*Inside Job*

by on January 8, 2011 at 1:02 pm in Economics, Film | Permalink

Nick writes to me:

I'm an undergrad math/Econ double major and aspiring economist. I also read your blog (amongst others) daily. You said today that "Inside Job" was "half very good and half terrible." Critical reviews are widespread, but prominent economists haven't said much. I was wondering if you could expound on your terse critique in an email or blog post.

It's been a while since I've seen the movie, but here goes.  The best parts are on excess leverage, the political economy of the crisis, and the attitudes of the economics profession.  Overall it is remarkable how much economics is in the movie, even though some of it is quite bad.  The visuals and pacing are excellent and many scenes deserve kudos. 

The worst parts are the misunderstandings of deregulation.  Glass-Steagall repeal was not a major factor, much of the sector remained highly regulated, and there is no mention of the failure to oversee the shadow banking system.  The entire discussion has more misses than hits.  The smirky association of major bankers with expensive NYC prostitutes (on one hand based on very little evidence, on the other hand probably true) was inexcusable.  There is talk of "predatory lending," but it is not mentioned that many borrowers committed felonies, or were complicit in felonies ("on the form, put down any income you would like").  Most generally, there is virtually no understanding of the complexity of the dilemmas involving in either public service or in running a major corporation.

Overall, the movie's smug moralizing makes me wonder: is this a condescending posture, spooned out with contempt to an audience regarded, one way or another, as inferior and undeserving of better?  Or are the moviemakers actually so juvenile and/or so ignorant of the Western tradition — from Thucydides to Montaigne to Pascal to Shakespeare to Ibsen to FILL IN THE BLANK — that they themselves accept the very same simplistic moral portrait?  If so, most of all I feel sorry for how much of life's complexities they are missing and how impoverished their reading and moviegoing and theatregoing must be. 

Do you remember the scene in Hamlet, where Hamlet tries to judge the King by enacting a pantomime play in front of him, to see how the King would respond to a work of art?  I think of that often.

RD January 8, 2011 at 9:14 am

You seem surprised that moviemakers are ignorant of "Thucydides to Montaigne to Pascal to Shakespeare to Ibsen"?

Bill January 8, 2011 at 10:07 am

To say Glass-Stegall wasn't a "major factor" is not to say it wasn't a factor.

Andrew January 8, 2011 at 11:05 am

They'd have preferred cheap whores?

Berkeley Breather January 8, 2011 at 12:37 pm

I saw the film when it first appeared in Berkeley. My fellow theatergoers nearby – many of whom looked to have participated in The Sixties – were chatting, a bit too loudly, about the subject matter before the film. To a person, each had heard "that Planet Money story on NPR," read "that New Yorker article" or "that takedown of the AIG million-dollar bonus guy" (by Rolling Stone's Matt Taibbi, on Jake DeSantis). (Disclosure: I had heard or read the same things. Take that as you will.)

Inside Job only reinforced the smug, condescending groupthink. The crowd laughed, booed, and heckled at the expectable points of the film.

I thought the film was first-rate polemic and third-rate analysis, much along the lines Tyler mentions.

Charles Ferguson made the film because there's a lot of unrealized anger about the financial crisis still waiting to be expressed, still looking for a target. Ferguson is peeved with economists in positions of influence, if not authority (recent article title in the Chronicle Review: Larry Summers and the Subversion of Economics). What Ferguson has done is harness the anger to his peeve. It should come as no surprise that the moviegoer seeking analysis of the financial crisis is still left in the dark – even after the house lights come up – about critical features such as the shadow banking system. But it is oh-so-satisfying to see some Columbia professor get called on a (frankly, crappy) paper on Icelandic financial regulation.

The Berkeley crowd left the theater ready to light the torches and sharpen the pitchforks, maybe even make a citizen's arrest of Larry Summers. (But I note that the film was remarkably silent on what the charges might be. Anyone?)

The erasure of moral complexity, or even mere intellectual nuance, from the audience's mind tells the filmmaker at least one thing: Mission accomplished.

Steve Sailer January 8, 2011 at 1:02 pm

From my review in Taki's Magazine:

Inside Job’s most original segment details the cozy conflicts of interests through which numerous economists, including superstars Larry Summers, Martin Feldstein, R. Glenn Hubbard, and Laura Tyson, got rich off financial-industry directorships and consulting fees, all while pretending to provide students and citizens with disinterested economic insight (which coincidentally rationalized Wall Street’s wants).

