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CHAPTER THREE

In Hollywood, the Traffic Lights Are Almost Always Red

There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. Credit, on the contrary, is something a man already has.

—Henry Hazlitt, Economics in One Lesson, 43

IN 1984, the now-classic film Splash was released to critical and box-office acclaim. It was the #1 grossing U.S. movie in its first two weeks of release, and, at the time, it was the fastest moneymaking film in Disney history.¹

To this day, Splash views quite well. Some will disagree, but this film directed by Ron Howard and produced by Brian Grazer arguably presented John Candy (Freddie Bauer) at his comedic best. The late actor went against his eventual fumbling type as the fast-talking, womanizing brother of Tom Hanks (Allen Bauer). Likewise Eugene Levy, who, while achieving greater critical renown in later years, owing to his work in the Christopher Guest films (Best In Show most notably), shone as the eminently quotable Walter Kornbluth: “What a week I’m having!”

Before Splash, Howard and Grazer created the very funny Night Shift (formerly the Fonz, Henry Winkler played against type à la John Candy in Splash). Since then, this duo has reeled off a string of critically acclaimed movies, including Parenthood, Apollo 13, A Beautiful Mind, Frost/Nixon, and Rush. These films don’t begin to tell the story of their productivity, not to mention what Grazer and Howard’s Imagine Entertainment has done for television, with shows like 24 and Arrested Development. Best friends, Grazer and Howard have a track record that is the envy of Hollywood.

What is notable about Splash is that, as Grazer recalls in his 2015 book A Curious Mind: The Secret To a Bigger Life, “only a thousand people in Hollywood told me we couldn’t make a movie about mermaids.” A movie “about love, about finding the right love for yourself, as opposed to the love others would choose for you” was viewed as unmarketable. It was seen on the surface as an unrealistic film about a human (Hanks) pursuing romance with a mermaid, played by Daryl Hannah. From the initial idea to its eventual release, Splash took more than seven years to produce. Grazer recalls that even Ron Howard wasn’t initially interested in making the picture.²

What does Grazer’s story about a classic film tell us about credit? Quite a lot, actually.

While the Federal Reserve can lower the fed funds rate with an eye on rendering access to the economy’s resources (credit) easy, credit is nearly always tight in the movie industry. Outwardly about creativity, the film industry wouldn’t exist in its present prosperous form if movies were easy to finance. To understand this better, it’s worthwhile briefly migrating away from Grazer to discuss some of the career highs and lows of A-list actor and auteur, Warren Beatty.

Beatty’s track record, while not as impressive as Grazer’s, merits respect. In 1967, he was a costar in Bonnie and Clyde. The film was ahead of its time in the late 1960s, and it still influences directors today. In the American Film Institute’s rankings of the top 100 movies of all time, Bonnie and Clyde sits at #42.³ In 1975, Beatty starred in the enduring classic Shampoo. In 1978, he starred in and directed Heaven Can Wait. All three were box-office and critical successes, but Beatty wasn’t done.

In 1981, he directed Reds, a biopic of John Reed, the journalist who chronicled the Russian Revolution in his book Ten Days That Shook the World. The film received an Academy Award nomination for Best Picture, and, while it didn’t win, Beatty took home an Oscar for Best Director.

Beatty could seemingly get easy financing for any film at any time. Actually, not quite. By the late 1980s, he’d added to his resume a road picture made with Dustin Hoffman called Ishtar. The movie was awful, and the $51 million invested in it “evaporated.”⁴ Then there was Town & Country.

A movie about the midlife crisis of a rich New Yorker, Porter Stoddard (Beatty), Town & Country probably seemed like a good idea at the time. The cast included funnyman Garry Shandling, an up-and-coming Josh Hartnett, and female leads Nastassja Kinski, Diane Keaton, and Goldie Hawn. Noted director Paul Mazursky observed that perhaps what attracted Beatty to a project his friends were telling him to pass on was “all the gals.”⁵

It couldn’t have been the mostly limp script, though in fairness to Beatty and the rest of the Town & Country crew, the making of a movie is often the artistic equivalent of the famous quote about how “no battle plan survives contact with the enemy.” No less than François Truffaut observed that making a film is like taking a stagecoach west. The ride starts out great, but by the end you’ll be satisfied if “you just reach your destination.”⁶ There’s a reason good directors are paid so well. They’re constantly staring monumental failure in the face as they desperately try to turn a concept into something real, let alone watchable.

By September 1999, 1.3 million feet of film had been shot, but the producers knew they had a disaster on their hands. The film wasn’t finished, yet Diane Keaton, having negotiated a “stop date,” left production altogether. Town & Country’s director literally shot scenes purported to include her but that in fact were her body double from the side.⁷ The release date kept being pushed back.

