Film Review

Inside Job

Has Wall Street essentially captured our government? Sounds like an alarmist question, but a close look at the financial crisis of the past two years strongly suggests that the answer is closer to yes than no. Charles Ferguson's smart, fast paced new documentary, Inside Job, chronicles the past 30 years of American financial history and shows us the reasons for the recent crash. A San Francisco native who started and sold a software company, Ferguson is best known for his previous film, No End in Sight, a well reviewed documentary about the Iraq War. With Inside Job, he takes a very complex story, and in two hours succeeds in making it understandable, and fascinating, in the way that a train wreck is fascinating. Except that we are all on that train. He is no Michael Moore. Ferguson's presentation is reasoned, thorough, and understated, but no one will leave the theater less than very angry. In five chapters he recounts the infuriating story of how elite business leaders and economic experts, many of them presidential appointees, presided over the worst financial crisis in this country since the Great Depression. Indeed, they caused it with their recklessness and greed. As a direct consequence, the United States doubled its national debt, literally millions of Americans lost their jobs, millions more were forced into part time work, and many hundreds of thousands are losing their homes. At best, it will take generations to repair the damage. Yet a small group of people emerged from the wreckage with fortunes, often the same people that caused this catastrophe.

Inside Job opens with gorgeous views of Iceland, and tells the story of a once prosperous nation brought to the edge of bankruptcy by three Icelandic banks. The conservative party took power in 2000, and immediately began to loosen environmental and financial regulations. The three major banks began to borrow heavily and lend and invest in increasingly risky ventures. By 2008, their debt was 8 times the gross domestic product of the entire country, and the government was forced to seize the banks. The economy was devastated with tens of thousands of jobs lost (in a country whose population is only about 300,000) and was considered the worst economic collapse of a first world country since the Second World War.

The first chapter starts with the election of Ronald Reagan in 1980, who began the era of deregulation. Reagan's philosophy, that the best government is the least government, deliberately weakened regulatory authority over the banks and Wall Street, who had contributed heavily to his election campaign. He appointed Donald Regan, former CEO of Merrill Lynch, who shared Reagan's beliefs in the evils of regulation and the ability of the banks and Wall Street to regulate themselves. And deregulate they did, which resulted in the savings and loan crisis in the late 1980's, with over 700 banks closing, which in turn led to a major recession a few years later. The push for deregulation also came from prominent academics, who believed that the free market would be self correcting, hence never irrational or fraudulent. The linkage of these name economists, like Alan Greenspan, Glenn Hubbard, and Larry Summers (president of Harvard), with the White House, all believers in minimal regulation, would produce a powerful current that swept away much regulatory oversight, such as the Glass Steagall Act (1933), which had prohibited any institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. Those firewalls were removed by the Gramm Leach Act (1999) which allowed the creation and sale of high risk investments, and without doubt, led directly to the current crisis. Ferguson shows us excerpts from academic papers authored by these name economists in praise of very risky practices and shady characters. Alan Greenspan wrote a paper that celebrated Charles Keating and his business model. Greenspan was paid $40,000, and we see the highlighted paragraphs with their praise of Keating. Several months later, Keating was indicted. In 1998, Larry Summers, along with Alan Greenspan and Robert Rubin, were instrumental in persuading Congress to deregulate the derivatives market. We know how that turned out. Many of these academics made millions, and the payments were rarely, if ever, disclosed. Ferguson's interviews are riveting. His conversation with Glenn Hubbard, Dean of the Columbia Business School, is revelatory: Hubbard, dripping with arrogance and disdain, says "This isn't a deposition sir. I was polite enough to give you time, foolishly, I now see. But you have three more minutes. Give it your best shot." However most "Declined to be interviewed". Still, the interviews with those who recognized the problems years ago are eloquent and often poignant. Eliot Spitzer, who had aggressively pursued wrong doing on Wall Street, has some interesting thoughts, despite his own transgressions. The point that Ferguson makes is that the impending crisis was no secret. But those who warned of the dangers were dismissed as alarmists.

The securitization of debt opened the door to unrecognized, and certainly undisclosed risk, as well as widespread fraud. Some of these offerings were designed to fail, and Goldman Sachs made hundreds of millions on them, betting against their own clients. One economist calls it an immense Ponzi scheme. Yet despite hundreds of prosecutions of low level players, such as mortgage brokers and individual buyers who lied on their loan aps, there has not been a single prosecution of a senior banking executive, either in investment or commercial banking. The routine conflicts of interest were stunning: Paulson, ex- CEO of Goldman Sachs, as Secretary of the Treasury under Bush, and Timothy Geithner, current Treasury Secretary, approved the full repayment of insurance claims against AIG to Goldman Sachs, JP Morgan, Citigroup, and others, driving AIG into bankruptcy and forcing the tax payers to pay hundreds of billions of dollars, which went directly to the major banks. The rating firms, Standard & Poor's, Moody's and Fitch, long considered savvy and with great integrity, in fact were neither, and riddled with conflicts of interest and self dealing. As one analyst said: "It could be structured by cows and we would rate it".

Ferguson's last chapter, Where Are We Now?, is bleak. The American manufacturing base has been vastly reduced, we have the highest level of income inequality of any other developed country, millions lost billions of retirement monies, the financial services industry has grown larger than manufacturing, and now exert a grossly disproportionate influence on our government. Decisions that benefit Wall Street but greatly disadvantage the tax payer are routinely made by people who routinely go back and forth between Wall Street and senior government positions. This is one of the most accomplished, and surely most important documentary films ever produced, and every American should see it. This is no partisan screed, both political parties were responsible, although Republicans held the White House for all but the Clinton years until Obama's election. The film is powerful, compelling, and no one will remain unmoved by the scale of greed, unethical, and fraudulent behavior. This was not just a case of a few "bad apples" but an institutionalized system that strongly resembles organized crime. An exaggeration? You won't think so after seeing Inside Job. Just opened at the Embarcadero.

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