"Inside Job," the new film on the underlying reasons (and the putative villains) behind the Great Recession, is sure (well, pretty sure) to gain an Oscar nod for best documentary. Which means that America needed to review it for you. Karen Smith, our editorial director, liked it, and...well, we'll let her tell you about it.
What becomes overwhelmingly clear in the film is that government (both the Bush and Obama administrations) has deep ties to the very people who occupied positions of power in the businesses at the center of the crisis. Some have made enormous sums playing both sides of the meltdown.
Henry Paulson is a prime example. Paulson led Goldman Sachs before President Bush appointed him Secretary of the Treasury. At that point Paulson was allowed to sell hundreds of millions of dollars worth of his Goldman stock tax-free, and he later funneled billions to Goldman during the bailout. None of this is, technically, illegal. But it is mercenary in the extreme and grossly unfair, given that millions of Americans have lost their jobs and their homes as a result of the misdeeds of Wall Street, unscrupulous bankers and their peers in the real estate industry.
The roles of Timothy Geithner and Lawrence Summers, before and after the fall of Lehman, are also held up for inspection. Those cast in the roles of sage or analyst include (Americacontributor) Charles Morris, George Soros, Elliot Spitzer (no kidding!) and Christine Lagarde, the French finance minister, who adds a touch of class as well as internationalism to the mix.
“Inside Job” moves so briskly that some viewers, unfamiliar with the world of finance, may have difficulty taking it all in during a single viewing. The antidote may be to see it more than once, or wait for the DVD. But the film is not simply educational but entertaining, a suspenseful story with a beginning, middle and an end; it uses interesting camera work throughout and sometimes stunning visuals. Not a frame is amateurish.
Overall, the documentary’s effect goes far beyond the genre’s basic purpose, which is to nail things onto the public record, especially things that have eluded it thus far, and to put that record before the public. If not completely convincing on every point, the film makes a coherent argument that one must labor to dispute or refute.
Could not the result for the economy have been as good or better if the volumes of stimulus money had been evenly divided among US households instead of given to the big banks and their insurers? Maybe some of the big banks would have had to turn into small banks, but a lot more people would now own their homes outright have money to improve them.
It is important to separate the current financial problems (primarily high unemployment and large federal debt) from the financial panic of September 2008. They are certainly not unrelated. But they are definitely not one and the same and while the recession preceded the panic and the panic excaberated the unemployment that followed they should be looked at separately. Professor Robert Hall of Stanford and current president of the American Economic Association has a paper on it and an long discussion that can be accessed via ITunes University podcasts. Here is a link to his paper
http://www.stanford.edu/~rehall/Long%20Slump.pdf
It is a little technical but there are places where the prose is very understandable
There is also a commission appointed by Congress to investigate the Financial Crash, its effects and what could be done in the future to prevent similar such things. Here is their website and a recent press release
http://www.fcic.gov/
http://www.fcic.gov/news/pdfs/2010-1215-Advisory.pdf
Here is one response from members of that commission
http://keithhennessey.com/wp-content/uploads/2010/12/Financial-Crisis-Primer.pdf
So true.
Blaming Secreetary of the Treasury Hank Paulsown is especially false. Hank Paulson recongnized the severity and ugnecy of the problem an acted decisively to thwart the total collapse of the United States fiancial system. Had the banks and fiancial systems failed as they did in the 1930s the U.S. would have suffer a decades long catastrophe. Paulson acted with great resolve and ingenuity in mobilizing government to halt the bank and fiancial instutions failure and succeed in doing so.
The worse aspect of the Great Recession is the great self-serving misinformation acconting of the casue of the recession and the capricous assignment of blame as one of sinsiter moral conspiraacy failure rather than the acutal casue of a system-wide failure to recognize and prevent a massive hosing bubble do to the availability of way too much easy credit so widely avialble to all. This is not unlike the 1929 stock market crash due to too much easy credit being made available to by stocks whcih casue the stock prices to go sky-high and then crash becasue this stock price bubble like any market bubble can not be sustained. The serial collapse of banks and finacial institution followed. Fortuanetly we had in place from the Great Depresions institutions such as the Federal Depoosit Insurance Corporation to prevent savings depositors from losing any savings. No bank depsoits were lost as the were massively in the 1930s.
The government resposne led by Treasury Secretary Paulson was very effective and prevented a far worse outcome.
