‘You go with the information you had…’
I’m probably almost the last person to have seen Charles Ferguson’s documentary Inside Job. But the film is still showing in a few cinemas in Sydney, Melbourne and Brisbane, so it’s worth making a belated recommendation. If only for the Icelandic glacier shots at the beginning, see it on the big screen while you still can.
I had pretty high expectations, but the documentary easily surpassed them. It manages to deliver a devastating indictment of the American financial sector and its accomplices in the government, without leaving itself open to accusations of exaggeration, left-wing bias or peddling conspiracy theory. In short, it was the film Mike Moore couldn’t have made.
It has three particular strengths. One is the structure. On one side, it movingly shows the human consequences of the disaster in the form of of low-income mortgagees heartbroken, workers unemployed, and indeed small countries like Iceland brought to ruin. On the other side, it breaks the catalysm into its constituent parts, focussing on each technical issue in turn: the erosion of the legislative framework, the roles of the mortgage and securitization industries in creating the asset bubble, the scandalously unprincipled behaviour of investment banks like Goldman Sachs who sold assets they were simultaneously gambling against, the indifference of the Federal regulators to uneprecendented and perilous degrees of leverage attained in all of the biggest investment banks, and the outrageously generous bailout offered to the financial terrorists by their former colleagues now working in the Administration and the Federal Reserve.
The second strength is the emphasis on the fact that the problem is still there. The regulatory legislation passed in June 2010, nor limitations placed on executive ‘compensation’; the same personnel are still making the decisions, and some, such as Larry Summers, have actually enjoyed an increase in influence despite having been comprehensively discredited; and in probably the biggest irony, the banks who created the crisis are now demanding of the governments they bankrupted that they tighten their belts and get their houses in order.
Last and best were the interviews with some of the economists who gave their professional endorsement the myriad dangerous practices that brought the financial system unstuck, in return for lucrative fees. Glenn Hubbard comes across more like Ron L. Hubbard, Marty Feldstein like Marty Feldman, and Frederic Mishkin is reduced to incoherent babbling. Whether their reaction was aggressive, contemptuous or just plain stunned, it was fun and revealing to see these guys, who are accustomed to veneration, being made accountable and found incapable of giving account.
I have two criticisms.
First, Ferguson’s narrative follows much the same path as other notable accounts of the financial crisis, working backwards from the bursting housing bubble to the feral sub-prime lending and securitization industries, to the deregulation that made it possible and the lobbyists who fought for it, and finally to the economics departments who provided the rationale. It was at this point Ferguson goes after Mishkin and the others, the point being that their advice has been compromised by pecuniary motives. However, when it comes to the role of academic economists, what Krugman, Stiglitz, DeLong, Shiller and of course Quiggin, have been arguing, is that far from being a pristine science betrayed by a pack of academic shills, the theory itself — however personally incorruptible its promulgators might have been — is what allowed the mortgage industry and Wall Street to get so out of control. Economists who failed to foresee the crisis can always argue, as Mishkin did afterwards, and his defenders have done in various ways (via Mark Thoma), that it was an honest mistake. Fun though it was seeing the likes of Mishkin reduced to incoherent babbling, the film might have done a more valuable service by explaining the pernicious role of abstract theories like the Efficient Markets Hypothesis, and over-optimistic empirical doctrines like the Great Moderation.
The second criticism is that Ferguson gives the impression that Republicans and Democrats are equally culpable. This wasn’t due to time limitations forcing him to neglect nuances in political positions: he actively maintains that ‘the two parties have been responsible for this in roughly equal measure’, and has also placed his hopes in a third political party. Many of his charges against the Clinton and Obama White Houses true, especially regarding their inexplicable, continuing willingness to give jobs to Wall Street executives like Geithner and Summers. However, Clinton has, for what’s it’s worth, admitted that overturning the Glass-Segall Act was a mistake, and Obama did pursue regulation as far as he could. The progress of the Dodd-Frank Financial Regulatory Reform Bill wasn’t hampered by lack of support from Democrats in general, whereas only three Republicans supported it. Whether the various regulatory bodies created would have proven to have any teeth, had the Democrats retained control of Congress, is another question. It’s a case of half a loaf versus no bread at all: the Republicans are already undermining the legislation, and may even succeed in repealing parts of it. The gulf between Democrat realism and Republican delusion is also evident in the recently released Report of the Financial Crisis Inquiry Commission, as Jeff Madrick explains.
These are not minor quibbles; no analysis is going to do justice to every facet of such a huge topic. It’s impressive that Ferguson managed to illuminate as many as he did.