WILL HOLLYWOOD GO THE WAY OF ENRON?
DERIVATIVES COME TO THE MOVIES
As if attacks from paparazzi and star-crazed fans weren’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 “shares” 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. “This is a significant step forward in achieving our ultimate goal,
” it said in a letter, “which is to launch a market in Domestic Box Office Receipt
Contracts.”
Having “contracts” out on movies and movie stars, however, has an ominous
ring; and the Motion Picture Association of America (MPAA) apparently doesn’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 “raised concerns about
the economic purpose of this market and its usefulness as a hedging vehicle.”
The legitimate hedgers, the moviemakers and equity holders with a real
financial interest to protect, don’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 aren’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
A“derivative” market is one that is “derived” from an underlying asset, but
participants don’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 “financial weapons of mass destruction.”
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 Japan’s stock market in 1987, the Asian crisis of 1998,
and the recent collapse of Greece.
Gaming the Hollywood Game
Max Keiser, who founded CE’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). “These guys, including my
own board of directors,” he says, “could not tell the difference between marketing
and market manipulation.”
Whether a movie’s stock price rises or falls is considered to be a predictor of the
movie’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.
“The only difference between the new box office futures contracts being
manipulated and blowing up,” he says, “and stocks in compaanies 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.”
Keiser predicts that his altered HSX computer technology, if approved by the CFTC
for use in a real-money exchange, will produce an insider trader’s paradise, with
Hollywood going the way of Enron and Lehman Brothers in two years or less.
“But this is what rigged market capitalism is all about,” he says. “It’s not economics
really. It’s arson. They bet against a company or a country and then burn it down.”
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 “the money trust.” 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 ar
www.webofdebt.com, www.ellenbrown.com, and www.public-banking.com.
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