Finally, on April 27, 2001, Town & Country, a production that had gone, by some estimates, 200 percent over budget, was released onto 2,200 screens nationwide.⁸ Box-office receipts after a month in the theaters were $6.7 million. Unfortunately, production costs for New Line, the film’s producer, were $85 million.⁹ Beatty had morphed from an eminently bankable star who could get films “green lit” to box-office poison.

Interestingly, Beatty once commented, “I believe that I can get any movie made. I have always felt that and I’ve never had a movie I couldn’t get made”¹⁰—impressive words that were true for a time but also hopelessly dated. The credit required to produce a film was once easy for the legendary Hollywood ladies’ man. Not anymore. Town & Country was released in 2001. While he presently has another film in production, Beatty hasn’t made a movie since.

Access to credit (meaning access to the resources required to make a film) in Hollywood is informed by the busts like Town & Country far more than by the box-office successes. Grazer is proof of that. Although his track record when it comes to both film and television is impeccable, finding financing for his projects remains difficult to this day. It took Grazer sixteen years—and the help of Mick Jagger—to get the James Brown biopic, Get On Up, onto movie screens in 2014.¹¹

As Grazer explains, “I know just how often people get told ‘no’ to their brilliant ideas—not just most of the time, but 90 percent of the time.” Grazer writes that Hollywood is the land of “no,” and 90 percent of ideas are rejected. “Instead of spelling out the word H-O-L-L-Y-W-O-O-D in the famous sign in the Hollywood Hills, they could have spelled out: N-O-N-O-N-O-N-O!” He further points out, contrary to a popular assumption in the industry that no one ever says “no” to him, “Everybody still says ‘no’ to me.”¹²

Credit is tight in Hollywood even for Brian Grazer. With his acknowledged struggles with financing in mind, what the Fed presumes to do in fiddling with interest rates is, on the surface, of little consequence. No matter the Fed’s obnoxious conceit about how easy or hard it should be to access credit, financing a movie is difficult.

What economists and politicians too often miss is that an economy is nothing more than a collection of individuals. These individuals frequently make mistakes. As a consequence, the personal “recessions” people endure, whereby credit becomes difficult to attain, are actually quite healthy.

Consider Robert Downey Jr., best known for the Iron Man films. Thanks to this highly profitable movie franchise, Downey is the world’s highest paid actor, with earnings of $75 million per year.¹³ As one media account put it, Downey “is a walking, talking multi-billion-dollar business.”¹⁴

What might surprise readers it that 2015’s highest paid actor couldn’t even get a movie made when the twenty-first century began. Downey’s addiction to drugs and alcohol led to jail time, rehab, fights in prison, and even a 911 call from a neighbor who found an out-of-sorts Downey asleep in her eleven-year-old child’s bed. Amid his self-inflicted race to the bottom, Downey couldn’t make movies because the costs involved were too steep. Movies are expensive to make and difficult to finance even for the top producers, and Downey’s habits rendered him wholly unreliable. No sane insurance company would write a policy for a production that had him attached. Put simply, Downey was too much of a credit risk.¹⁵

This lack of credit turned out to be a blessing for Downey. The expensive credit that rendered Downey unemployed is what forced him to kick his various bad habits and clean up his life. Absent doing so, no source of film finance was going to risk its capital on a talented actor who personified unreliability.

Never forget that credit is the resources created in the actual economy. For that reason alone, wise minds should rejoice that “recessions” shrink our ability to senselessly waste those resources. No amount of Fed ease would have made it possible for Downey to work. His personal “recession,” whereby he fixed problems of his own making, is ultimately what freed up his access to credit. Credit had to become expensive for Downey so that it could become cheap. This is happily true for everyone in the movie business.

Returning to Grazer, it’s worth pointing out that not all of his films have been hits. His resume includes duds such as Fun with Dick and Jane, The Cowboy Way, and Cry-Baby. If credit were always easy—as in if the Fed could wave a magic wand to shower us with money capable of commanding resources—then we’d never learn from our errors, because we wouldn’t be forced to. That would be unfortunate, mainly because failure is a great teacher.

Imagine if failure weren’t allowed to instruct, if government officials constantly excused our errors through bailouts and easy credit. We film lovers would have already aggressively avoided seeing Gigli II, Ishtar Goes Down Under, and Town & Country: Getting Lucky in the Retirement Home. Worse, credit is not finite. To the extent that wasteful economic activity continues to attain funding without regard to market or critical verdict, good, prudent, and artistic variety must get by with less funding. Failure that is propped up is also perpetuated. Moreover, it deprives the productive of the credit they need to fulfill actual market wants. Everyone loses under such a scenario.

Thankfully, what I have described above isn’t real. The Fed’s role in the economy is surely a negative one. But as the film business makes clear; the Fed’s control over who gets credit is in no way absolute. Thank goodness there are red lights everywhere in Hollywood.