I'm frequently asked in the comments section of my videos and by the university students that I teach how realistic are some of the most popular Wall Street films.
I've worked as a trader for over 20 years, starting in the late 90s at some of the biggest investment banks and hedge funds, and I spent about half of my career in the United States and half in London. On top of that, most of my friends either work for or still work for some of the top Wall Street firms in areas like investment banking, trading and securities analysis. So I know what it's like to work
in the industry. I also know how it's changed over the years and I've heard a lot of stories. A friend of mine who doesn't work in finance put together a playlist for me of some of the most famous scenes from some of the biggest Wall Street films so that I can react to them. So first up we have The Wolf of Wall Street which is a really fun film to watch, but I would argue that the title is a little bit miss leading as it wasn't a real Wall Street firm.
It was a penny stock brokerage running a pump and dump scheme and the firm it's based on, Stratton Oakmont, was located in a strip mall in New Hyde Park, Long Island, which according to Google Maps is a solid 2 hour commute from Wall Street during rush hour. I guess The Wolf of a really bad commute to Wall Street wasn't a punchy title so they called the film The Wolf of Wall Street instead. I don't want to seem pedantic, but there are no actual wolves
in the film either. In many ways, the title of the film is as much of a fraud as the guy that it was based on. There are lots of crazy scenes in the film as it's about a guy who ran penny stock scams and pleaded guilty to fraud and other related crimes, spent 22 months in prison and only paid back $10 million of the $110 million he was supposed to return to the victims of his crimes. It seems that he's now a motivational speaker, so I never
worked at this type of a firm. For one thing, to commute to Long Island wouldn't have appealed to me. But it's probably a reasonably accurate description of what it was like to work at a boiler room committing securities fraud in the 1990s with the dwarf tossing and things like that. I have heard stories of that type of thing at some of the interdealer broker firms where there's a certain amount of hazing of new hires, hamburger eating contests between interns
and things like that. And some of those stories can be quite funny. But even at those firms, real work does need to be done. About 10 years ago, a friend of mine who was launching a hedge fund rented an office in one of those short term office buildings in London, and he noticed that one of the other offices on the same floor as him seemed to be occupied by a boiler room scam.
He told me that there was a lot of noise and rowdy behavior from down the hall, and he noticed that all of the employees had printed out pictures of the watches that they hoped to one day buy and tape them to their computer monitors as some sort of motivation. He said that there were lots of shiny suits, hair gel, and high fiving in the hallways.
I'm going to guess that it possibly feels a little bit better scamming someone's grandparents out of their retirement savings when you think of the nice watch that you'll someday buy with the proceeds. I don't exactly remember how the story ended, but I think that there was a police raid before any watches were bought.
There are lots of scenes with fast cars in the film too, and some of that does ring true, but usually the cars are taken slightly better care of. If you look around the trading floor, it's rare to see anyone much above the age of 40. Traders and bankers are often young. They spend more than 80 hours a week in the office, working weekends and holidays. Often their base pay is not very high, or at least that was the case before the financial
crisis. And you would earn the lion's share of your total compensation as an annual bonus. Young guys like fast cars. Buying would also signals that you're doing well, so a lot of traders owned them.
A friend of mine knew a guy who had his Maserati towed during the credit crunch and it was almost auctioned off by the police as he had been too busy at work to collect it from the car #. When the newspapers contacted him, he pointed out that the fines were not actually that expensive when compared to the cost of parking in central London, which is a good point. Real life traders don't tend to be anything like the guys in the Wolf of Wall Street.
Most of them went to top university studying things like mathematics, physics, engineering and that sort of thing. They're usually very hard working with a lot of discipline. Many of the traders that I know play musical instruments, run marathons, or compete in sports at a high level because they're really focused people and they're usually good at most of the things that they apply their minds to.
This is partially because this is the type of person that the good firms hire, but also because trading strategies in this day and age are often quite technical and are not guesswork, instinct, or illegal as they're often portrayed in films. Traders are usually very smart and interesting. They're often really funny too. They're usually very focused on
work and can be quite colorful. I think this is because when someone has been successful for a while, they're often quite confident and willing to express their personalities. It's usually salespeople rather than traders who are the party animals in finance, as their job involves winning and dining clients, taking them to sports events, concerts and things like
that. But they still will have to be at their desk the next morning, so they find a way of being fun while also being able to make it into the office the next day. One of the most famous scenes from The Wolf of Wall Street is to sell me a pen scene. Sell me this pen. It's it's a amazing pen to for professionals to Here's a little
trick. If you're being interviewed for a job that's not at a stationary store and the interviewer is asking you to sell them a pen, there's a really good chance that if you get the job, you'll either end up in jail or testifying against the person interviewing you. While the wolf of a rough commute to Wall Street is a lot of fun to watch, it doesn't tell you much about the financial industry. Next up we have The Big Short.
