http://www.guardian.co.uk/film/2011/feb/17/inside-job-financial-crisis-bankers-verdicts
Inside Job: how bankers caused the financial crisis
The film Inside Job brilliantly exposes the corruption in US banking
that led to the 2008 crash. We ask four bankers for their verdict on
this damning indictment of their world
Peter Bradshaw reviews Inside Job
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* Phillip Inman and Patrick Kingsley
* guardian.co.uk, Thursday 17 February 2011 21.00 GMT
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An aerial view of Wall Street, the heart of the global financial
meltdown. An aerial view of Wall Street, the heart of the global
financial meltdown. Photograph: Cameron Davidson
When Michael Moore made his debut feature, Roger and Me, he set about
vilifying the boss of General Motors, the now deceased Roger B Smith,
for destroying his home town of Flint, Michigan. Charles Ferguson's film
Inside Job attempts to blame a wider cast list for the banking crash of
2008 and explains why so little has been done to reform the financial
world or bring criminal prosecutions against the main protagonists.
1. Inside Job
2. Production year: 2010
3. Country: USA
4. Cert (UK): 12A
5. Runtime: 108 mins
6. Directors: Charles Ferguson
7. Cast: Matt Damon
8. More on this film
His villainous lineup includes bankers, politicians (many of whom were
previously bankers), regulators, the credit ratings agencies and
academics. When Glenn Hubbard, George Bush's chief economic adviser and
dean of Columbia Business School, is shown as a partisan advocate of
deregulation, we have one of the movie's punch-the-air moments. During
the interview, Hubbard, who denies he was corrupted by his paid-for
relationships with government, angrily barks: "You've got five minutes,
mister. Give it your best shot."
The spotlight has largely bypassed academics in the UK. There are plenty
of economists who believed the banks understood what they were doing and
supported deregulation. Whether they took large slugs of cash for
writing poorly researched, cheerleading reports on the economic miracle
in Iceland (pre-crash), as former US central banker Frederic Mishkin is
found doing, is less clear. Over here, the relationship between academia
and business appears to be more arm's length, though London Business
School dean Sir Andrew Likierman sits on the Barclays board, while
Howard Davies, who argued for light-touch regulation while head of the
Financial Services Authority, has become director of the London School
of Economics. The UK's chief villian, however, is probably the
disgraced, but largely unpunished, banker Sir Fred Goodwin, the former
boss of Royal Bank of Scotland, once the fifth-largest bank in the
world.
In Inside Job, the name that keeps cropping up is Larry Summers, a
friend of President Bill Clinton and more recently Barack Obama. Summers
exemplifies the links between cheerleaders in academia, Wall Street,
supine regulators and an ignorant Capitol Hill that Ferguson stresses
were at the root of the problem. It helps that Summers looks like a
mafia boss, but the difficulties in making the case against him are
shown by the need to explain financial products like credit default
swaps and how securitisation was used by banks to increase their
borrowing.
Still, no matter how much it is explained, the general public is not
going to understand. How does one go into battle yelling slogans about
credit default swaps? The bankers know ignorance is their trump card.
Maybe Inside Job will make us more savvy in time for the next crash.
Phillip Inman
The derivatives trader
"The film's first half-hour was absolutely dead-on. The explanation of
what happened was a chilling re-run of all the events that led up to the
financial crisis. It also showed very accurately the denial by everybody
inside or outside the industry that such a crisis was even occurring –
even up to the last minute before Lehman's bankruptcy.
I have an issue with some of the elements pursued in the rest of the
film. One was the vilification of individual people. Chuck Prince, the
CEO of Citigroup at the time of the crisis, may have been overpaid – but
I don't think he was particularly at fault. At worst he perhaps should
have known more about what was going on, but really he's just the nice
old geezer at the top who shakes people's hands at cocktail parties.
There may be people lower down who knowingly did criminal things, but
that is a different matter.
A weak point was the anti-free market and conspiratorial tone of the
film. Yes, deregulation did go too far – particularly with the repeal of
the Glass-Steagall Act of 1933, which might have prevented banks
gambling with depositors' money. But to imply that all deregulation in
the last 20 years was a conspiracy perpetrated by an academic elite of
economists in the pay of the banks is paranoid and absurd.
An oversight by the film was to ignore how risk managers at many banks
knowingly failed to voice their fears about the way their companies
operated. A risk manager once told me that to raise an issue that
undermined the bank's multi-billion-dollar profits would have been to
"sign his own death warrant". This inability to challenge trading desks
generating billions in phantom profits was endemic.
Inside Job clearly catches some of the anti-banker mood, and the public
is quite right to be outraged at how banks refinanced at the taxpayers'
expense are paying outsized bonuses. Staff at banks such as RBS should
be retained by longer-term incentive schemes such as the one being
introduced at Barclays. But, as a free marketeer, I believe banks that
have not taken public money should be able to do as they please within
the law."
