BRAND NEW WAY TO INVEST IRRESPONSIBLY: BOX OFFICE FUTURES!

From AlterNet:

Another problem, says Stout, the law professor, is that such a market creates "all sorts of perverse incentives to manipulate the success of movies." Let’s say you were responsible for Gigli, and you realized during filming that it was shaping up to be one of the worst movies ever made. Instead of writing off the $54 million you’d shelled out to make the film, you could simply buy up a stack of futures contracts priced on the assumption that the movie would tank. Then, to nudge that failure along, you could slash the marketing budget, or decide to add 30 more dreadful minutes to the final cut. Played correctly, a studio could inflict a movie like Gigli on the world and still turn a profit. If box office futures trading happens, being a Hollywood insider would take on a whole new meaning.

More here.

Personally, I don't really see how Hollywood can become much worse than it already is, so I'm not particularly quaking in my sneakers over this. Who knows? It is entirely possible that purposefully bad movies might actually be better than bad movies that were intended to be good. I mean, Ed Wood made a career out of such a notion. Kind of. I guess we'll see what becomes of this.

On the other hand, the above excerpted essay serves as about as good an explanation as any I've read about one of the main financial phenomena mucking up the economy these days. Noam Chomsky has asserted that, in the last forty years or so, international investment has radically moved away from supporting the real economy, production and trade and so forth, toward financial gambling:

One cause is the enormous increase in the amount of unregulated, speculative capital. The figures are really astonishing. John Eatwell, one of the leading specialists in finance at Cambridge University, estimates that, in 1970, about 90% of international capital was used for trade and long-term investment - more or less productive things - and 10% for speculation. By 1990, those figures had reversed: 90% for speculation and 10% for trade and long-term investment.

That is, that vast majority of money being invested worldwide is, more or less, being used like poker chips, enriching the players, but creating nothing useful for anybody else. It is important to note that Chomsky made this observation sixteen years ago--lord knows the state of affairs now, but it's safe to assume that the trend hasn't changed.

Our leaders, the President, the Congress, the corporate news media pundit class, and others, make the assumption that all investment is good because it causes business to grow, which means more jobs and good times for everybody--you know, "a rising tide raises all the boats" and other such economic platitudes. Consequently, hands-off attitudes prevail, for both parties, when it comes to regulating the financial sector. I mean, there's a lot of talk in Washington these days about reining in the fat cats on Wall Street, but nobody really means it; they're just trying to cash in on popular anti-banker sentiment. Our leaders are certain that what we really need to do is simply to let the banksters do their thing and they'll get it right. Eventually.

Thing is, the assumption about investment our leaders make is fatally flawed: less than a tenth of all investment capital in the world actually makes its way to businesses operating in the real economy, you know, the businesses that employ most people. Clearly, all investment does not mean more jobs and good times for everybody. Indeed, 90% of investment is nothing more than gambling money. So most of the money floating around in the global economy is doing only a tiny fraction of the population any good.

Worse, as the recent mortgage backed securities scandal shows, these gamblers have absolutely no problem with betting the house in high stakes games. Your house, not theirs. They walk away with their fortunes relatively intact. You lose your job and health insurance. Worse still, as the above excerpt shows, this casino mentality infects business thinking in the real economy, with CEOs making decisions based on the roulette wheel, rather than market share. That is, when they are seen as nothing more than chips at the table, businesses that actually make things and employ people suffer greatly.

Call me old fashioned, but I think it would do us all a great deal of good if our leaders adjusted their assumptions to acknowledge the fact that some, indeed most, investment is actually bad. That's probably not going to happen anytime soon.

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