Or at least Ferguson tells half of a coherent story. Inside Job is excellent at explaining why bogus assets—in general—would appeal to Wall Street. IMF economist Raghuram G. Rajan points out that paying annual bonuses calculated on short-term profits encouraged bankers to take on long-term risks that the public might wind up bailing out.

But why, out of countless financial instruments, did mortgages in the “Sand States” of California, Arizona, Nevada, and Florida—with minorities defaulting disproportionately—happen to be what blew up the world?

This insidious question wouldn’t even occur to an average documentarian such as Davis Guggenheim of the inane Waiting for “Superman.” Ferguson, however, knows more than he lets on in Inside Job. He leaves out the other half of Rajan’s even-handed blame-laying: The government undermined credit standards to boost home ownership among minorities and the poor. Ferguson complains about government’s failure to regulate lenders but never mentions that the blowout happened precisely where politicians demanded more lending.

Tellingly, Ferguson even includes a clip dated “Oct. 15, 2002” from George W. Bush’s catastrophic speech denouncing down payments and adequate documentation as mortgage requirements, a historic turning point otherwise shoved down the Memory Hole by ashamed Republicans and guilty Democrats. Of course, Inside Job doesn’t mention the politically correct occasion of Bush’s irresponsible oration: his White House Conference on Increasing Minority Homeownership.
http://takimag.com/article/inside_job_documentary

Steve Sailer January 8, 2011 at 1:06 pm

Tyler writes:

"Overall, the movie's smug moralizing makes me wonder: is this a condescending posture, spooned out with contempt to an audience regarded, one way or another, as inferior and undeserving of better? Or are the moviemakers actually so juvenile and/or so ignorant of the Western tradition — from Thucydides to Montaigne to Pascal to Shakespeare to Ibsen to FILL IN THE BLANK — that they themselves accept the very same simplistic moral portrait? If so, most of all I feel sorry for how much of life's complexities they are missing and how impoverished their reading and moviegoing and theatregoing must be."

Oh, c'mon, it's a two hour movie. By the standards of stuff you watch in the dark while eating popcorn, it's extremely intelligent.

sort_of_knowledgeabl January 8, 2011 at 2:08 pm

a good portion of those who have been defrauded were complicit in it
A good portion of those who got mortgages maybe were complicit in fraud. Those who have been defrauded are the bagholders for the bad loans. while by rights it should be the bank equity and bond holders I expect it will be the savers who have their savings inflated away.

dirk January 8, 2011 at 3:04 pm

"Oh, c'mon, it's a two hour movie. By the standards of stuff you watch in the dark while eating popcorn, it's extremely intelligent."

Intelligent, smug moralizing without wisdom is a higher form of stupidity.

tkehler January 8, 2011 at 3:20 pm

I too found the references to Hamlet cryptic. I think Tyler's point is that (short?) works of art can't replicate the complexity of a situation.

FWIW, as I see, Hamlet (and Horatio is there to confirm what he sees) stages two plays that more or less publically reveal Claudius' role in the king's death. Hamlet wants to see if Claudius will react by showing guilt. Claudius does react — though it is not clear if he reacts to bein' busted, as we now say, or if he reacts to Hamlet's insolence/implied threat. Hamlet nonetheless takes the reaction as proof of C's guilt. And Claudius is indeed guilty.

dirk January 8, 2011 at 3:31 pm

"I think Tyler's point is that (short?) works of art can't replicate the complexity of a situation."

No, his point is that this is an obvious work of mendacity or extreme foolishness. There is more intellectual honesty, complexity and wisdom in The Hangover than in Inside Job. The writers of your average Hollywood tripe have generally absorbed at least some of the wisdom of uncertainty that has been passed down in the Western literary tradition, directly or otherwise. But there are some people who, despite their apparent otherwise intelligence, don't act as if they have received any of that wisdom.

tkehler January 8, 2011 at 4:20 pm

Sorry, I wasn't clear. I was talking about the Hamlet line. I haven't seen the film, and generally since I am easily irritated by mendacity and foolishness, particularly regarding politics and economics, I might never see it.

Steve Sailer January 8, 2011 at 5:32 pm

"I have a feeling that Tyler was packing a lot of meaning into that last sentence, and that I haven't understood it all."

I have a feeling Tyler felt humiliated by what "Inside Job" reveals about some of his fellow economists, and was trying to discourage others from seeing the movie by saying it wasn't "Hamlet."

