This sounds unfortunate

Martin Scorsese and Leonardo DiCaprio certainly have the talent to make a good movie about Wall Street scandals, but per Yglesias it sounds like they’ve produced a film that will find great favor in the board rooms of the great and the not so good:

By focusing on cases of egregious criminal fraud the movie elides the real scandal, which, as is often the case, is about what’s legal. If you have a 401(k) plan through your employer or an IRA or other investment account through your bank, the financial institution may try to set you up with a “financial adviser” to help steer your investment decision-making. This person will claim to be giving you advice in your own interest but in fact is under no legal or professional obligation to advance your interests. His real job is to steer you into high fee products that are lucrative for his employer. This is not criminal fraud that the FBI will investigate. It’s not a civil offense that the SEC will investigate. It’s not illegal. The Labor Department tried to change the rule and impose a fiduciary standard at least for employer-sponsored plans but congress stepped in to tell them no. You’re never going to have a world without some sociopaths breaking the rules (read Josh Levin’s amazing reporting for a spectacular example) but what we have is a world where congress steps in to make sure that deliberately peddling bad advice to middle-class savers isn’t against the rules.

At any rate, a few different things are going on in the movie but the main thing is that Stratton Oakmont is operating what’s called a “boiler room” (see 2000’s Boiler Room for a more straightforward treatment) where you use aggressive sales tactics to market thinly traded very cheap stocks that trade “over the counter” rather than on an exchange. Your aggressive sales tactics work better if you lie (“pump and dump,” which is illegal) and can be made even more profitable if you turn yourself into a “bucket shop” (where your transactions are basically fake, which is also illegal).

This kind of fraud is a real thing, and it especially happens when you have a prolonged boom (as we did in the 1980s and 1990s stock market), but I think that if you’re a major Wall Street executive or work for one of the bank lobbies you have to be very happy with this film. Indeed, very happy in general that Hollywood keeps churning out stories with this kind of focus. Everything Stratton Oakmont is shown as doing has been illegal for years and the enforcement, though imperfect, is real. What’s more, like the more recent story of Bernie Madoff, they weren’t just perpetrating frauds they were a whole fake firm. These guys in this movie aren’t real Wall Street guys. They have tacky outer-boroughs accents and no education. The idea that the FBI and the SEC need to do a more rigorous job of keeping sleazy drug-addled deviants from posing as real stock brokers and investment advisers is the most comfortable possible reform proposal for the real Titans of Finance, most of whom are perfectly respectable people with respectable accents and real degrees from prestigious universities. You have to rein them in not with exciting wiretaps but with boring regulations on leverage and liquidity. And this doesn’t even begin to touch the larger questions around the financialization of the economy.