Tom Adams and I saw an advance screening of the Charles Ferguson film Inside Job, a documentary on the financial crisis, due for theatrical release in New York on October 8. Given how well each of us knows the subject matter, we’re not easily swayed, but I can speak for both of us in giving the picture high marks. It’s is a very smart, well framed indictment.
I’m generally struck by how TV coverage of finance and economics dumbs down their subject matter, which results in annoyingly sanitized, incomplete accounts. This picture demonstrates that the common excuse, that film isn’t well suited to complex material, is merely cover for laziness and low standards.
Inside Job an ambitious picture, clearly aiming to stir public anger and action by showing how criminally corrupt the financial services has become and how it has subverted government and the economics discipline. Despite minor errors and occasional oversimplification, overall Inside Job does an extremely effective job in covering a lot of ground in a compelling manner.
Ferguson got to top figures in government, finance, and academia, which also gives his picture added heft (Full disclosure: I was left on the cutting room floor). And he unearthed some new dirt, such as: Christine Lagarde recounting that Hank Paulson blew off her concerns about the risk of a crisis at a February 2008 G7 meeting, and that she found out about the Lehman bankruptcy only after the fact; Dominique Strauss-Kahn of the IMF saying that at a dinner of bankers, they were actually asking for more regulation because they recognized they couldn’t restrain themselves (this in the brief window when they feared for their own survival). The now infamous Frederick Mishkin clips, which show him squirming about a paid puff piece he did on behalf of the Iceland Chamber of Commerce not long before the country imploded, has as companion pieces Martin Feldstein saying he regretted none of his decisions as a board member of AIG and AIG FP (!) and Glenn Hubbard, Bush’s chief economic adviser and now Dean of Columbia Business School, getting snippy when grilled about conflicts of interest in his paid consulting work.
In addition to highlighting how the financial services industry has bought and paid for not only considerable political influence but academic endorsement of its favorite causes, it also calls to attention an overlooked factoid I’ve long considered damning: that there was no preparation on behalf of the officialdom for a Lehman bankruptcy. And by “no preparation” I mean not the foggiest understanding of what it meant. Andrew Ross Sorkin made it clear that no one in authority had spoken to a bankruptcy lawyer; Ferguson states they were completely unaware of how disruptive a bankruptcy filing would to Lehman’s London operation. Dean of the bankruptcy bar Harvey Miller (BTW who wears a simply gorgeous suit) recounts how as Lehman’s attorney he warned that a rapid filing would result in armageddon.
The story weaves in a large number of threads: some of the major moves forward in deregulation; Wall Street psychopathy; the heads I win, tails you lose deal the industry has managed to concoct, as well as its criminal activities; how growth in consumer credit was a sop to mask the impact of rising income disparity and stagnant worker wages; the extensive ties between Wall Street, particularly Goldman, and key government figures; discussion of how CDOs and credit default swaps contributed to the crisis (our pet bad actors Magnetar and Tricadia won mentions).
Now to the quibbles. Ferguson makes the crisis sound as if it started with Lehman, when it really began in August or even arguably July 2007. He says Bear was purchased for $2 a share. He mentions deregulation leading to bigger and more frequent crises but then discussed only the dot com bust (which destroyed wealth but was not a credit crisis; the 1994-5 derivatives meltdown and the LTCM crisis were far more relevant antecedents). He puts a lot of emphasis on the 2003 liberalization of investment bank capital rules, when the investment banks were as geared in 2007 as they were in 1997 (not that that was good either, but the idea that that rule change was a major culprit in the crisis doesn’t stand up) and major Eurobanks were just as highly geared. He makes it sound as if securitization produced only CDOs and didn’t finesse at all well how much of them came to be rated AAA. He also incorrectly (in a graphic) indicated that AIG sold CDS to speculators. But none of these miscues seriously undermine his account.
I highly recommend Inside Job. Ferguson clearly intends to rouse the public, and I sincerely hope he succeeds.
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Thanks for the review. I haven’t hit the theatres in years, but I guess it’s time. Quibble with your quibble:
“dot com bust (which destroyed wealth but was not a credit crisis; the 1994-5 derivatives meltdown and the LTCM crisis were far more relevant antecedents).”
While these disasters are certainly noteworthy and I would love to have the role of Summers and Geithner in them highlighted, the I think the dot com bust was easily as relevant and perhaps moreso. That’s because it can be directly fingered as causative for many possible roots of the current crisis: an overly easy Fed, stagnant median household real wages, especially as the technological foundation for the real growth in outsourcing, a forced reliance on asset price appreciation for economic growth, etc. etc.
But the Greenspan(or, well, Government) Put is more mention-worthy than any of these individual crises. Does that get adequate play?
Which leads to my bigger question, one that I don’t see answered in the synopsis above. Does the film make clear that all of the problems it discusses remain to this day, many of them more egregious than they were in ’06?
