UPDATE: Inside Job clenched the Academy Award for best documentary feature on Sunday night.
Charles Ferguson hopes that his movie, Inside Job, will be for the financial industry what An Inconvenient Truth was to global warming: an impassioned call to hold the people who brought the world to the brink of economic collapse responsible for their actions. And, with luck, send them to jail.
Ferguson is no Michael Moore. He’s not a chronic agitator with a megaphone for a mouth. He's a mild-mannered academic, with a PhD in poly sci from MIT. But despite his quiet demeanor, he's mad as hell, and is fearless in calling out bad behavior in the loftiest precincts of power.
Ferguson's natural-born wonkiness is actually his greatest asset. He's smart enough to make sense of CDOs, credit default swaps, mortgage-backed securities, and tranches (the film's screening notes come with a handy glossary!) and savvy enough not to be cowed by the deliberately complicated financial instruments that helped to obscure the looting of the country.
Business news followers will already be familiar with much of the film's main turf. And, of course, we all now know Alan Greenspan's heinous role in the whole mess. Even close readers may be surprised, however, at some of Ferguson's revelations. I was particularly struck by the complicity of the academic world in providing the intellectual underpinnings for the theories that led us off a cliff (for example: "It's a good idea to deregulate derivatives!")—for money. Larry Summers, Harvard's Martin Feldstein, and Columbia's Glenn Hubbard come across as particularly culpable.
I sat down with Ferguson for a chat about how Clinton got hoodwinked, whether testosterone is to blame, and what he hopes to happen once the movie hits the big screen.
Why does it matter that academics—economists, lawyers, public policy people, and groups like the Law and Economics Consulting Group (LECG)—did consulting for whoever was willing to pay them?
Because the rationale for deregulation and many of the policy changes that got us into this problem were sold to the American people, the business community, and the academic community as the best thinking of the best minds in the subject. I think it had a significant role. By the way, LECG, which was started by a couple of Berkeley economics professors is now a $300M company.
You're pretty hard on Clinton in this film. What happened under his watch that paved the way for the collapse?
Clinton's economic team, led by Robert Rubin and Larry Summers, helped repeal the Glass-Steagall Act. That led to the banning of the regulation of derivatives. Plus, the dotcom bubble was going on under their noses and they did nothing about it. Same with Enron. They were lucky that Enron blew up a year after they left office.
Clinton is a smart guy. Why do you think he allowed this to happen?
I think part of the reason is that Larry Summers and Laura Tyson and these respectable academics were telling him that it was fine. Nobody important or powerful or academically credible was holding up their hand and saying, "There's going to be a problem here."
What was Larry Summers' self-interest?
He's always been a pro market, pro business, laissez faire kind of guy. He's a very ambitious man. I'm not his shrink, but both for his political advancement and because he wanted to be rich, he wanted to cozy up to Wall Street. After he left the (Clinton) administration, he made a zillion dollars.
Then Obama made Larry Summers his top economic advisor. That probably wasn't a good thing.
Obama came to his role as a financial naif. I'm sure that all of the senior people in the campaign—Summers, Rubin, etc.—were saying, "You need to call in experienced people. You can't panic Wall Street." People told me he has a tendency to advance through compromise. Maybe he was hoping to avoid a fight.
Is it a coincidence that he just left the administration?
Some people have asserted that his departure is related to the film. I have no idea if that's true.
On a positive note, the banks are now paying back TARP.
That's a tiny part of this. This has cost the American people trillions of dollars. TARP is a red herring. And recent studies of mortgages show that at least a third of the the people who received subprime loans would have qualified for less expensive mortgages, but were steered toward the dangerous ones because they were more profitable. This crisis was done to the American people by the industry.
Do you have any sense that the folks in the financial community feel any ownership of the devastation they've wrought?
If you look at their bonuses and their lobbying efforts, I don't see much change. I think they still hope and expect that if they hold on for a while, it will all blow over.
Speaking of a bonuses: was money the only thing driving these people? How many yachts can you water ski behind?
It's a game, a contest, and it's very seductive to play high stakes games. That's part of it. You get to play on a very big chess board and people like the clothes and the toys.
Is it testosterone run amok?
That might have something to do with it. When you get that much money, and when the government is no longer enforcing the law that would regulate and sanction you, you become disconnected from all the things that might otherwise restrain you. These guys were in their own bubbles created by their money—the private elevators, the private planes. They weren't getting any feedback from any source saying one day you'll be held responsible.
I always wondered if they were criminal, incompetent, or clueless. What do you think?
I think many crimes were committed.
Why haven't they gone to jail?
I hope that some still do. The fact that there have been zero prosecutions of senior Wall Street executives as a result of the crisis is, I think, one of the most disturbing things about all this. It is, perhaps, the single most damning statement of the Obama administration—that they haven't gotten serious about al this. I don't have an explanation of why that is.
Do you hope this movie spurs that?
What would you like to see happen with this movie?
It would be very nice if President Obama woke up and changed his rhetoric, policy and behavior. I think that would be very important and in his long-run political self interest. I think he will start paying in his reputation, his poll numbers, his likelihood of re-election—and his place in history—if he doesn't start to do something. Failing our president's changing his ways, I hope the American people start getting angry and active.
There's anger out there, but it seems diffuse.
Someone has to emerge as a leader for this issue, analogous to Gore on climate change. It might be Larry Lessig, who's at Harvard working on the role of money in American politics. Or Arianna Huffington.
Overall, this is a pretty grim picture. Are you hopeful or despairing?
President Obama had a really historically special opportunity which he blew, and now it will be a much more difficult, longer process. But I'm hopeful in the long term.
"Inside Job" opens in New York on Oct. 8, nationally on Oct. 15.
[Top front page image via Flickr user]