“if you’re growing, you’re not in a recession… right?” The speaker is Hank Paulson, the former US Secretary of the Treasury and, coincidentally, the former CEO of Goldman Sachs. In Charles Ferguson’s documentary on the Great Financial Crisis, Paulson’s shrugging comment sums up the attitude of super-rich bank bureaucrats and their eager political supporters. As long as the bubble gets bigger, there’s no need to worry about it shrinking…right? but that’s not what happens to bubbles. in 2008, pop was heard all over the world.
This movie is as gripping as any thriller. Aided by some fascinating interviews, Ferguson presents a terrible story. In the 1980s, financial markets and services were deregulated, and the driving force behind this liberalization was Alan Greenspan, the formidable Chairman of the US Federal Reserve Board from 1987 to 2006. Banks and Loan Companies they had more freedom to play with their depositors’ money; they themselves were freer to borrow more; they were free to offer investors dizzyingly complex financial instruments, with income streams from different debts bundled together, including high-interest mortgage loans offered to subprime borrowers, the so-called “subprime” market that offered unbelievably high yields.
The good times rolled. banks inflated. they offered their traders mind-blowing bonuses to encourage risk-taking chutzpah, corporate loyalty, and a neurotic pursuit of profit. Crucially, Ferguson argues, banks were allowed to insure themselves against bad debts with credit default swaps: any number of these insurance policies could be purchased against a particular risk. Chillingly, banks now had a vested interest in selling incredibly risky products, as they themselves were handsomely insured with these swaps.
Perhaps the most sensational aspect of this film is Ferguson’s claim that the crash corrupted the discipline of economics itself. The banks recruited distinguished economists from America’s Ivy League universities to write reports that flatteringly endorsed reckless deregulation. they were paid massively for these consultancies. the banks bought the prestige of academics and also that of their universities. Ferguson talks to many of these economists, who clearly thought they were going to be interviewed as ironic and dispassionate observers. it is truly something to see the look of shock, outrage and fear on their faces when they realize they are in the dock. one sputters with vexation; another unleashes a mature Freudian slip. Ferguson asks him if he regrets his behavior and he replies, “I have no comment…uh, no regrets.”
this is what ferguson means by “inside work”. there is a revolving door between the banks and the upper levels of government, and to some extent the forests of academia. bank CEOs become government officials, creating convenient laws for their former and future employers.
perhaps only tom wolfe’s pen could do justice to these beleaguered, balding, middle-aged masters of the universe as they appear in ferguson’s film. The director shows how their body language is always the same: They somehow look more guilty when they’re in the White House Rose Garden in the pomp of their careers, being introduced to the press, than when they’re facing audiences of the openly hostile senate. they look restless, cunning, in oddly ill-fitting suits, as if oppressed by scrutiny and exhausted, possibly, by the strain of repressing their own scruples. your financial ability far outweighs your ability to have fun. they look very unhappy. Occasionally British figures such as Mervyn King and Alistair Darling can be glimpsed in these photos, reminding us that we Brits have also been ardent deregulators.
one of ferguson’s interviewees is charles morris, author of the two trillion dollar crisis, who amusingly comments on the effects this mega windfall has on the mind of the individual banker. he became absurdly rich and “thought it was because he was smart.”
i was reminded of liar’s poker by michael lewis, his very funny book about the financial mindset of the 80’s boom. he pointed out that if a normal person won the lottery, they could roll on the floor, kicking their legs with glee, but when the bankers won their arbitrary lottery, they instead became solemn, pompous, overwhelmed by their own importance and majesty. his recklessness and excess coexisted with an almost priestly sense of worth. even more than the rich lawyers, the rich bankers felt that their money demonstrated their superior intelligence and also their moral value as generators of prosperity. however, that prosperity did not go very far.
Usually, this is the kind of movie that gets praised because it’s not as wacky and misleading as michael moore. however, it is clearly influenced by him: it’s like a moore movie without any jokes or stunts. And it’s worth noting that without Moore’s pioneering work, this documentary could not have been made.
once again, the phrase that comes to mind is from milton friedman: socialism for the rich, free enterprise for everyone else. an ordinary person does not pay his debt, he stays to live in his car. a banker defaults, and the taxpayer can be trusted to bail him out. no wonder bonuses are back. but what can be done with all this? Ferguson has no answers, aside from a slightly unedifying hint that bankers could be brought down if rumors about their systemic drug addiction and prostitutes could be legally sustained, like Al Capone’s tax evasion. but only a new political mood for regulation will do, and this still seems a long way off.