INSIDE JOB

Interesting review of Inside Job. This movie’s been getting a lot of buzz, especially since Charles Ferguson’s attempt to incite a lynch mob at this year’s Oscars. I admit that this was a sleek-looking documentary and I applaud how adeptly it broke down a confusing, multi-tiered financial system. However, when considering the critical perspectives it omits, I am left to conclude that this is less an objective documentary and more of a retroactive rearrangement of facts to fit a particular subjective narrative. Basically, as Joey pointed out, it’s propaganda. And that’s fine, I guess — there’s a time and place for some good old fashioned, blood-boiling propaganda — but it’s important to recognize that’s what this is.
I guess the first thing I want to address about this film and your review is the theme running through both: that the financial collapse happened because of greed and deregulation. These are popular notions in politics and in popular culture that are usually accepted and passed over, but both warrant scrutiny. If we’re to accept that greed was the cause of the financial crisis, we must also have to conclude that people are more greedy nowadays than they have been in the past. Not only is there no current or historical evidence to support this theory, though, but it violates what we know about the human condition: that people have always been greedy. People always want more wealth than they have. There are usually just mechanisms in place to prevent people from accumulating all the wealth they want, like laws that prevent theft and markets that allow only the most savvy, innovative and productive to amass all the wealth they want. So what was different about this crisis?
Well, there’s also this assertion that “deregulation” caused this to happen. This is an attractive theory — especially when delivered to us by Matt Damon’s soothing voice — but it, too, fails to hold up under scrutiny. By definition, for deregulation to have occurred, there had to have been particular regulations that were repealed. What were they? Few people can actually say. There were never any regulatory mechanisms in place that oversaw the complicated mortgage securities process, so nothing could possibly have been deregulated there. This film cites a few nebulous, tangential examples, but that’s it. Advocates of the deregulation theory, often scrambling to produce examples, sometimes cite the partial repeals of the Glass-Steagall Act in 1980 and 1999, but those can only be peripherally connected to this collapse and may have in fact helped the economy repair itself afterward.
The truth is that both the housing market and the financial sector were already heavily regulated before and during this crisis; according to economist Thomas Woods, there were already 115 agencies regulating the financial sector. Would one more have really helped? However, to admit that this problem wasn’t protected by regulation — or worse, that it may have been caused by over-regulation — is political suicide for any politician who wants us to believe the government can protect us from the evils of Wall Street.
So, what are the other possible causes of the collapse, if not greed or deregulation? A few of them are sort of hidden in this film, despite Ferguson’s efforts to blow right past them. The most telling omission is during his explanation of the financial collapse when he mentions sub-prime mortgages, and how there were a lot of them being issued by banks to turn a quick profit. The sketchy economics of that aside, WHY were so many sub-prime mortgages being issued?
Here’s why: the beginning of the 21st century saw this big push for “affordable housing”. Never mind that housing was actually affordable before, so long as people lived within their means. However, we got it in our heads that everyone is entitled to live in a home they own, and this morphed into our definition of affordable housing. Guys like Barney Frank and Chris Dodd decided to push for this through legislation and forced banks to give out home loans to people who would not ever be able to afford them or pay them back. They also forced banks to stop practicing what they perceived as “discriminatory lending”, i.e. giving disproportionate amounts of loans out to people of different races. In both cases, they neglected to consider the system processes that led people to their housing situations or made them ineligible for loans, such as low incomes, bad credit ratings, minimal wealth and a lack of assets. This negligence would eventually prove costly, both for the people who received these loans and the economy as a whole. Couple this with the historically low interest rates fostered by the Federal Reserve, our pseudo-governmental monetary regulatory agency that basically controls all of our monetary policy and investment patterns, and you had a situation in which anyone could get a home loan with low interest rates without having to put much down as a deposit. Not surprisingly, many of these people were unable to repay their loans.
We must also consider the part played by overzealous homeowners who took out mortgages they couldn’t afford, possibly because they neglected to comprehend the financial commitment they were making. We must also consider the people who took advantage of the lowered lending standards to use the housing market as an investment opportunity and not an arena in which to find a place to live. Of course, this narrative, which essentially espouses the importance of personal responsibility, does not play as well amongst the blood-thirsty masses looking for a rich person to blame for their woes.
Anyway, these problems would not have been so bad had it been limited to the housing sector. However, like the film points out, the housing market in the United States has been one of the most reliable, well-managed and safest corners of our economy, precisely because banks would only lend to people who had a proven history of repaying loans and who had the wealth needed to do so. Because of the relative security of the housing market, several national and international markets used it as collateral, i.e. securities. Basically, the international economy depended on the stability of the US housing market. Until legislators started intervening in it and imposing regulations on banks for political reasons, that wasn’t a problem. When our housing market went down, the rest of the world economy collapsed with it.
What aggravates me is that the film glibly passes over these pivotal factors that played into the financial crisis and instead gives ample face time to people like Barney Frank, one of the architects of the disastrous lowered lending standards, and lets them espouse on the greed of Wall Street. Although there is a lot of blame to be shared for the financial collapse, no single person bears more of the blame than Barney Frank. Now, I’m not an advocating of creating laws and punishing people ex post facto, but at the very least, Barney Frank should have lost political office. He didn’t — and, like the guys on Wall Street who played the market, remains unaccountable for the international ruin he perpetrated.
I want to clarify that I’m not saying there weren’t any scumbags in the financial sector; of course there were. Even then, most of these financial guys were operating within the bounds of the law, and therefore are undeserving of the pleas for their imprisonment. Regardless, this crisis had many causes that acted together to create this perfect storm, but this film would have you ignore the part played by everyone except those who work in finance. I can only conclude that the film had a thesis and chose its facts to prove its thesis, instead of forming its thesis based on the facts it gathered.
Anyway, there’s a lot more I could talk about in light of watching Inside Job and listening to your subsequent review — such as the importance of losses and bankruptcies in the marketplace, or the supposed evils of income inequality — but I’ve gone on long enough. Thanks for tackling this film, though, and prompting this conversation. I did like your review, and I appreciate Joey acknowledging the film’s subjective nature and wanting to hear the other side of this story. If you’d like to know more about this issue, I recommend reading The Housing Boom and Bust but economist Thomas Sowell. It’s not quite a cinematic rebuttal to Inside Job, but it’s the closest we’re going to get until a filmmaker decides to make a documentary about what really happened to the economy.