Creativity and financial crisis: Will this provide the answers?

26th October 2011

So where can we turn to for a fresh perspective outside of the financial village to shed light on the ‘why' and ‘what now'? There is an array of films, documentaries and books out there that may help provide some answers to the state the world finds itself in today.

For example, while we may recall famous films as Rogue Trader, which may help explain the more recent UBS rogue trader scandal, there are up-to-date takes on today's global crisis to consider.

Here Mindful Money takes a look at how various forms of creativity taps the truth behind the financial crisis.

Charlotte Higgins asks on her Guardian blog whether it's possible to make "good art out of the financial crisis". "The answer is, obviously, for anyone who saw Enron, yes. But one of the keys to Enron's success was, for me, its departure from realism – which of course is so much easier in theatre than film…Tellingly, perhaps, Enron wasn't even ostensibly about the financial crisis of 2008; but it was certainly "about" it."

Margin Call, however, is a film by first-time writer-director JC Chandor, and based on one day in an investment bank; it stars, among others, Kevin Spacey and Jeremy Irons. In summary, the bank sees the writing on the wall, and its CEO decides to shed a ton of mortgage-backed securities onto its customers, in a move that may save the bank's balance sheet but potentially ruin its reputation.

Joe Weisenthal on the Business Insider blog comments: "They have serious discussions where they go over numbers at big boardroom tables. Traders talk to clients and use phrases like "offloading risk." And they even talk about Value At-Risk. Also: There are Bloomberg terminals galore in the movie." While it may get rave reviews from people in finance, he concludes, it is unlikely to have much commercial appeal.

Daniel Gross from Yahoo Finance says: "Unlike the HBO movie Too Big To Fail, which featured occasional caricatures of familiar characters, Margin Call doesn't dumb down the complex backstory!" Yet despite this, the film is more about, he says – "What happens when an organization faces a crisis and its survival is in doubt? Who steps up, who is sacrificed and who is willing to compromise his beliefs?" It is more about the moral complexity than the financial detail.

But does it succeed as art, or, indeed, giving viewers greater insight into the financial crisis? Neither, it seems, according to many reviewers. Higgins says: "The reason I think it struggles successfully to attain status as either a truly successful thriller or tragedy is that the stakes are low. The jeopardy is: these bankers may become slightly less rich. Now of course it is true that the financial crisis visited real tragedy on all kinds of people, but this is a film emphatically not about those who lost their homes or businesses in the sub-prime crisis…"

There's also the problem that the financial crisis was very complex. How do you explain derivatives to an audience, when even bankers, economists and finance ministers struggled?

Turning to last year's ‘Wall Street: Money Never Sleeps', starring Michael Douglas, Wendy Ides says in the Times (paywall) that "the rapacious greed of the world of high finance feels a little after the fact." She adds: "The financial crisis is a story that moves faster than a Hollywood drama can keep up with."

Alternatively, the one film – or really, documentary – that truly explores the root causes of the financial crisis and, according to bloggers and reviews, does an excellent job, is Inside Job. Such a good job, in fact, it won an Oscar for best documentary.

"Even before the dust has settled, the financial crisis is a subject that's been waiting for the right filmmaker to come along and nail it," says Philip French in The Observer. "Ferguson (director) has a particularly rare combination of assets as a non-fiction filmmaker. He knows how to break down a subject so that it makes fresh sense, to get crucial access to both helpful and hostile interviewees, to corner those running for cover with killer questioning, and to shoot his movies with care and polish."

It takes an investigative stance, rather than the slick glamour of Hollywood blockbusters, to help explain the backdrop. "Anyone unclear on the difference between, say, collateralised debt obligations and credit-default swaps will be helpfully enlightened here, and shown how the colossal gambles of financial institutions amounted to a kind of roulette game with global markets," says French. "Ferguson digs into the psychology of trading, and the madness of bonuses – how the whole culture was incentivised, and still is, to encourage the riskiest and most profitable sales of subprime debt."

The documentary includes brief interviews with some US citizens, including those who have lost their homes and currently live in a Florida encampment called Tent City. But mostly it comprises interviews with those academics, policy makers and investment bankers, including a revealing and uncomfortable George W Bush's chief economic advisor Glenn Hubbard, stresses Tim Robey in the Daily Telegraph. "The main thrust of Ferguson's argument becomes the corruption of a system whose gamekeepers are also its poachers: regulation an
d safety mechanisms are hardly top priorities when the alleged protectors of the economy have so much vested in its exploitation."

It seems that the speed with which the crisis precipitated, and the complexity and sheer amount of material that Ferguson has assembled, makes for a complex narrative, but one that works – in contrast to its fictional Hollywood counterparts.

