The Big Short, Anatomy of an Epidemic, and The Hollywood Economist

THE BIG SHORT
By Michael Lewis
ANATOMY OF AN EPIDEMIC
By Robert Whitaker
THE HOLLYWOOD ECONOMIST
By Edward Jay Epstein

It was William Goldman in Adventures in the Screen Trade (1983) who first informed the world that “Nobody Knows Anything.” As one of Goldman’s chief rules for understanding Hollywood, the line only meant that nobody could predict how well a movie would do in advance. Since its formulation, however, Goldman’s Rule has gone on to enjoy a long career with extended applications, some of the more dramatic of which can be observed in these three new books.

Staying with the screen trade, Edward Jay Epstein brings the Rule into the twenty-first century with The Hollywood Economist, a collection of short pieces looking at how money is made (and lost) in the film business. This is a complex process indeed, and one which the much-trumpeted box office receipts shed scarcely any light on at all in terms of a bottom line. Hard numbers are hard to come by, and their real meaning is often concealed behind networks of deals the whole purpose of which is to be opaque. This is an industry, after all, that traffics in illusion. If anybody knows anything it’s presumably the accountants, and they certainly aren’t talking.

Epstein decodes the information from Hollywood’s black box, explaining how the principal business of the big studios is no longer making movies but rather “creating properties – including TV programs, cartoons, videos, and games – that can serves as licensing platforms for a multitude of markets.” The jury is still out on whether this can be described as a wise move. In Epstein’s opinion it points to Hollywood’s adaptability in the face of change. If so it has been an accidental evolution. The studios resisted DVDs as much as they did videotapes, but both turned into cash cows, providing the revenue streams that kept them profitable. Meanwhile, they have seen their theater audience collapse and have left themselves with no artistic mission. Studios today only green-light four types of movies: remakes, sequels, television spin-offs, and video game extensions. As Epstein notes, “the ending is not a happy one for originality.” Whether it will be a happy one for yet another industry faced with “trading analog dollars for digital pennies” is doubtful. One thing does seem certain, however: Hollywood’s creation of a special form of wealth, “the pictures in our head by which the world at large defines the phenomenon of American culture,” has reached the end of its run.

The story of an industry selling its soul for the short-term gain and quick profits (in Hollywood’s case represented by junk-food addicted herds of teenagers) is one we meet again on Wall Street in Michael Lewis’s The Big Short. In this account of the subprime mortgage meltdown we soon learn that nobody, not even the accountants, knew anything. Here’s one of the new Masters of the Universe (also known as “the best and the brightest”) going to work:

His first assignment in Manhattan, as a junior accountant, was to audit Salomon Brothers. He was instantly struck by the opacity of the investment bank’s books. None of his fellow accountants was able to explain why the traders were doing what they were doing. “I didn’t know what I was doing,” said Vinny. “Bu the scary thing was, my managers didn’t know anything either.”

Nor were they supposed to. That, Vinny was told, was not their job. Exactly how the giant Wall Street firms made money was a mystery even greater than that spun by Hollywood studios, their arcane workings likened by Lewis to “giant black boxes, whose hidden gears were in constant motion.”

The heroes of Lewis’s story are the handful of one-eyed men who became kings in the land of the blind, shorting debt instruments lousy with rotten loans. Along the way they expose the stupidity of the system at every turn.

Once, he got himself invited to a meeting with the CEO of Bank of America, Ken Lewis. “I was sitting there listening to him. I had an epiphany. I said to myself, ‘Oh my God, he’s dumb!’ A lightbulb went off. The guy running one of the biggest banks in the world is dumb!”

Indeed he was. But what of it? When ignorance makes you rich, ’tis folly to be wise. Nobody knew what was in those mortgage bonds and nobody cared. In retrospect, Lewis tells us, the banks’ ignorance of such seemingly essential information “seems incredible – but, then, an entire financial system was premised on their not knowing, and paying them for this talent.” What was the incentive for being right? In the corporate culture of Wall Street “facts and logic were overwhelmed by the nebulous social dimensions of things.” Meaning: Just keep your mouth shut and we’ll all be rich when the music stops.