Praise for this movie's is undeserved for its bad economics and many false moral judgements against people of great intergrity and ability. This is another example of America magazine moralizing without technical or moral basis.
''The financial crisis has many authors and one has to separate the credit and liquidity crisis of September 2008 from the overall crisis caused by the bubble in real estate and its subsequent collapse and its current lingering to the present. The credit crisis that made all the headlines and brought down Lehman and Merrill Lynch was over by late November or early December 2008. No one knew this till a few months later when all the numbers came in. So before Bush left office the financial crisis was solved. But that wasn't the only problem.
What we are living through now is the second major part of the crisis and that is the collapse of the housing bubble. Unlike another asset bubble in the stock market of the late 90's which collapsed just as dramatically early in 2000, this one has had far more ranging implications since people place more of their actual financial worth in housing as opposed to stocks and one could borrow easier against supposed housing price increases as opposed to borrowing against your stock portfolio because few thought housing prices would ever decline.
Housing prices rose 90% in just 6 years from 2000 to 2006 and it is to this one must turn their focus if one is to understand what really happened and to understand the root causes of everything. Credit default swaps, CDO's, and other financial instruments make sexy cocktail party discussions but the real issue is the rapid and artificial rise in home prices. The normal rise is 1-2% a year and the country and a large part of the world witnessed 10 times that. It was not just the US. One had only go to Spain, Ireland and the UK to see similar trends. If housing prices had not risen so artificially during this period there would have been no crisis to talk about. As late as 2007 Fannie Mae was still encouraging the sub prime loans to ill equipped borrowers.
From what I understand this movie is a hit piece and I will have to see what it actually says but from the review by Ms. Smith, it seems to miss out on the real culprits. One of whom is being groomed for president of the US in a few years and others are still roaming the halls of Congress in good stead.
The person shouted down in 1998 was Brooksley Born but she was worried about derivatives which are to blame somewhat but wouldn't have been a problem if housing prices had been allowed to go their normal ways. The real culprits were at HUD who devised ways to make the prices of homes rise by artificially changing the demand curves through new creative loan schemes. The banks and mortgage brokers were only too eager to help as they made fortunes and took no risk.''
A major problem with the banks is that they were too highly leveraged back in 2008 and today they are still highly leveraged. Apparently government policies encouraged this leverage and the recent so called financial reform did nothing to lower this risk with banks. So why should they reform when the government said they will bail the out again. So if things go good for the banks, they will make a lot of money. If things go bad, then the government will bail them out again.
My guess is that this movie was concocted to try and absolve some from blame as they move on with their political careers. Why was there no focus on those who started the housing bubble? Wall Street will still be a cash cow for the Democrats as they have made it just as easy for them to make the billions in 2010 and beyond as they did before Sept 2008.
If the only significant charge here is that high finance and big government's close relationship is a leading cause of this problem this a total sleeper. Since the days of Alexander Hamilton, the US government has cooperated with high finance and big businesses. And most of the times throughout history its Democratic administrations that have done it most. Thus, you had the Morgenthaus raising capital for FDR's New Deal (FDR himself a product of the Upper East Side & its prep schools & clubs). This was followed by Truman's administration with the likes of Dean Acheson, Robert Lovett and others who had all been partners at Brown Brothers Harriman and sat on many of the same boards. Of course the Kennedy and Johnson administrations may have been the most blue blood of all with McGeorge Bundy, Robert McNamara, etc. Clinton had Rubin. And of course the most glamorous liberal in the land, Nancy ''Plastic Smile'' Pelosi is married to one of the wealthiest investment bankers in the country. So if the charge levelled first at Bush that he is corrupting government by having Hank Paulson as Treasury chief, I say ''YAWN''. Old news. But it's typical of these type films to make hints and suggestions of impropriety, particularly where Republicans are involved, where they cannot actually point to wrongdoing.
However, acting collectively, individuals can have an impact. One example: do not deal with large banks unless you have no other choice. Moving your personal banking, including your credit cards, to a credit union, and take your business accounts to a credit union or small regional bank. Move your retirement benefits to socially responsible investments.
These are not panaceas: small banks and credit unions still have to deal with large banks, and even good SRIs must deal with less than savory financial institutions. But by shifting these funds to places where profits are not put before people will have an effect, and we can hope that the ripples will spread widely.