If you'd rather read about the crisis, there is the contemporary thriller on the world of high finance – The Fear Index by Robert Harris. The book is set in a Geneva-based algorithmic hedge fund. The company at the heart of his story has developed an artificially intelligent, "self-learning" computer model that trawls the world for information, allowing its traders to anticipate market movements prompted, usually, by some disaster or failure.

But having delivered this novel about predicting the future, Harris says in the Guardian: "I've written a piece of fiction that suddenly starts coming true around me – the markets are crashing and people are blaming algorithms. I worry I'm going to be devoured by my own monster." As a guide to what hedge funds actually do, the book is fairly instructive – and without realising, Harris has created a novel that adds to our understanding of market collapse.

More from Mindful Money:

A Network of Debt: Why it matters who owns it

Alternative investment tools – break away from the herd

Capitalism in crisis: Time to turn to new ideologies?

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21 thoughts on “Creativity and financial crisis: Will this provide the answers?”

  1. JW says:

    Hi Shaun
    As ever it comes down to this. Are the TARGET2 numbers Germany is having to stomach worse than the benefits its reaping from the Euro? When this becomes a ‘yes’, things will happen, before then its just more pain for the citizens of the PIIGS.
    Hollande is already tempering his language after one telephone call from Angie, the French establishment know who is boss. A nice additional ‘growth pact’ to add , with complete differences of interpretation of course, then its raise taxes on the ‘rich’ and make some cosmetic cuts and the French will play ’emu’. They can actually afford to for a long time, because although the anglo press like to point to the 85% public debt, they tend to ignore the comparitively very low private debt. Ditto Italy.
    Spain and Italy are currently trying to remove large portions of the public debt from reported numbers. Very soon all government stats will be ‘through the looking glass’.

    1. Anonymous says:

      Hi JW

      I will be interested to see what they mean by a “growth pact” seeing as their reforms were supposed to bring economic growth to Greece! This year was supposed to be +1.1% in the original documentataion and of course looks like being circa -5%.

    2. Anonymous says:

      Hi JW,

      My understanding of TARGET2 is that Germany receives IOUs from the club med countries for all the Mercs & BMs it exports. I don’t believe that Germany will get paid and hence the benefits of eurozone membership are greatly overstated.

      1. JW says:

         Yes ExpatinBG, that is my point. When Germany’s internal EU loss starts to exceed its gain through ‘ex-EU’ exports due to a lower than ‘DM’ currency, it will take action to change the game. Until then its quite happy to impose austerity etc to the PIIG’s citzens.

        1. Anonymous says:

          German action is driven by politicians, not what is best for the 99%. The next election is due late 2013, if the euro lasts that long.

          If the mainstream parties refuse to allow alternatives to the financial skulduggery, expect fringe hard right and hard left parties to benefit.

  2. Anonymous says:

    Hi Shaun
    The final sentence of your piece coupled with your recent explanation of the Misery (discomfort) Index is food for thought. How can Brussels hope for convergence when it is blatantly obvious 17 countries are diverging? Whilst “failure” of the euro may not happen (too many egos involved) I can see a move towards your “3 Euros” or a return to the “snake”.

    1. Anonymous says:

      Hi Ray

      In the end it is simply coming down to not only divergence when convergence was promised but divergence at quite an extreme level. This would swamp their “rescue” funds very quickly.

  3. The Kings Park says:

    Shaun,

    Perhaps we can refine to ‘it’s the banks stupid’. The effects of the awe-inspiring bail-outs of these oligopolies has had consequences further along the chain as you have so eloquently discussed over the months. 

    Perhaps also we should mark our cards that today is the beginning of the end of the euro as we know it. I think you maybe put too little emphasis on the politico-economic effects of yesterdays votes (although I undersatand why). 

    1. Anonymous says:

      Hi KP

      In a way the banks problems were expressed by the Greek banks today. All the money that has gone into bailing them out both explicitly by the Greek government backed by the Euro zone taxpayers and implicitly by the ECB’s moves and we saw this today.

      EFG Eurobank and Alpha Bank -19%

      Piraeus -13%

      Bank of Cyprus -12%

      I follow EFG as a friend worked there . A year ago it was 3.4 Euros and now it is 0.51….

      So how much is enough?

  4. Spacemanc says:

    When Hollande starts to implement his policies, he’s going to be hit by the markets just when he needs them  – I suspect he’ll try and hit them back and that’s when things will get really interesting.
    I can’t help but think that Europe is going to turn much more against Germany – without France backing them up, they become much more the odd one out. I can see them being asked to pay more or leave. Right now no one dares say it but there’s strength in numbers.

    1. Anonymous says:

      Hi Spacemanc

      President-elect Hollande has a lot of thinking ahead of him. If nothing else he has to think about the to do list likely to have been sent him by Chancellor Merkel.

      Will he back up his pre-election rhetoric with action? One group hoping so will be estate agents in South Kensington ( where there is a lycee).