The Bernanke Fed is the biggest, fattest guarantor of speculation that the world has ever known. They seem to view that as either a necessary evil, or as a policy channel through which reflation can happen. Even Greenspan is getting a little nervous about it. I am deeply uncomfortable with current monetary policy, and I wish the film could make clear that for this inaccessible topic in particular, it’s worse than it’s ever been.
The reason I see the dot com bust as overrated is that the problem was Greenspan’s overreaction, not the unwinding itself (so we may be on the same page, if he had let nature take its course, we would have had moderate to bad recession instead of a mild one). A bubble not fueled by debt does not blow back to the financial system the way a credit stoked one does. The derivatives and LTCM crisis were credit related.
It does not mention the Greenspan put, and Rubin gets off lighter than I like, but he does roast Summers (Timme too, but not as much). He also does say that finreg did pretty much nothing, the Europeans are taking it more seriously than we are, and makes it clear that the banks are bigger and more concentrated than they were pre crisis.
An aside:
.com bust destroyed less value that the M&A spree run at the same time (95-00). Yet the spree was BAU and not commented on (much).
While monetary policy certaily played an important role in precipitating the GFC, “the Greenspan(or, well, Government) Put” is certainly not “more mention-worthy than any of these individual crises.”
The GFC is neoliberlism writ large, and monetary policy is only one factor of many contributing factors that led to the crisis.
Neoliberalism’s workshop can be found in Latin America, and monetary policy is only one small, but significant, part of the witches brew that constitutes neoliberalism. To place so much emphasis on monetary policy gives a highly distorted and simplisitc view of the problem.
Neoliberalism should be defined as: Humantic Liquidationisam or a bias market function to finding the fair value of human existence as correlated to profit seeking, by the the people that matter more than most, and in the discharge of their duty as overseers aka Humanities only hope for survival, betterment, ascension, et al.
Skippy…DS how dose it feel to have that metric pointed at you and yours..eh.
How did the film treat Barney Frank?
Any Wall Street background on Chris Dodd?
Any scrutiny on how Chuck Schumer and his support from Wall Street watered down finreg?
I’m a lifelong Democrat. Sick as hell of wolves in sheep clothing.
There is indeed some ‘good’ coverage of the problems surrounding (most extensively the subprime crisis) by Bremner, Bird and Fortune (BBC).
See short clip here: http://www.youtube.com/watch?v=z-oIMJMGd1Q and on the South-Sea Bubble: http://www.youtube.com/watch?v=QjN8q5rwLoo
(You can find a special they did called ‘silly money’ on youtube as well)
Great quote: “And then the money is moved onto Wallstreet, and this is extraordinary what happens then: somehow, this package of dogy debts stops being a package of dodgy debts, and starts being a Structured Investment Vehicle.”
BB&F was the only television programme for a long time that had a clue of what went on. Silly Money was excellent, well worth watching.
BTW, it’s NOT a BBC programme though :)
On bankers and more regulation – In some areas, I think bankers would still like more regulation, because w/o regulation you cannot afford to do the first step – typical prisoner’s dilema problem.
For example, look at CS – the only bank which reduced bonuses in response to the UK’s punitive tax. It was forced to reintroduce them, as the competitors didn’t reduce bonuses and their staff (and now I’m not talking traders, but IT guys, risk managers, back office managers) were leaving.
I don’t believe it is possible for television or documentaries to cover a story with the complexity of the financial crisis. Those stories are too far from the sweet spot of television.
Try to imagine Tom Paine arguing against monarchy and democracy by using stained glass windows. (I’ve read Alan Kay use this example many times)
If people aren’t able to find this stuff – and get very angry – by a few simple searches on the interwebs … why would a big or small screen release make any difference?
It’ll just end up preaching to the converted and not make any appreciable difference anyway.
It’s still useful for the historical record, but this information is already easy to find and if people wont look for it anyway they simply don’t care.
Unfortunately, that’s right. The sheeple are happy with their bread and circus.
How about we also discuss the original sin which is fiat-based fractional reserve banking that is dominated by a privately-held Federal Reserve banking cartel. In this system the bankers create money out of thin air for free and we as individuals exchange our productive assets and labor for this ‘money’. When buying a house, the bank creates the credit for free on their books, and in return you labor for decades to earn the money to pay bank this credit creation. A fair exchange?
First, it does have some new stuff. It’s very hard on academic economists and has a discussion of an angle for going after Wall Street I’ve not seen treated as an option before.
Second, good documentaries can rouse talk and discussion beyond their native audiences. Look at An Inconvenient Truth. It was so effective that it led to a big corporate agnotology pushback.
