WILL HOLLYWOOD GO THE WAY OF ENRON?
DERIVATIVES COME TO THE MOVIES
Ellen Brown, May 3rd, 2010
As if attacks from paparazzi and star-crazed fans werenâ€™t enough, Hollywood stars may soon have a literal price put on their heads by investors in the Cantor Exchange, a real-money trading platform where people can bet on the gross profits of upcoming movies. Sales of The Dark Knight skyrocketed after Heath Ledger died unexpectedly, and so did sales after the deaths of Michael Jackson, Elvis Presley and Marilyn Monroe. Will greed-driven investors now be laying in wait for the stars of movies they have bet on?
The Cantor Exchange (CE) is based on a virtual trading platform called the Hollywood Stock Exchange (HSX), a web-based, multiplayer simulation in which players buy and sell â€œsharesâ€ of actors, directors, upcoming films, and film-related options. The difference is that where the HSX uses virtual money, CE will turn the game into a real casino using real dollars.
On April 21, Cantor Exchange reported that it had just received regulatory approval from the Commodity Futures Trading Commission (CFTC), which oversees futures exchanges. â€œThis is a significant step forward in achieving our ultimate goal,â€ it said in a letter, â€œwhich is to launch a market in Domestic Box Office Receipt Contracts.â€
Having â€œcontractsâ€ out on movies and movie stars, however, has an ominous ring; and the Motion Picture Association of America (MPAA) apparently doesnâ€™t like the sound of it. The Cantor letter said that its tentative launch date of April 22 was being delayed because the MPAA and others â€œraised concerns about the economic purpose of this market and its usefulness as a hedging vehicle.â€
The legitimate hedgers, the moviemakers and equity holders with a real financial interest to protect, donâ€™t want it. But Cantor is pushing forward, because gambling is big business and there are vast sums of money to be made.
Critics are worried that the new exchange will turn Hollywood into another derivatives casino, vulnerable to insider trading. Even if traders arenâ€™t hiding behind bushes waiting to trip up the stars, the exchange could create bizarre incentives for moviemakers to manipulate and distort the market for their own products, perhaps intentionally sabotaging movies they know are losers.
The Derivative Craze
Aâ€œderivativeâ€ market is one that is â€œderivedâ€ from an underlying asset, but participants donâ€™t have to own the asset to play. Like gamblers at a race track, they can bet without owning a horse. Derivatives have now become a $605 trillion industry, about ten times the gross domestic product of all the countries of the world combined. This money is not contributing capital to businesses, helping the economy to grow. Rather, it is being diverted into wagers. Money is made by taking it from someone else.
Worse, half the wagers are negative: the players want the thing to fail. Warren Buffet called derivatives â€œfinancial weapons of mass destruction.â€ By massively short selling a stock or a currency, speculators can actually force the price down. Derivatives can be used to sabotage not only businesses but whole economies. Derivatives have been blamed for such economic disasters as the collapse of Japanâ€™s stock market in 1987, the Asian crisis of 1998, and the recent collapse of Greece.
Gaming the Hollywood Game
Max Keiser, who founded CEâ€™s virtual forerunner HSX in the 1990s, has firsthand knowledge of how the Hollywood exchange can be abused. When he was CEO of HSX, he says, he came under pressure from fellow board members to give in to studio heads who were offering cash and other inducements to manipulate the prices of projects, either up (to legitimize more marketing dollars) or down (to sabotage competing projects). â€œThese guys, including my own board of directors,â€ he says, â€œcould not tell the difference between marketing and market manipulation.â€
Whether a movieâ€™s stock price rises or falls is considered to be a predictor of the movieâ€™s future success; but Keiser warns that today, the prediction value of market pricing is largely a hoax. Traders using sophisticated computer programs have learned how to manipulate prices, and market rigging has become institutionalized.
â€œThe only difference between the new box office futures contracts being manipulated and blowing up,â€ he says, â€œand stocks in companies like Lehman Brothers being manipulated and blowing up, is that people losing their money can imagine getting screwed by Scarlett Johansson instead of Dick Fuld.â€
Keiser predicts that his altered HSX computer technology, if approved by the CFTC for use in a real-money exchange, will produce an insider traderâ€™s paradise, with Hollywood going the way of Enron and Lehman Brothers in two years or less.
â€œBut this is what rigged market capitalism is all about,â€ he says. â€œItâ€™s not economics really. Itâ€™s arson. They bet against a company or a country and then burn it down.â€
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and â€œthe money trust.â€ She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are www.webofdebt.com, www.ellenbrown.com, and www.public-banking.com.