      1. JW says:

         Shaun, the influx at the top end has been happening for a year now. After Sarko’s financial changes last summer, particularly affecting wealth/property in Trusts for French residents. My guess is its also reduced considerably the number of US citizens becoming resident in France. Although Paris is still 2nd behind Tokyo for Fortune 500 HQs.

  5. James says:

    I think that the Mandelson comments simply defy all belief. There seems to be a euro disease which makes all top politicians ignore reality when it comes to Europe. I can only attribute it to their desire to strut on the top stage. Who cares if a few hundred million people are worse off if they can rub shoulders with Obama?

  6. A fall of 10%– in one month ? The service index falling by about the same in that same month ? Why isn’t this stuff making headlines and why are they not panicking ? These are Depression era numbers. If I was Rajoy, I’d be sheet white after these reports. 

    1. Anonymous says:

      Hi Mr.K

      I have been making the case for a while and there was a lot of interest in my January 27th post which I linked to above including from the states.However I have been developing a theory over this period that the human mind has a lag before it accepts fundamental changes in events and that Spain for example is currently in that lag.

      Over the credit crunch period I have seen such lags last for up to a year..The worst part is that it means that any response is then too late.

  7. Edward Webb says:

    Hi Shaun, still following the news in the Eurozone (and Greece in particular). I have some trepidation as to what’ll happen next to the Eurozone, detailed below, but hope it won’t come to that (though no flying piggy banks have flown past the window yet, showering us with their vast reserves of cash within).There’s a pertinent video uploaded a week ago by a panel talking about the Euro and Europe. Their opinions are quite interesting, and would help if politicians listened to what they have to say: http://www.youtube.com/watch?v=ObMfmE3JMAcOne of the problems with Europe is that it’s too monolithic to respond to the rapid pace of globalization. The idea of bringing countries together in common interest is admirable, and the benefits of a common market (and the efficiencies it brings) are worth keeping. We’re highly interdependent, but don’t want to cede national soverignty, which creates tensions (that’s exacerbated in crisis).A fiscal union is like an orchestra: with the right conductor and supportive performers, works harmoniously; with no conductors and performers playing their own tune, or asserting what other performers should play…I personally think that for the Eurozone to survive, Germany would have to leave the Euro to reduce the value of the currency, to make exports more competitive. The problem is that Germany benefits the most from the fiscal union; and despite Europe looking to Germany for leadership, will not be able to provide a solution to the woes of the Eurozone, as it has too much to lose.As Greece heads towards the abyss, the rest of the Eurozone will increasingly turn on Germany in an attempt to prevent themselves from likewise being dragged down. This’ll cause market instability, and exacerbate things further. Protests and anger are likely to spread to other countries (including ours) as job losses grow, made worse by everyone blaming others for what happens.We have a chance to work together and find a common way out of this, but time is not on our side. I fear that this is only the beginning, as governments continue to fall with no solution ahead, and has the potential to cause deep, long lasting resentment if no action’s taken. I just hope that we can find the answers before then, and have the will to carry them through.

    1. Edward Webb says:

      I don’t know why the line breaks were stripped from the post, so I’ve uploaded the post here: http://pastebin.ca/2145439

    2. JW says:

       You don’t have to be in the EZ to have those problems. UK suffering the same, as is the US, behind the ‘smoke and mirror’ stats.

    3. Anonymous says:

      Hi Edward

      I think that Germany leaving the Euro would be the choice if you had to try to make things better with only one country leaving but even so I do not believe all the others could stay with the same currency. This is why I came up with “The Three Euros” strategy.

      Globalisation and the issues it brings are not the Euro’s fault but it is true that its monolithic inflexible structure looks likely to make its impact harsher…

      I too fear a repeat of the 1930s and all that is implied by that.

  8. Iancsl says:

    Hi Shaun,

    It seems to me that things can only get worse: the Euro has stripped out domestic competition between the 17 EZ member states so that there is little incentive for anyone to buy manufactured goods from producers who aren’t German where there is a comparable product. There simply isn’t enough time to feed through structural reforms (such as lower wages and productivity efficiencies) in worse-performing economies before the Euro suffers the meltdown that so many are predicting. Competition is what stimulates economic growth and, as we know in the UK, currency fluctuations have a significant influence on price and so adjust demand and supply accordingly.

    We are also looking at the EZ today when the effects of the good times were cohesive as were those of the initial 2008 shock. The problem will be exacerbated exponentially when Germany powers the eventual recovery and requires higher interest rates to dampen down the resultant inflationary trajectory. Consider how this will affect everyone else in the EZ – and, particularly the PIIGS. If we think that things are bad now, I’m afraid that we haven’t seen anything yet!

    1. Anonymous says:

      Hi Lancsl

      You may be interested that there was a member of the ECB today suggesting that current policies may well lead to an overshoot in German inflation. So your point may already be coming into play…

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