May 03, 2011
Film review: Inside Job
I just watched the above documentary that was released in October 2010 and won the Academy Award for Best Documentary. Narrated by Matt Damon, it lays bare the story of the 2008 financial crisis. It shows clearly the way the financial oligarchy has taken control of the government irrespective of which party is in office and is using its power to greatly enrich itself.
Here's the film's trailer:
Most of the film focuses on the way that the crash went down, the whole sordid story in which big investment banks (which have done more to harm to the US and the world than any terrorist organization and of whom Goldman Sachs is the worst) used government deregulation, predatory mortgage lending, lax ratings agencies, practically nonexistent government oversight, and complex new financial instruments to create a Ponzi scheme in which a very few got rich and then when trouble hit were bailed out by the government.
(Almost all of this was covered in my 2008 multi-part series titled Brave New World of Finance, but the film provides a lot more details and tells the story with much greater power and clarity and impact.)
Towards the end, the film highlights something I did not dwell on and that is the cozy relationship between academic economists in elite universities (such as Glenn Hubbard, Laura Tyson, Martin Feldstein, Lawrence Summers, Frederic Mishkin, and others) and the government and giant Wall Street firms, with the former providing the high-toned rationales that influenced government policies that enabled the latter to fleece the country. While we rightly deplore those people in the medical profession who act as flacks for the health industry without disclosing their conflicts of interest, it is a scandal that strict ethical guidelines seem to not exist among university academics who can take huge fees from the financial giants to produce 'studies' and 'reports' that benefitted those who paid them, justified the measures that led to the disaster, and then walked away unscathed. Watch the chair of the Harvard economics department struggle and fail to explain why they do not have similar guidelines.
Some of those academic economists agreed to appear in the film, no doubt expecting to be given the usual softball treatment they receive from financial journalists and they become visibly uncomfortable and hostile as they get questioned on their own ethics. Glenn Hubbard, now dean of the Columbia Business School, is a case in point. As Charles Ferguson, the film's writer, director, and producer says in an NPR interview, "Well, the entire interview was fairly contentious, as you can imagine. It surprised me somewhat to realize that these people were not used to being challenged, that they'd never been questioned about this issue before. They clearly expected to be deferred to by me and I think by everybody." Watch the clip:
In an article, Ferguson writes:
Indeed, one of the most disturbing things I learned in making Inside Job, an issue discussed in the film, is that US universities do not require disclosure of financial conflicts of interest by faculty members, place no limits on the sources and size of professors’ outside income, and do not collect information on the size of this income.
Over the past 30 years, the economics discipline has been systematically subverted, in much the same way as American politics – by money, especially from the financial services industry. Many of the most prominent economists in America are now paid to testify in Congress, to serve on boards of directors, testify in antitrust cases and regulatory proceedings, and to give speeches to the companies and industries they study and write about with supposed objectivity. This is not a marginal activity; it is now an industry, run by a half dozen large companies.
Some prominent academics have close ties to financial services yet neither their university employers nor the journals in which they publish require them to disclose their conflicts of interest, their financial positions, or the relationship between their financial interests and the policy positions they take.
You can listen to an NPR interview with Ferguson about the making of the film, where he elaborates on how the system is corrupted.
What you find is that very prominent professors of economics, often people who have also held high government posts, are paid to testify in Congress. They are paid to be expert witnesses in both civil and criminal trials. They're often paid to write papers that praise the financial services industry and argue on behalf of deregulation of the industry. They make millions, in some cases tens of millions, of dollars doing this. And this is usually not disclosed. And in fact, university regulations do not require disclosure of these payments.
The film is well worth seeing. But be warned that it made me very angry and may make you too. And what will make you most angry is that none of these people in academia, government, and Wall Street are even being investigated for their actions, let alone in jail where they deserve to be. And if what they did was not technically illegal under current law, the law should be changed to make it illegal.