Saturday, December 11, 2010

Inside Job: Our Financial House of Cards

You might want to see this movie with your accountant. At the end, you’ll both be ready to stuff all your money under a mattress and move to Antartica. At least there, you might be able to avoid the next – and larger – financial crisis that is surely to come.

Inside Job is not just a documentary about the recent financial crisis. This is a scathing indictment of both our political and financial systems, exposing how they’ve gotten in bed with each other to the woe of the average citizen. The recent crisis, according to Charles Ferguson, Inside Job’s director (he was nominated for an Oscar in 2008 for his documentary about how we **'d up the Iraq war, No End in Sight), was only the latest in a series of bubbles and busts that are growing increasingly larger and more disastrous.

Certainly, the movie pulls no punches in investigating the culprits of this latest and most critical crisis. Starting with a detailed explanation of deregulation (including the Brooksley Borne story, recently broadcast on PBS, about Alan Greenspan’s refusal to regulate the derivatives market), Ferguson goes as far back as the Regan era in identifying what went wrong. For those who’ve followed the story, Ferguson reviews major touchpoints, including the Clinton-era Graham-Leach-Bliley act that eliminated the depression-era Glass-Stegal protections (thus allowing banks to start gambling in the stock markets with your money), George W. Bush’s upping the ante by rolling back how much assets banks needed to keep on hand, thus allowing them to borrow at insane levels to fuel their gambling, to the creation of the mortgage securitization markets, thus allowing banks, mortgage brokers, and everyone in between to sell phony mortgages to people unable to pay, turn them around and re-sell them to countries like Iceland and pension funds like the Mississippi employees union under triple A ratings, thus turning the housing market into the biggest fraud in history. And of course, let’s not forget AIG’s incredibly stupid move of selling markers betting the whole thing would never turn around (or was it stupid, Ferguson argues, since AIG managers knew they would get away scot free with millions since if it crashed the government would have to bail them out with no consequences), and Goldman Sach’s conniving ability to bet against "junk" mortgages they were at the same time selling to their clients as "triple A."

Ferguson’s point is perhaps more damning than those I’ve seen before, such as David Faber’s story (“And then the Roof Caved In”), Vicki Ward’s “Devi’s Casino” or even Harry Markopolos’s amazing tale of the SEC refusing to investigate the naked ponzi schemes of Bernie Madoff. (Disclaimer: my employer published all of these.) According to Ferguson, deregulation in financial markets was not only an ideology: it was an intentional rip-off of the American public, and government officials, bank CEO’s, and leading academics have all been in on it.

He frames his tale with MTV music video style clips (with songs like “Big Stuff” over cuts of office towers and yachts), which makes this an oddly toe-tapping expose. He goes after the financial fat cats with humor and wit, making fun of their multi-million-dollar parachutes as they drove their businesses into the ground and the economy went down in flames. But what he does best is boil down this complicated financial stuff so that the audience (in my case, mostly retirees, probably who’d lost much of their savings) can understand. Providing simple charts, animations, and most importantly, damaging interviews, he gets to the heart of the matter in the most straightforward in illustrative way.

One example are his interviews with Martin Feldstein of Harvard and Frederick Mishkin of Columbia. Feldstein is a former economic advisor to the Reagan administration and Mishkin a member of the Board of Governors of the Federal Reserve from 2006 to 2008. In both instances, Ferguson manages to get both of these men to admit, on camera, that not only did they write papers praising banks and institutions that they knew were on shaky ground, they got paid by those very same banks and institutions to do it. Even more amazing: neither of them (nor the chair of Harvard's economics department) even perceive it to be a conflict of interest.

Greed in finance has gone unchecked for so long, it is not only normal, one cannot even see the shores of morality any more.

Those of you, then, who have held out hope that the Obama administration would finally fix this problem, despair to you. Ferguson finishes his tale of woe by exposing not only how woefully inadequate the recent financial regulations are to the task of creating any kind of rules: he also points out that the very same men who’ve benefited from the crisis are still running the latest administration. The new regulations are but fig leaves allowing powerful financial forces to start the con game all over again.

It’s clear from Inside Job that the job of ripping off the American public is far from over. This is not a cheery thought to leave the theater with if you’re looking for an hour and a half entertainment. But if you want to understand why finance has become a den of naked gambling with other people’s money – and why the recent crisis is far from the last, or even the biggest, that we’re going to experience – then this movie will lay it all out for you. Before you see it, have your bags packed and visa stamped and ready to go.

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