Charles Ferguson’s documentary film Inside Job (2010) tells the story of the 2007/08 financial collapse, its causes, and its consequences. Through a series of interviews with key players and commentators (including Nouriel Roubini, George Soros, Barney Frank, Christine Lagarde, Dominique Strauss-Kahn, Paul Volcker, and Eliot Spitzer) and a careful analysis of publicly available records, Ferguson diagnoses the American and global financial system with chronic greed, corruption, immorality, and even cocaine use.
It all started in the early 1980s with Reagan and the massive deregulation of the American financial sector, which since the Great Depression had been subject to government controls. Modestly sized financial services firms like Morgan Stanley and Goldman Sachs grew exponentially during the following decades, as a complex system of securitization and derivatives trading quickly made investment brokerage a multi-billion-dollar business (think Gordon Gekko). Neoliberal ideology and legislation like the Gramm-Leach-Bliley Act of 1999 severely undermined regulatory agencies like the SEC, the CFTC, and the Fed. The Savings and Loan Crisis was only a preview of the later, more serious consequences of such rampant deregulation and speculation.
Everyone important was in on it: that’s the meaning of the film’s title. The 2007/08 financial collapse and the ensuing housing crisis involved an alliance of predatory lending banks, mortgage consolidators (e.g. Fannie Mae, Freddie Mac), investment brokers (e.g. AIG, Lehman Brothers), and ratings agencies (e.g. Moody’s, Standard & Poor’s), all united in a successful effort to saddle American consumers with unpayable debts and to pass these junk bonds off as safe investments. What made this swindle possible was the development of strong political ties between Wall Street and Washington. No matter whether the president was Republican or Democrat, the financial lobby continued to get its way. Top appointees like Alan Greenspan, Ben Bernanke, Hank Paulson, and Timothy Geithner have assured the continuity of financial interests over and against any presidential or congressional rhetoric of reform. The only “change” that people like Obama have brought to Washington is more change in financial leaders’ pockets. And the collusion even extends to academia, where top economics departments (e.g. at Harvard and Columbia) are compromised by gross conflicts of interest.
All this is pretty familiar to anyone who has been reading the papers for the past few years. What makes Inside Job unique is its focus on the culture of Wall Street and the ethics of financial service. During the 2000-06 housing boom, Wall Street traders used cocaine heavily and frequented New York prostitution houses, where they charged everything on company cards under false invoices. Excess, greed, dishonesty, and general immorality are the salient characteristics of American finance today (Europe at least has made some attempts to curb the trend). The solution offered by the film is a call to moral reform: fire the old, corrupt leaders and change the culture of economic policy and practice. If our financial leaders and institutions were only honest, moral, patriotic, and altruistic — the film implies — then crises like 2007/08 won’t happen again. We may even emerge from the current recession as a healthier, more sober, and more modest nation. Our best option is a return to the post-World War II, well-regulated welfare state.
That’s all well and good, but the film’s emphasis on morality and personality seems misplaced. The last comparable financial collapse in American history was in 1929, and the country only emerged from the subsequent Great Depression through President Roosevelt’s comprehensive program of structural reform — the New Deal — and the artificial increase in industrial production brought on by the United States’ entry into the Second World War. Those two factors comprised the most radical change possible through existing governmental institutions — and indeed new institutions like the FDIC and the WPA were also created. The moral reform proposed by Inside Job and similar promises made today by President Obama seem rather paltry in comparison. It would be bad history to equate 2007/08 with 1929, but common sense at least might point to a functional similarity between solutions. That is to say, top-down personnel changes and appeals to morality seem like mere half-measures in comparison to the Roosevelt Administration’s response beginning in 1933. The Tea Party has offered a more reactionary option — the elimination of taxation and government regulation altogether — but progressives have yet to suggest any program going the other way. Too few of our leaders have acknowledged the absurdity of combatting the effects of rampant deregulation with more deregulation. It’s possible that the ethos of austerity has become the dominant ideology of both Washington and the American public, in which case economic recovery is a long way off.