OK, so The Big Short is a much more realistic depiction of the financial industry, probably because it was written by Michael Lewis, who studied at the LSE and then worked as a bond salesman at Salomon Brothers in New York and London.
Salomon was one of the top five global investment banks at the time, and after a few mergers, turned into the investment banking division of Citigroup. Now you always have to make things a bit more exciting for a film, but The Big Short didn't have to stretch too much as it was about the global financial crisis, which was a really crazy time to be working in the
industry. I think The Big Short does an amazing job of explaining complicated financial products like securitization to people who don't know much about finance. Here's Margot. Robbie in a bubble bath to explain. Basically, Lewis Raineri's mortgage bonds were amazingly profitable for the big banks. They made billions and billions on their 2% fee they got for selling each of these bonds. But then they started running out of mortgages to put in them.
After all, there are only so many homes and so many people with good enough jobs to buy them, right? So the banks started filling these bonds with riskier and riskier mortgages. Thank you Banjo. That way they can keep that profit machine shining right by the way these risky mortgages are called. Subprime. The film also shows how people who do real research can have an edge in market. We have to act now. How do you know the bonds are worthless? Aren't they filled with
thousands of pages of mortgages? I read them. I read them. I read yeah. No one reads them. Only the lawyers who put them together read them. The Big Short is very accurate in its depiction of how people in the industry dress, or at least before the appearance of the fleece vest. When I worked in banking, there would have been no polyester and
no logos in the building. If you were given some corporate branded merch back then, you'd say thank you and then you'd quickly throw it in the garbage where it belongs. I don't really know what's gone wrong in recent years. I quite like this clip from the film where CDO tranches are explained using Jenga. And I won't lie, I kind of want
my own Bond rating Jenga set. One of the good things about The Big Short was that it didn't just look at financial markets as numbers moving around on a screen, which many films do. It instead showed how financial markets are a reflection of what's actually happening in the real world, and that these price changes affect real people. Stop it. Stop. What? Do you have any idea what you just did? Oh come on, we just made the deal of our lifetimes.
We should celebrate. You just bet against the American economy. Fuck yeah we did. Fuck yeah. Which means? Which means if we're right. If we're right, people lose homes, people lose jobs, people lose retirement savings, people lose pensions. You know what I hate about fucking banking? It reduces people to numbers. Here's a number. Every 1% unemployment goes up. 40,000 people died. Did you know that?
There can sometimes be something a bit cartoonish about the depiction of traders in films where they're shown as not caring about anything, and that's not really true. But prices do move to match reality, and if something bad is happening in the real world and you don't trade on it, it doesn't prevent the bad thing from happening. The price is still going to move to reflect the reality, and if you don't trade it, it just means that someone else makes a
profit instead of you. So I was right. I took a rash of shit for two years. But I was right and everyone was wrong. And yeah, I got a bonus check for it. Sue me. You know, it's a lot of money. I get it. I could feel you judging me. That's palpable. But hey, I never said I was the hero of this story. For me, the most realistic part of the film was Credit Suisse being on the wrong side of the trade, trying. To sell $200 million worth of securities in a pub smells like sheep.
You could do this, I don't. Want to pressure you then? But if you don't. Pull this off. We lose everything. All right, let's see what Credit Suisse's appetite is. We miss your Credit Suisse. OK, so Next up we have the 1987 film Wall Street, which is a classic of the genre. I think everyone in banking and finance has seen this one. It came out about two months after the 1987 crash and a few weeks before Ivan Boesky was sentenced to prison for securities fraud.