Also, lots of people are just busy or just locked into their own way of living. I have a number of friends who read the MSM stuff and don’t go beyond that, but would be willing to spend a movie outing seeing something such as this if I strongly recommended it, i.e., nagged them.
I know similar folks; they’re partly furious because they know that they (we) got taken to the cleaners, but they don’t quite know how. But they all love a good movie (hey, who doesn’t)?
I’ve actually thought for some time that this is one of the great crime stories of all time. I’m surprised there haven’t been more movies or documentaries about The Meltdown before now, because it’s one hell of a story. Or collection of stories.
FWIW, the movie website looks quite nice: Inside Job film movie website. (“The film that cost over $20,000,000 to make.”) Looks like they’ll probably list theaters and showtimes closer to Oct 8th.
The blog software doesn’t seem to like my links.
This is the address for the movie website: http://www.sonyclassics.com/insidejob/site/
I’m generally quite curious about the statement that investment banks were as highly geared in 1997 as in 2003. Why did Paulson, then CEO of Goldman, push for the capital requirements to be removed? Is it just coincidence that this decision fits so neatly in the trajectory of financial bubble to bust?
Also what indications are there that the Europeans are more serious about regulation than our own regulatory clown corps? They have papered over every problem they have from the PIIGS, to the Eurobanks to the euro to Basel III.
I looked into this once, and as far as I can tell, the popular accounts have this substantially wrong. Anyone who has the real skinny is welcome to contribute.
The SEC has the authority to regulate only US broker dealers. That’s as far as historical capital rules extended. I haven’t gone to look again at where I found this, but it turns out that the SEC tried to extend supervision of leverage to investment bank from a holding company perspective. Now of course this already has problems (how is the SEC gonna go kick the tires of the European ops, for instance?)
So (interestingly contra the general trend to regulate nothing) someone had gotten the bright idea (dunno how long the negotiations took, but I assume this was 2002-2003, given when the rule change took place) that the SEC should also look at capital adequacy across the firm. Presumably, this would entail applying whatever levels held for the US broker dealer across the entire firm.
In negotiating, there is no such thing as a free concession (if you are a savvy negotiator) and the IBanks treated this as a negotiation. The concession they demanded was lowering the capital requirements.
The ADDITIONAL bit I recall reading (again, i can’t recall where I saw it, but this was official docs, not a lay account, and not a defense, you picked up what happened by inference) is that the SEC still had only limited authority over the holding company leverage (the term of art was close to being “advisory”). So I have the impression it was trying to assert authority from a weak position, and the industry used it to take MORE ground.
And the prior SEC lack of leverage rules over the entire firm, as opposed to US broker dealer ops, is why the firms could get so geared in 1997.
In addition, when I was a kid and the IBanks were partnerships, no one cared much about SEC capital requirement because they were seldom constraining. The partnerships ran higher capital levels (in general) out of their sense of prudence. Shows you how much the world has changed.
Flawed thesis by the reviewer: that there’s a ’cause’ in the bubble. Why should a panic over leverage have a cause? At some point people will panic–and hence the pop–but no clear cause is necessary–it’s like superheated water. Anybody could see this bubble forming–even people I know who bought real estate in 2006 knew (and told me at the time) there was a bubble. The bubble just as easily could have happened in 2006 as in 2008 or in 2010 (this year); 2010 if the government had been a bit more smarter with the Bailout proposals of September 2008 and/or the Lehman bankruptcy–it would have forestalled the bubble popping by a year or so probably.
With all due respect, you have this wrong on multiple fronts.
1. As pointed out earlier in this thread, there is a big difference between a credit fueled bubble and other types of bubbles. A credit fueled bubble will blow back and damage the real economy in a huge way; even a very big bubble like the dot com frenzy, which is not stoked by debt, won’t.
2. Therefore we have bank regulation to make sure they can’t get hurt very much even if they stupidly lend to overvalued assets.
3. We did NOT have bubbles, much the less financial crises, when banking and finance were strictly regulated
4. The financial crisis was NOT the result of the housing bubble. You saw insanely low credit spreads across all types of debt. You had a monster takeover boom, a bank-enabled ARS securities market (which enabled them to use municipalities as fee generation machines), and explosive growth in credit default swaps.
If the only thing that imploded was the subprime market, we would not have had a global financial crisis. But the authorities allowed banks to create “product” that created 10x the exposure of BBB subprime bonds. It was all the side bets blowing up that made this a global crisis (and more generally, the growth of a virtually unregulated shadow banking system that rivaled the size of the official one) that was the proximate cause of the crisis.
I hate to sound like I’m plugging my book, but you need to read it.
This will put to the rest the stupid commentary by bloggers such as
Barry Ritholtz
who has espoused untruths and hypocritical statements about what really happened .
Finally , the Tin Foil Hat conspiracy theorists will see the truth ….. even as they drive around Area 51 looking for aliens
.