28 February 2011
Charles Ferguson’s movie about the financial crisis, Inside Job, released in the US in October 2010, richly deserved to win ‘Best Documentary’ at last night’s Oscars.
Amid all the flimflam about actresses’ dresses and the other flaky stuff one’s subjected to around Oscars’ time, the Academy Award for Inside Job is an important milestone in the history of the global financial crisis. The film was released in the UK on February 18th, but only in a tiny number of “art house” cinemas. Hopefully last night’s recognition should ensure it gets wider distribution.
If and when more ordinary people go and see this film, it is likely to lift the scales off their eyes as to the blatant wrongdoing perpetrated by the banking and financial sectors, and the wall of silence that continues to envelope this wrongdoing — which, in my humble opinion, can only be a good thing.
Giving his acceptance speech last night, Ferguson sought to awaken the star-bedazzled audience from their somnambulance by saying: “Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that’s wrong.”
I went to see the Oscar-nominated documentary last Wednesday — and was impressed. I would recommend this film to any thinking adult, even if they profess to have zero interest in economics and finance. The film, narrated by Matt Damon, is an angry piece of work. It uses a series of interviews with US bankers, economists, academics, regulators, politicians, commentators and other market participants — interspersed with archive and other footage — to expose the follies and foibles of the credit bubble.
In a review in Variety Rob Nelson said Inside Job is: “the definitive screen investigation of the global economic crisis, providing hard evidence of flagrant amorality – and of a new nonfiction master at work.[…] Heard off-camera, Ferguson fearlessly grills a host of government and private sector bigwigs on what they knew and when they knew it. Repeatedly, the stuttering evasions of those interviewed – amid several requests for the director to stop filming – speak as loudly as words.”
Ferguson, a former technology entrepreneur who sold his internet software business to Microsoft in 1996, reveals how a heady cocktail of hubris, self-delusion, corruption and greed led to practices including the securitization food chain which ultimately triggered the financial tsunami that brought the global economy to its knees in September 2008.
He shows how the seeds of financial Armageddon were sown by a series of deregulatory measures introduced by Ronald Reagan, Bill Clinton, George W Bush and Alan Greenspan — many of which followed relentless lobbying by the industry, associated professional services sectors and cheerleading economists. And he also reveals an almost incredible truth — that many of the people responsible for triggering the crisis are still in charge.
The film — whose full screenplay is available via Sony Classics — has some blind spots. It doesn’t devote much time to the City of London, fails to examine the failures of the risk-management and audit professions, and largely ignores the bankers’ own preferred “global imbalances” theory of what caused the crisis. However, Inside Job brilliantly conveys the deceptive and alarming behavior of leading investment banks such as Goldman Sachs and Merrill Lynch, and of ratings agencies such as Moody’s and Standard & Poor’s as they sought to maximize profit from an asset class which was privately known to be “crap” — subprime home loans — in 2005-07.
It also exposes the absurdity of Wall Street’s remuneration system, which rewards bankers and traders for taking reckless short-term bets but fails to penalize them when things go pear-shaped; and reveals how the cozy ties and the “revolving door” between Wall Street and Washington ensured that legislation and policy invariably went in Wall Street’s favour — and that there have been no prosecutions or even arrests of US bankers or traders since the crisis. Inside Job also reveals the astonishing truth that financial-political-regulatory ties have, if anything, intensified under the supposed leftwinger, President Barack Obama.
But the most dramatic sequences in the film come about two-thirds of the way through, when Ferguson lifts the lid on the little-documented role of the economics profession in stoking up a global financial crisis. He alleges that several supposedly “academic” economists — including Larry Summers, Martin Feldstein, John Campbell, Glenn Hubbard and Frederic Mishkin — allowed themselves to become corrupted.
Some of the economists took huge fees for consultancy and non-executive directorships from Wall Street firms (which in many cases dwarfed their academic salaries), whilst posturing as disinterested arbiters of the economic scene — and some aided their paymasters by testifying to Congress in favour of financial deregulation.
It appears from the film that Summers who, astonishingly, has been appointed as director of the White House National Economic Council by President Barack Obama, was a puppet of the financial industry when he gave legitimacy to what were, in reality, flawed and dangerously out-of-control practices.
The alleged corruption of the economics profession was overlaid with the prevailing “groupthink” of the credit bubble, which included blind faith in the power of derivatives to minimize risk — a credo that was impervious to the warnings even of Warren Buffett and Raghuram Rajan — as well as blind faith in neo-classical economics, and blind faith in the so-called efficient market hypothesis.
The two economists who come out of Inside Job the worst are Mishkin and Hubbard. In one excruciating but telling scene Mishkin, professor of finance and economics at Columbia University, who was also governor of the US Federal Reserve from September 2006 to August 2008, reveals himself to be an “economist for hire” — having taken a $124,000 payment from the Icelandic Chamber of Commerce in exchange for writing a glowing report on the Icelandic banking sector, published not long before it started to collapse in May 2006.
In this scene, and when Mishkin gives his wholly unconvincing reasons for leaving the Federal Reserve — “So, so, uh, that, uh, I had to, to revise a textbook” – I’m afraid that he comes across as something of a hollow man. The Hubbard scene is, if anything, even better (or worse). He comes across as a nasty piece of work, utterly determined not to reveal the organisations for which he does consulting.
Here I quote from Daemon’s Movies:
“One of Inside Job’s most compelling moments occurs when Ferguson interviews Glenn Hubbard, the current dean of the Columbia University Business School and a former chief economic adviser during the Bush administration. On-scree the cornered Dean, who is strongly implicated in pushing the Bush-era policies that caused the system to implode, and who is called out for collecting hefty checks for shilling corporation-friendly economic ideas, bares his teeth and reveals that beneath the façade of the nerdy academic lies a vicious political animal, red in tooth and claw.”
“Many of the most prominent economists in America are now paid to testify in Congress, to serve on boards of directors, testify in anti-trust cases and regulatory proceedings, and to give speeches to the companies and industries they study and write about with supposed objectivity. … Some prominent academics have close ties to financial services yet neither their university employers nor the journals in which they publish require them to disclose their conflicts of interest, their financial positions, or the relationship between their financial interests and the policy positions they take.It is time to end this.”
Frankly I’m astonished that institutions like Harvard and Columbia haven’t fired these guys yet.
The individual who comes out best from this remarkable film (other than the likes of Rajan) is Andrew Sheng, chief advisor to the China Banking Regulatory Commission. Early in the film he comes out with the classic line “They were having massive private gains at public loss” and then right at the end he asks: “Why should a financial engineer be paid four times to a hundred times more than a real engineer? A real engineer builds bridges; a financial engineer builds dreams. And you know, when those dreams turn out to be nightmares, other people pay for it.”
I couldn’t have said it better myself.
This is an updated version of an article first published in Qfinance on February 24th, 2011