“Inside Job” is the movie “Capitalism: A Love Story” tried to be. See my review of that other movie here. The movie is a very mean-spirited expose of Wall Street and the 2008 financial crisis.
The purpose of the movie, like the other one, is to vilify Wall Street as much as possible. This movie is a lot less stupid than the other one, but just as nasty.
There is an assumption, that isn’t really supported very well, that better regulation would have prevented the meltdown. This is not clear — limits on how leveraged banks can become might have helped reduce the stress the banking sector experienced, but it wouldn’t have prevented real estate from becoming a ridiculous bubble. Any time 95% of the players in a market get convinced that prices can do nothing but rise, as was the case with real estate before 2006, there will be a bubble. And when it bursts, there will be a huge loss of wealth, and that will probably put severe strains on the financial sector.
The movie is very one-sided. Never anywhere does it mention that, by the time the movie came out, most of the big banks had repaid the TARP bailout money they were forced to take, and most of them paid it back as soon as the government permitted them to. Neither does it ever mention that Vikram Pandit, the CEO of Citigroup, was working for $1 per year of total compensation until Citi was profitable again.
It does explain some things about how mortgage bonds worked, but not as well as could have been done.
They interview some of the bankers they wanted to vilify, and the style of showing these interviews was pretty offensive to me. The bankers rarely got to say more than one sentence at a time, sometimes the sound bites were less than a complete sentence. It was clear that anything they said that made Wall Street look good wound up on the cutting room floor and didn’t make it into the movie. A lot of major players refused to be interviewed, it was clear what was happening — when they did interview someone and put him through the wringer, he would warn all his friends not to talk to the people making the movie.
There was a lot of talk about hookers and cocaine, which I see as irrelevant — it was a way to make Wall Street look bad, but I don’t think it has anything to do with the meltdown. The movie industry is well-known to be rife with vice, and it would be nice to do a documentary about how Hollywood movies that portray history are usually full of wildly inaccurate distortions and complete lies.
There was a lot of talk about economics professors at universities failing to disclose, when they publish papers and testify before congress, money they have received while consulting at banks. The analogy that is made is that a doctor who recommends a drug is expected to disclose any funds he has received from the manufacturer of the drug. But it’s not a good analogy. If an economics professor comments about a specific bank, then, yes, he should disclose his relationship with that bank. But an economics professor making general statements about deregulation is like a doctor who is testifying that “Exercise and eating right are good for you.” — is such a doctor ethically compelled to mention consulting fees he has received from working for drug companies?
Another factor is that if an economics professor gets a reputation for saying things that are stupid, banks are not going to pay him large fees for his advice. Banks pay such large fees to people they think are smart and who are going to be able to help the bank make more money.
There aren’t a lot of recommendations about how the system could be modified to prevent such a problem from happening again. There is a very vague and sweeping implication that deregulation was the main culprit, but there isn’t much specific in suggestions about what new regulations should be imposed.
One valid point they make is that most of the people on Wall Street are paid for short-term results, and are not really held accountable for long-term results. I’m not sure how this can be corrected, especially in the mortgage market. Mortgage loans are typically for 30 years. A lot of bankers are in their sixties. They aren’t going to be willing to wait 30 years to collect all their pay. People typically want to be paid NOW. And no one wants to be paid in such a way that they’ll have to give the money back if anything goes wrong — you would never feel safe spending your paycheck if there was always a risk that you might have to give it back at any time over the next 30 years.
For my take on the mortgage meltdown, click here.
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