â€śThe Queen of Versaillesâ€ť began as a documentary about a time-share billionaire, his ditzy wife, and their grotesque quest to build the largest house in the United States of America. It ended as perhaps the single best film on the Great Recession.
The movie was supposed to be about conspicuous consumption. David and Jackie Siegel were building a 90,000 square foot palace nicknamed "Versailles." The documentarians wanted to see what kind of people would do that. So they embedded with the Siegel family.Â
But then the financial crisis hits. Credit dries up. Siegel's business, which relies on cheap credit, begins to flounder. Versailles falls into disrepair. The family begins to crack. "This is almost like a riches-to-rages story," Siegel tells the camera.
Midway through the movie, thereâ€™s a scene that might stand as the single most complete vignette on the mechanics of the financial crisis and the subsequent slow recovery.
Itâ€™s almost Christmas and David Siegel, CEO of Westgate Resorts, the largest time-share company in the world, is hosting a party. The party is in his huge mansion. But itâ€™s not in his hugest mansion -- the 90,000 square foot, still under-construction â€śVersaillesâ€ť -- which is, at that moment, falling into foreclosure because Siegel canâ€™t keep up on the payments.
Siegel, slumped in a ratty armchair, is regaling some friends with a tale that is, simultaneously, a sob-story about the desperate state of his finances and an extended boast about his skill at financial engineering. As Siegel tells it, he owes the bank $18.5 million, and he canâ€™t pay. But the bank wonâ€™t write down the loan. So Siegel tapped a third-party to approach the bank about buying the loan, which they were able to do, for a mere $3.5 million. And then Siegel bought his $18.5 million loan back from the third-party at barely more than a sixth of its original value. This, he says, is why the financial system -- and the economy -- are in the toilet.
Itâ€™s all there: The conspicuous consumption, the mania for ever-more real estate fueled by every-cheaper loans, the complicated financial engineering that made so many rich and then made their companies so poor, Wall Streetâ€™s destructive unwillingness to write down the principal on loans, and the way that, even during the depths of the recession, the rich were able to play by different rules -- rules that helped them emerge from the downturn with more money than ever.
Another scene in the film drives home the point. Jackie Siegel a beauty queen from a small town in New York, has reconnected with a high school friend. The friend didnâ€™t move to the big city and marry a billionaire whose business relied on cheap money. But she got hit by the financial crisis nevertheless: her house is now in foreclosure. And itâ€™s her real house, the one she actually lives in.
The bank says she needs $1,800, and Jackie sends her $5,000. But in a late-night call some time later, she confesses that she lost the house anyway. The bank, she says, wasnâ€™t willing to reverse the foreclosure process even though sheâ€™d been able to come up with the money. Thereâ€™ll be no buying her loan back at a cut-rate price.
Thereâ€™s no good news in the documentary. It ends before the recession does. But thereâ€™s good news beyond the documentary.
Siegel is, these days, best known as the vainglorious plutocrat who sent his employees an e-mail explaining theyâ€™d likely be fired if President Obama won the election and they should, you know, keep that in mind when they go to vote.
Obama, of course, did win the election. But Siegel hasnâ€™t fired anyone. Instead, he gave his employees a 5 percent raise to help them handle the economic turmoil thatâ€™s sure to accompany Obamaâ€™s second term. "I wanted to help them handle the additional burdens the government will put on them," he told Business Week.Â Thatâ€™s a ridiculous rationale, but itâ€™s real money -- and it suggests the economy is recovering quickly enough that Siegelâ€™s firm has that kind of money to spare.Â