her efforts to educate herself at night school are rewarded; she goes to a dance and an outsider Italian man walks her home and he proves a cuddly gentleman with a family that embraces her despite her Irishness.  

The film is beautifully made with a sweet story.  I loved the costumes and of course, Eilis.  I'm not sure if I would vote for it for Best Picture (I loved The Martian and The Big Short.  I will not be seeing The Revenant), but it made for a nice afternoon.

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