Steve Sailer January 8, 2011 at 5:46 pm

Tyler writes: "The smirky association of major bankers with expensive NYC prostitutes (on one hand based on very little evidence, on the other hand probably true) was inexcusable."

Charles Ferguson wasn't being smirky, he was outlining a dead-serious hardball strategy for any prosecutors with the courage to go after the Big Boys: arrest some call girls, get them to roll over on their midlevel Wall Street johns, threaten the johns with prison for tax fraud for declaring expenditures on hookers and blow as deductible business expenses, and get them to testify against the top guys in return for suspended sentences.

You can call this proposed prosecutorial strategy a lot of things, such as unethical or excessive, but not "smirky."

TGGP January 9, 2011 at 4:12 pm

Steve, I'm a fan of yours but it sounds to me like you're pulling a Wretchard by ascribing triple-bank-shot logic to someone who probably wasn't thinking along those lines.

Condor January 10, 2011 at 7:13 am

-*insert another juvenile, half-baked joke about hookers*

jason January 10, 2011 at 10:20 am

Seems that any critique of this movie (which I have not seen) must be made in the context of the filmmakers' incentives for producing and distributing it. If it were the complex, finely nuanced thought piece Tyler would like to see, it would almost certainly be about as fun as reading a peer-reviewed economic journal article, and how many people would be willing to pay for that? And if there were no moralizing, but rather a plain exposition of the facts of the crisis and the institutional response thereto, there would be no "story", which is what audiences ultimately want in their entertainment. There's a reason Fox News and MSNBC have far higher ratings than the News Hour with Jim Lehrer, despite the latter's clear superiority in reporting complex events in an even-handed manner.

Not saying this makes up for any factual inaccuracies or faulty syllogisms that may exist in the film. But I would challenge anyone to round up a few million dollars in financing for a film about the financial crisis that exposes the complex dilemmas faced by policy makers and captains of industry in a non-judgmental way, and see how far you get.

Dadi January 11, 2011 at 5:03 am

Replying to the comment of Berkeley Breather.

"But it is oh-so-satisfying to see some Columbia professor get called on a (frankly, crappy) paper on Icelandic financial regulation."

Fred Mishkin's paper was not just any crappy paper. In many ways it epitomizes everything that was wrong with Iceland's situation which eventually lead to the greatest asset loss compared to a nation's size in recent times.

The three Icelandic banks had grown to triple the size of the nation's GNP by 2006 when the "Geyser Crisis" hit. European observers were calling bluff on what was then promoted across the universe as the Icelandic economic miracle (not such a cool name as the Celtic Tiger but…) and compared Iceland with a Thailand or a Turkey waiting for its downturn.

But instead of heeding the warning, Icelandic politicians and businessmen gathered forces and recruited amongst others professor Fred Mishkin and Richard Portes of LBS. The Icelandic Chamber of Commerce, which prided itself of both having a record of getting 90% of their recommendations turned into policy, and recommending that Iceland stop comparing itself to the Nordics as it was in all way superior, hired Mishkin to put together a report named Financial Stability in Iceland.

It, along with Portes' work was used by government, media and business to counter claims from European critics and show that everything was fine, with the line of "sound fundamentals" rolling off their tongues repeatedly. An Icelandic minister with a billion ISK stake in one of the banks even suggested that a Merrill Lynch analyst should seek re-education.

Mishkin was paid $124.000 from the Chamber of Commerce. A couple of years later Iceland's whole banking sector collapsed with accompanying political and social unrest. Many suspect that most of the report was mostly prepared using information from the Icelandic Chamber of Commerce and managed by Mishkin's co-author Tryggvi Thor Herbertsson, who shortly thereafter became a director of a small investment bank, then economic advisor to the prime minister who has now been indicted by the Icelandic parliament.

I am convinced that Mishkin has not the faintest idea about Icelandic finance or politics, never has and basically lent his good name in turn for a nice salary. The result is felt by Icelandic citizens every day.
http://www.economicdisasterarea.com/index.php/fea

The heard behaviour bemoaned by the Berkeley Breather is truly alive amongst conspirasists. But it is no less apparent amongst economists and bankers, where its effects are probably more dangerous.

Robert Kraljii January 11, 2011 at 9:25 am

"Inside Job" names the names and looks the under rocks of the financial scandal. People who have a lot of time and mental energy invested in certain economic theory have to do way too much soul searching to appreciate this film.

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