Ian Hart was a Wall St derivatives trader, before becoming a head-hunter
for, among other banks, Lehman Brothers. He now runs Sacred
Microdistillery. sacredgin.com
The bank director
"This was a well-researched film that clearly explained the complexities
of the crisis and the greed of bankers. It laid the blame squarely where
it belongs – at the feet of bankers, of ratings agencies, of regulators
– and it interviewed a lot of heavyweight people, such as Dominique
Strauss-Kahn, Eliot Spitzer, Raghuram Rajan and Glenn Hubbard.
It will doubtless make many people – especially those who lost their
jobs and savings – angry at not only what the banks did, but that many
of the people responsible are still in their jobs, and that no one's
gone to prison. It beggars belief that ordinary taxpayers are facing
higher taxes and spending cuts, while bankers walked away scot-free. The
film shows that people who had bought a house they couldn't afford are
now living in a tent, whereas bankers have still got their jobs.
Consumers enjoyed buying houses that ultimately they couldn't afford,
but mortgages were shoved down their throats without any care on the
part of the bankers. In the old days, the bank would say: "We don't
think you can afford that mortgage, so we won't lend you money." The
film showed how this kind of advice was thrown out of the window.
Unfortunately, it's clear that for many investment banks business
continues pretty much as normal and that another crisis is only a matter
of time. Sure, there's greater scrutiny of bonuses – but many bankers
think they were not responsible personally for the crisis and they're
worth every penny they're paid. Clearly they're not.
I thought the film also brought out well the "capture" of regulators,
politicians and academics who all became cheerleaders for the continued
deregulation of finance that began under Ronald Reagan and that
culminated in the great crisis. Massive re-regulation is required to
ensure that finance is safely locked up in a straitjacket again.
Of particular interest is the dubious role played by academic
economists, especially those in the US. Many were paid vast, undeclared
sums to produce biased reports saying CDOs and other dodgy derivatives
were safe and that Iceland was fine to be gambling with 10 times its
annual GDP. The corruption of top US economists and their complete lack
of awareness of what they had done was truly shameful."
The broker
"The film was right that banking became synonymous with living the high
life, with drug-taking, and basically being above the law. This culture
filtered down from the top, and needs to be stopped and questioned a lot
more. In Europe, we have tried to since the crisis. Where I work, we are
compliant up to our eyeballs – be it drug checks, expenses checks, or
simply the monitoring of all phonecalls and emails.
But it was too simplistic for the film to imply that we need more
financial regulation. It's not a black-and-white issue, and you can't be
that kneejerk: the UK is a service-based economy. I would love that to
change, but right now, a lot of the GDP comes from people in and around
finance. The City itself employs vast numbers of people – not just as
bankers, but also on the periphery – and until we move away from that,
and find other ways of employing these people, you can't just shut down
an industry. With very harsh regulation, that's unfortunately what you
risk. As a lot of these banks are global and flexible, they can just go
overseas. HSBC's been threatening for years to move its headquarters to
Asia. For the UK, that would be a disaster. So I think the government
has to tread a fine line between bringing in regulation bit by bit, and
regulating all at once.
I'm one of the few women in banking and it's really obvious watching
Inside Job that this is the case. We see the French minister of finance
[Christine Lagarde], there's a woman from the Securities and Exchange
Commission – but they're few and far between. As they say in the film,
banking is such an alpha-male society and it's very hard for women to
succeed within it and yet maintain some sense of femininity. If they had
more women in banking, I really think there would be more sense of
community, and perhaps things such as this crisis wouldn't happen quite
so often, because you wouldn't have this sense of being part of a boys'
club."
The investment banker
"Inside Job ignored the enormous level of consumption by ordinary people
that drove debt levels so high. The film suggested it was the bankers
and the politicians who were driving the collapse – and fair enough,
there was some mis-selling of mortgages. But it wasn't just mortgages:
it was bank debt, credit-card debt, car loans. Blame the banker for
providing the credit, but the consumer must also take some of the rap.
If you talk to a sole trader, they'll tell you that when times are good,
put some money away for when times are bad. But the consumers just spent
and spent, and assumed the good times would go on for ever.
Another angle missed by the film was the role of accounting firms. There
is a huge amount of blame to be attributed to them. It was their
responsibility to monitor the accounts of banks, and when they signed
off a bank's results, they were stating their confidence in the bank's
ability to trade solvently. The film ignored the failure of accountants
to say anything. It talked about regulators and ratings agencies. But
the accountancy firms are just as big as some of the larger banks and
not to analyse their role in the crisis was a huge omission.
The film was very much in the style of Michael Moore – they'd clipped
and edited the interviews to twist slightly what was said in them – but
it was also very watchable, succinct and very good at simplifying a
chain of events. And the accusation that the worlds of academia and
politics were complicit in the crisis was completely valid. There is a
lot of cronyism out there, and people who criticised regulation did end
up in the Obama government. There's a gentleman's club, and they all
look after each other."
Interviews by Patrick Kingsley. The interviewees above wished to remain
anonymous.
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