Maybe the best definition of “investing” is “gambling with the odds in your favor.” The people on the short side of the subprime mortgage market had gambled with the odds in their favor. The people on the other side – the entire financial system, essentially – had gambled with the odds against them. Up to this point, the story of the big short could not be simpler. What’s strange and complicated about it, however, is that pretty much all the important people on both sides of the gamble left the table rich. . . . Wing Chau’s CDO managing business went bust, but he, too, left with tens of millions of dollars – and had the nerve to attempt to create a business that would buy up, cheaply, the very same subprime mortgage bonds in which he had lost billions of dollars’ worth of other people’s money. Howie Hubler lost more money than any single trader in the history of Wall Street – and yet he was permitted to keep the tens of millions of dollars he had made. The CEOs of every major Wall Street firm were also on the wrong side of the gamble. All of them, without exception, either ran their public corporations into bankruptcy or were saved from bankruptcy by the United States government. They all got rich, too.
What are the odds that people will make smart decisions about money if they don’t need to make smart decisions – if they can get rich making dumb decisions?

Which leads one to wonder whether those decisions were really so dumb, after all.

This final note of cynicism leads us to one of the most important, and shocking, books I have read in a long time: Robert Whitaker’s Anatomy of an Epidemic.

Whitaker’s book takes as its starting point the following paradox: Why, after over half a century of a psychopharmacological revolution fully endorsed by the medical establishment, have outcomes for patients been getting worse?

Why are so many Americans today, while they may not be disabled by mental illness, nevertheless plagued by chronic mental problems – by recurrent depression, bipolar symptoms, and crippling anxiety? If we have treatments that effectively address these disorders, why has mental illness become an ever-greater health problem in the United States?

The answer, in short, is that we don’t have treatments that effectively address those disorders. Indeed we don’t even know exactly what those disorders are, despite the seeming attempt at precision in a pseudo-scientific proliferation of nomenclature. Furthermore, studies suggest the increase in rates of mental illness is in large part iatrogenic (that is, caused by the very drugs meant to treat it).

It would appear, once again, that nobody (shorthand for the experts, the received wisdom) knows anything. And the reasons for such ignorance are familiar as well. The psychiatric profession embraced the model of “biological psychiatry” in the 1970s as a way of borrowing legitimacy from the rest of the medical field and casting themselves as professionals more like doctors. And what biological psychiatry meant was drugs, “magic bullets” for mental illness that could somehow rebalance the brain’s damaged chemistry. That these drugs in fact disrupted the brain’s chemistry, bearing “fruit, bitter in kind,” would seem to have been a more obvious conclusion, but in the atmosphere of the time it wasn’t drawn.

With so much invested in the model of biological psychiatry it simply couldn’t be allowed to fail, despite all evidence to the contrary. And as Whitaker (a medical researcher) documents, contrary evidence has been piling up for decades, especially with regard to the negative long-term consequences of medication. But . . . what of it? Who cared? From The Big Short:

“Either the game was totally rigged, or we had gone totally fucking crazy. The fraud was so obvious that it seemed to us it had implications for democracy. We actually got scared.” They both knew reporters who worked at the New York Times and the Wall Street Journal – but the reporters they knew had no interest in their story. A friend at the Journal hooked them up with the enforcement division of the SEC, but the enforcement division of the SEC had no interest either.

And from Anatomy of an Epidemic:

These drugs were now being prescribed to an ever-larger group of people, including to more than a million American children. Could the field now confess that these medications might be making people chronically depressed? That they led to a “malignant” long-term course? That they caused biological changes in the brain that “sensitized” a person to depression? And if that were so, how could they possibly be prescribed to young children and teenagers? Why would doctors do that to children? . . .
“The industry is not interested [in this question], the NIMH is not interested, and the FDA is not interested,” he said. “Nobody is interested.”

The explanation for such indifference is no mystery. As with the density of the titans of Wall Street, the ignorance of various “experts” and “key opinion leaders” in the field of psychiatric medicine was making drug companies, along with the psychiatric professionals, rich by turning patients into lifelong “consumers” of medical prescriptions.

Should we care if Wall Street sells junk bonds, Hollywood makes shitty movies, and doctors peddle worthless drugs? I think it obvious that we should, if for no other reason than the fact that we all pay to support these degenerate systems. One of the more interesting revelations in Epstein’s book is how dependent film production has become on exploiting tax breaks. Taxes also go to pay for the millions of mentally disabled created by psychopharmacological fixes. And as for the cost of Wall Street’s bailout, that is a tab that beggars all accounting. Incentivizing ignorance isn’t cheap.

From the days of the megafaunal extinctions of Sahul down to the present day, we have demonstrated time and again our selfishness and short-sightedness as a species. It takes effort to be smart, especially when there are quick profits to be made by playing (or being) dumb. Unfortunately, we all have to deal with the consequences of such profoundly anti-social behaviour.

Notes:
Review first published online June 28, 2010.