Inside Job

The winner of the 2010 Oscar for Best Documentary Feature was Inside Job, which I saw last night. It's a very good film, and I suppose my highest praise for it is that I felt like I actually understood what caused the financial collapse, something that had eluded me before now.

Written and directed by Charles Ferguson, who made a similarly sharp film about the wars in Iraq and Afghanistan, No End in Sight, Inside Job takes the view that everything started to go bad when deregulation of the financial services industry started under Reagan. Ferguson is not partisan in his blame--Clinton comes in for a heap of it as well. What really gores Ferguson's ox seems to be the incestuous relationship of investment banks and government--when top men from the various banks end up as Secretary of Treasury, not a lot of reform is going to get done.

Ferguson lays out how the trap was sprung. It used to be that a mortgage lender expected the home-buyer to pay them back, but now they bundle those mortgages together and sell them to investment banks, and in turn are then sold as investment opportunities. This encouraged the predatory lending of subprime loans to people who couldn't afford to pay them back. Despite the high risk of these loans, rating agencies like Moody's, who get paid by the investment banks, gave them high ratings. When the loans weren't repaid, insurers like AIG went belly-up, and those who invested in them, like pension funds for government employees, lost their savings.

The culprit fingered here is the unquenchable greed of the executives at these companies, who ruined their outfits but still walked away with millions of dollars (as Ferguson pointed out in his Oscar acceptance speech, no one has gone to jail for this). The investment banker became less concerned with his customer than with making money, sometimes even making money when his customer lost money. There's some great footage of these guys being grilled in Congressional hearings, but even then they seem unable to realize what they did was wrong.

Be warned, though, this film is not objective. Ferguson interviews a handful of those who represent the pro-deregulation wing of economics and they are set up like fools. Also, whenever a particular person is painted as a villain (Alan Greenspan, Larry Summers, etc.) we get a title card ominously stating that that person refused to be interviewed for the film. A closing shot of the Statue of Liberty also layers it on a little thick.

But there is some really valuable stuff here. I was impressed, or should I say disturbed, by the notion that academia and the financial industry were in bed together, with professors being paid as board members and then influencing future generations of economic thought with their beliefs. The film concludes with the disappointing news that Obama has done little to reform anything, and one expert explains this is because we have "a Wall Street government." It's high time Timothy Geitner was let go and someone without Wall Street provenance was installed at Treasury.