Epiphanyblog

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Wall St dreams up a new speculation: Hollywood Stock Exchange

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Wall St. just can’t get over its addiction to speculation, regardless of the recent financial crisis that directly was caused by their speculation. Now, they’ve dreamed up another game of “roulette.”

Steve Pearlstein of the Washington Post writes today:

Investors learned this week of Wall Street’s latest attraction — a new “futures” market where anyone from casual moviegoers to Hollywood moguls would be able to wager on the success of upcoming movies.

In many ways, the Hollywood Stock Exchange is simply the logical extension of the recent trend in financial markets, which have long since outgrown their original purpose — to raise capital for real businesses — and have now turned themselves into high-tech casinos offering endless opportunity for speculation.

The rationale for this market in movie futures is roughly the same as the one offered for stock and commodities futures, or credit-default swaps or even the market in “synthetic” CDOs, those securities designed to mimic the performance of the real-life packages of mortgages and other debt instruments. Apologists talk about how much “liquidity” they bring to these markets, magically lowering costs and moderating price swings while allowing all manner of businesses to hedge their risks. And because these markets can accomplish these things with absolutely no unpleasant side effects, it is folly to even consider regulating them and stifling this wealth-producing innovation.

To understand what hogwash this all is, take a closer look at the Hollywood Stock Exchange, which the New York Times reported will soon be launched by Cantor Fitzgerald.

A growing number of leading economists are sounding a warning that banks are not as sound as their public relations pronouncements state. They still have all those millions, if not billions, of dollars of worthless securities on their balance sheets, but they’ve been assiduously ignoring them. Rather than embrace yet more speculative ventures, Wall St. needs to figure out to clean up their balance sheets. Any additional losses – or even higher interest rates – could lead to another bank collapse. If Wall St. is betting that the American taxpayer will open their collective wallet again, they’re in for a rude surprise.

Today only about 39% of investments go to providing capital for new business ventures. The rest goes towards one form of speculation or another. Yet, America and Congress are still enthralled with Wall St. which is why the Street has been able to thwart any meaningful regulation this long after the world financial collapse that led to the Great Recession. Already, Europe and Asia are pushing the U.S. government to restrict derivatives, CDOs and other speculative instruments because of the harm they’ve already caused.

So, when will the U.S. finally begin to realize that Wall St. isn’t that much different anymore than a Vegas casino? A clear message, through tough reforms, needs to be sent to Wall St.: clean up your house of cards or die; you won’t gamble with our money any more.

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One Response

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  1. This post appears to recieve many visitors. How did you advertise it? It has a nice unique spin on things. I guess having something authentic or substantial to talk about is the most important thing.

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    December 2, 2010 at 10:42 PM


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