So the film was very much of its time. Wall Street is the story of a young stockbroker called Bud Fox who's trying to get ahead on Wall Street in the 1980s and is obsessed with a legendary corporate Raider called Gordon Gekko. Bud gets a meeting with Gekko and pitches him a bunch of stocks, leaving Gekko unimpressed. Chart breakout on this one here. Whitewood Young Industries explosive earnings, a 30% discount from book break cash flow, couple of 5% holders, the
dog very strong management. It's the dog, pal. Then Bud gives him inside information about the airline company where his father works. Gecko buys the stock, makes money and becomes one of Bud's clients. But then he gets drawn into Gecko's world of inside trading and stock manipulation. Insider trading is, of course, illegal, and regulators are always on the lookout for it.
Back in 2009, there was a big scandal centered around Raj Raj Antaram and his fund Galleon Group, which implicated traders at other big Wall Street firms too. According to the writers, Gecko wasn't based on any single person, but was instead inspired by a number of people like Carl Icahn, Ivan Boesky and Michael Ovitz.
The famous Gecko quote Greed, for lack of a better word, is good, echoed a speech Ivan Boesky had given at Berkeley a few years earlier where he had said I think greed is healthy. You can be greedy and still feel good about yourself. The film dips into the world of corporate rating, where companies are bought and assets are stripped and sold, which
often leads to job losses. This was a big deal in the 1980s, and the film shows the human cost of the financial decisions made by corporate Raiders like Gordon Gekko. In the 1960s, there had been a trend in corporate America where the CEOs of large growth companies were buying up smaller companies, often in totally different industries, building what were known as diversified conglomerates.
The trick was for a high PE company to buy up companies with low growth but solid earnings and a much lower price earnings ratio. Earnings per share would then go up, and for a short while investors didn't appear to notice that growth was slower and that on top of that, management wasn't very good at managing a collection of
unrelated businesses. There are examples like CBS, the broadcasting company, buying up Fender musical instruments and mismanaging it. By the 1980s, corporate Raiders started taking control of these inefficient conglomerates and breaking them up so that the individual businesses could be run properly. This was good for economic efficiency but bad for workers at these firms and the job losses and disruption made a lot of people angry at the time.
A fun Side Story is that the look on Wall Street at the time would have been much more conservative than the way that Gordon Gekko dressed in the film with his contrast color shirts, suspenders, Cartier watch and peak lapel suits.
Apparently Alan Flosser who owned a custom and made to Measure Suit store in New York came up with the look for the Gordon Gekko character which Michael Douglas loved and after the film came out, Wall Street guys started dressing like Gordon Gecko. So the film inspired the Wall Street look of the late 80s rather than Wall Street
inspiring to look at the film. The way that people dress at work has changed quite a bit over time and one of my first jobs in the late 90's the bank I worked for announced a casual Friday's policy and so that Friday I wore a Sport coat to work without a tie. I was a bit unlucky that day as the CEO walked by my desk that morning to go into my boss's office and I did notice him giving me a funny look as he
passed my desk. A few minutes later, while the CEO was still in the office, an e-mail was sent to the whole floor. There was a loud Ding from every computer because back then everyone had their notifications turned on and would read their emails immediately because e-mail was somewhat new and we didn't get that many of them. The e-mail said that all men should be wearing ties in the office no matter what day of the week it is.
A friend of mine raced over to my desk and threw me a tie so that I could put it on before the CEO came out at the office. I've never been seen without a tie ever since. In fact, I think it's wise to keep a spare one on hand just in case of emergency. I can't really tell you how accurate the film was, as I was a child when it came out in 1987 and I never worked in leveraged buyouts.
It's worth noting that Oliver Stone expected audiences to think of Gordon Gekko as the villain in the film. He was supposed to represent the excesses and ethical failings of the financial world. Stone apparently couldn't understand how after the film came out, people would tell him that they loved the film and that Gekko had inspired them to
pursue careers in finance. OK, so Next up we have American Psycho, which came out in 2000 and was about an investment banker named Patrick Bateman who leads a double life as a serial killer. But that's by no means the worst of it. In one of the most sadistic scenes in movie history, Bateman hires 2 prostitutes, brings them back to his apartment and forces them to listen to Phil Collins music. Do you like Phil Collins before
paying them to leave? I doubt that I'm the only person who had to block his ears during that scene. So does the film accurately depict the life of a New York investment banker? Not really, no. One of the most famous scenes in the film, which was supposed to highlight the superficiality of Bateman and his colleagues, was the scene where they compare their almost identical business cards, getting jealous about the different paper quality and
typefaces. There were quite a few problems that made this scene entirely unrealistic. Firstly, investment banks provide employees with business cards. People don't get their own cards printed up at Staples, but if we skip over that, the scene still doesn't work. Junior investment bankers spent their first year or two putting together client presentations, and their bosses go through the presentations insisting that they're absolutely perfect. There'll be no grammar errors,
no commas out of place. Everything has to be perfect before a client sees it. Bateman's card, the first one shown, is not correctly centered, which no self respecting investment banker would miss. There should be a space after the ampersand in Pearce and Pearce and the word acquisitions is misspelled. I'm sure you agree with me that this is wholly unacceptable. David Van Patten's card is a bit better, but once again, not
correctly centered. And the word acquisitions is once again misspelled on that one. It's misspelled on all of the cards. I don't really know what to tell you, but it's clear to me that Pearson Pierce is not a top tier firm. I work on Wall Street and Pearson Pierce. Have you heard of it? No. No, not really. All of these clowns should be fired, in my opinion. The nail gun scene, you might be surprised to know, is actually reasonably accurate.
