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By JOE NOCERA
If you want to know the truth, the Wolf of Wall Street — the person, that is, not the Martin Scorsese-Leonardo DiCaprio movie that opens on Christmas Day — spent only a fleeting few months on the actual Wall Street. In 1987, Jordan Belfort — a.k.a. the wolf himself — took a job at L. F. Rothschild, an old white-shoe firm. It was his first job in the business, and he was given the assignment of cold-calling “prospects” that he would then turn over to a broker. In his memoir — upon which the movie is based — Mr. Belfort claims, among other things, that a successful Rothschild broker (played by Matthew McConaughey on screen) took him to lunch on his first day and told him to masturbate often if he hoped to be a good broker himself. Given Rothschild’s stodgy reputation, I tend to think this story is an exaggeration, an act of salesmanship intended to lure in Hollywood. No matter. Not long after Mr. Belfort began working for L. F. Rothschild, the crash of 1987 wiped out the firm and took his job with it.
It was Long Island where Belfort picked up the pieces. He found a job pitching penny stocks — that is, stocks that are too small to be listed on any exchange, many of which are fly-by-night companies — and realized he had found his calling. He was such a good salesman that he soon went out on his own, founding a brokerage house with his friend Danny Porush. They called it Stratton Oakmont, mainly because the title sounded high-toned, which they were most certainly not. Stratton Oakmont was a classic “pump and dump” operation: Mr. Belfort and several of his fellow executives would buy up stock in a particular company and then have his legions of brokers (using a script he had written) sell that stock to unwitting investors — which would cause the stock to rise, allowing Belfort and company to sell their shares at a nice profit. Inevitably, the stock would fall back to earth, leaving the investors holding the bag. Everything I’ve just described is illegal, as Mr. Belfort was well aware.
When “The Wolf of Wall Street” hits screens, there will inevitably be a temptation to connect it to the financial crisis of five years ago. But the rise and fall of Stratton Oakmont in the late 1980s and ’90s has nothing to do with the events that brought the financial system to the brink. It’s just that movies don’t do well describing what really happens day to day on Wall Street, not even Oliver Stone’s two tries. It is easier — and in many ways more sensible — to do films like “The Wolf of Wall Street” and “Boiler Room” (the 2000 drama that was also said to be modeled after Stratton Oakmont). It is much easier to convey on screen Mr. Belfort’s greed than Goldman Sachs’s.
Still, while those two firms are worlds apart in most respects, there is one important way in which they are alike, and why using Stratton Oakmont as a proxy for Wall Street is not such a stretch. The brokers (or traders in the case of Goldman) are, at bottom, salesmen. As the saying goes, “Stocks are sold, not bought.” What is mesmerizing about Mr. Belfort (played in the film by Mr. DiCaprio) is that he is an extreme example of the smooth-talking, I-can-sell-anything, salesman. And he’s hardly the first such type in finance. In the early 1960s, a man named Bernard Cornfeld used to draw people into his financial empire by asking, “Do you sincerely want to be rich?” And they say Charles Ponzi was a pretty good salesman, too. What does Goldman Sachs do if not sell? It’s just a different product.
As the Stratton Oakmont brokers got rich by following Mr. Belfort’s scripts, they became fiercely loyal to their boss. Mr. Belfort, for his part, “lived the life” (as he puts it in his book) and then some. He had several homes, a yacht, a helicopter and a trophy wife. By the time he was 26, he was worth tens of millions of dollars. He and his fellow executives took copious amounts of drugs and employed prostitutes almost daily. In his book, Mr. Belfort makes Stratton Oakmont sound like the most debauched brokerage that ever existed — and the movie takes full advantage, with scene after scene of drug-addled nights and sexcapades in the office during trading hours. And while I was inclined to view this as an exaggeration as well, Terence Winter, the screenwriter, told me that when he interviewed the F.B.I. agent who finally nailed Mr. Belfort, the man said, “I tracked this guy for 10 years, and everything he wrote is true.”