In the film, Bateman is a serial killer, but he clearly knows nothing about construction. His nail gun doesn't appear to be hooked up to an air hose, so it won't work. And even if it was, he would lose the element of surprise when the air compressor kicked in, alerting his secretary of what's about to happen. I know you're thinking that he should have bought a battery three powered nail gun, but they weren't actually available back then.
Bateman, if he's going to be taken seriously, should get a 10 gallon compressor installed in his living room, charge it up before his guests arrive, and he should probably disable their safety on the nail gun too. Now, the reason I say that the scene is somewhat accurate is that we once had a Patrick Bateman like IT guy at one of the firms that I worked at who ordered a nail gun online and it was delivered to his desk when he had stepped away for lunch one day.
One of my colleagues at the time signed for it, and when the guy arrived back at the desk, he was asked what it was for. We'd all seen the film. He told us that he had bought it so that he could assemble some IKEA furniture at home. And there are two things pretty much everyone knows about IKEA furniture. You don't assemble it with a nail gun, and bankers don't shop at IKEA.
Back then, I used to ride a motorcycle to work, and I decided that it was prudent to wear my helmet at the desk for the rest of the day until the nail gun left the building. God knows what that nail gun was eventually used for. OK, so the last film on the list is Rogue Trader, which came out in 1998 and was based on Nick Leeson's autobiography.
Leeson worked his way up from a back office role at Bering's bank in the 1990s and was eventually sent to Singapore to head up Bering's trading operation on the Symex exchange. The film follows Leeson's rise and the antics he and his friends got up to when they start making a lot of money. Whenever Leeson made a trading error, he hid his positions in a secret errors account, often doubling down on losses and exiting the positions when they got back to break even.
He got away with this for quite a while, but over time the positions hidden in the errors account grew and grew. So what are you going to do? Well, I just have to keep buying futures like the going out of style to support the market. When the Kobe earthquake caused a huge stock market sell off in 1995, Leesons error accounts suffered losses of over £800 million or $1.3 billion. Nick did what any sensible rogue
trader would do in his position. He left a post it note on his desk saying sorry and he fled the country. He later said that he didn't understand the severity of his losses until he read in the newspaper the next day that Bearings had gone bankrupt. He was arrested at the airport in Germany, got extradited back to Singapore and was sentenced to 6 1/2 years in jail. When he was released from prison, he managed a football team for a while and today he is
a motivational speaker. Is this movie realistic? It is. It might be a bit too realistic as this type of mistake has happened a number of times since the film came out and the losses have only gotten bigger over time. A year after the collapse of bearings, there was a $2.6 billion loss at Sumitomo Queco. Altobole lost $2.3 billion at UBS in 2011, and the biggest loss of all was Jerome Kerrviel, who lost $6.3 billion in 2007.
Kerrviel actually became the world's poorest man in 2008 when a French court ruled that he had to pay back the full $6.3 billion that he had lost. I guess Sam Bankman freed outdid Jerome Curvial by losing $11 billion in crypto in 2022, but FTX wasn't a bank and there's no movie yet. Thanks for tuning into the podcast. Make sure you hit the subscribe button and the bell icon too so that you're notified whenever a new podcast is released. Have a great day and talk to you again soon.
Bye. Bald. The bald from the eyebrows down. Wow. Nothing. Not a stitch. It's like lasers. Wow, New world. See, I've heard that too.