As it happens, Mr. Winter, best known for his work on “The Sopranos” and “Boardwalk Empire,” also spent a short time on Wall Street. He was in law school in the mid-1980s when he worked part time as a legal assistant in the equity trading department at Merrill Lynch. He saw excess there, too, but it was mainly in the excessive salaries the executives made, especially compared with the good (or lack thereof) their services provided. What he most certainly did not see was drugs being openly consumed in the office, or hookers having the run of the place. Or, for that matter, crimes being committed openly. Wall Street’s sins are subtler than that. To describe Stratton Oakmont, Mr. Winter’s time on at Merrill Lynch did him little good.
Compare, for instance, Mr. Belfort’s biggest deal — the initial public offering of Steve Madden’s shoe company — with, say, the infamous Goldman Sachs Abacus trade in the prelude to the financial crisis of 2008. Mr. Belfort and Mr. Porush (called Donnie Azoff in the film and played by Jonah Hill) found what they called rat holes to hold stock that they actually controlled. (Mr. Porush’s rat hole was Steve Madden himself.) Once the shares were available to the public, Stratton’s brokers would get down to the business of selling them to the suckers: “I need a decision — Bill!” a broker said, turning up the pressure, according to Mr. Belfort’s account. “I need a decision now. Steve Madden is the hottest issue on Wall Street. There’s nothing to think about!” (Apropos of nothing, Mr. Belfort says his writing is modeled after a combination of the styles of Tom Wolfe and Hunter S. Thompson! Hence all the exclamation points!)
After their brokers ran up the price of the stock, Mr. Belfort and Mr. Porush would have their rat holes sell, even though, as executives in the firm underwriting the shares, they were supposed to hold on to the stock for a designated period of time. You won’t find a simpler, more obvious example of financial crime. This is one of the many crimes for which Mr. Belfort and Mr. Porush went to prison. (And Steve Madden, too.)
Goldman’s Abacus deal was also an effort to take advantage of its clients, but it is so complicated that even now, most people don’t understand what happened. Fearing that a housing crash was nearing, Goldman bundled its worst mortgage bonds into a synthetic collateralized debt obligation — the kind of security the financial media would later label as “toxic mortgages.” It also allowed John Paulson, the hedge-fund manager who was betting against mortgage bonds, to help choose the bonds that went into the deal. And then, just like Stratton Oakmont, Goldman sold these pigs in a poke to the suckers — in its case several banks that on Goldman’s say-so, took the other side of the transaction, betting that the securities would rise in value. When the housing bubble burst, the banks were stuck with big losses, while Goldman and Mr. Paulson racked up gains. Just like Stratton Oakmont.
Are you with me so far? No? The selling of a synthetic collateralized debt obligation is nearly impossible to convey on screen. And in real life, it is less satisfying too, in the sense that while Goldman Sachs agreed to pay a fine to the Securities and Exchange Commission it was never criminally charged for its role in the financial crisis, and to this day has never admitted wrongdoing. None of Goldman’s bigwigs faced prosecution. (Fabrice Tourre, a midlevel employee, was tried on civil charges — and found liable — for his involvement in the deal.)
Mr. Winter said that when he was writing the script, he was forever trying to explain even the limited Wall Street terms “The Wolf of Wall Street” uses, like I.P.O., before finally concluding that it didn’t matter. “People don’t care,” he said. “The techno-speak goes in one ear and out the other. What they’ll remember is that in the Madden deal, Mr. Belfort made $23 million in two hours.”
Mr. Belfort, meanwhile, wound up in prison and wrote a book that is nothing if not a bravura act of salesmanship — selling his old self to the movies, while selling his new self as a motivational speaker to a new array of clients.
For all the considerable pain Stratton Oakmont inflicted on its investors, here is something you should remember. It doesn’t even begin to approach the kind of pain the real Wall Street can inflict. Firms like Stratton Oakmont can’t bring the financial system to the precipice. They can’t cause a global recession. They can’t cause panic in London, New York and every other financial capital. To use Stratton Oakmont to represent Wall Street doesn’t begin to get at Wall Street’s sins.
Besides, who would ever buy a ticket to a movie called “The Wolf of Long Island”?
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