Some weeks ago I listened to an eye-opening podcast of This American Life that explained economics with a startling revelation: money isn't real. Though I'm oversimplifying a complex issue, the value of money is, in a sense, a lie agreed upon ever since the US left the gold standard. That's why consumer confidence is so important to a functioning economy – when you exchange a dollar for goods or services, you are engaged in a tacit agreement that those goods and services are worth the value known as “dollar,” and that that dollar is represented by the slip of paper in your hand with the green ink and numbers on it. Maybe, psychologically speaking, that's part of the reason the financial crisis happened; in the information age, those slips of paper have largely been replaced by sequences of digits and decimal places on someone's hard drive, less tangible even than Monopoly money, so it's easy to become divorced from the practical consequences of what you do with those decimals. Except, of course, in the real world, when you play around with money, there are real people in the houses and hotels.
Inside Job is an extraordinarily compelling film by director Charles Ferguson, whose previous documentary, No End in Sight, explored with similarly meticulous detail how the United States became embroiled in the Second Iraq War. In it Ferguson explores, with sober journalistic clarity, how the world financial markets came apart in the first decade of the 21st Century. I watched the film twice in one day (once with its director's commentary), and then watched all the DVD bonus features and want to watch them again. I want Ferguson to direct another film about this subject and then direct movies about everything else. He shows extraordinary conviction but is the stylistic opposite of a filmmaker like Michael Moore, who uses more sensationalist tactics to express his views. Ferguson, instead, lets research, reason, and expert testimony speak for themselves.
I'll admit, after two viewings the financial collapse still isn't entirely clear to me, which is not a criticism of the film but an observation of the convoluted nature of modern economics. It's not a system of clear, logical math – it's an end run around clear, logical math. When credit default swaps were discussed, I paused the film to write down what I learned. Credit default swaps were introduced as a kind of insurance against losses when trading bundled mortgage and loan assets. Goldman Sachs paid AIG to secure investments with the intention of cashing in when those assets floundered. In essence, they took out insurance policies on your house, and if the house burned down they made a substantial profit. This sort of practice wasn't designed to make sense. It was designed to make money.
Deregulation was a major contributing factor. Starting in the 1980s under Ronald Reagan and continuing through the Bush, Clinton, and Bush administrations that followed, the gradual scaling back of financial sector safeguards that had been in place since the Great Depression – to prevent, you know, another Great Depression – caused a stable economy to go through cycles of bubble-and-burst, along with periodic instances of financial corruption and fraud. Alan Greenspan, the Federal Reserve chairman from 1987 to 2006, was ideologically opposed to regulation of the financial sector, despite the clear instability it caused and the obvious unwillingness of the financial sector to regulate itself. When an abstract ideology ceases to jibe with reality, at what point does it become sheer insanity to continue believing it?
Ferguson opens the film with the devastating collapse of the Icelandic economy due to deregulation of the financial sector. In a perfect world, where people behave ethically at all times regardless of personal interest, a deregulated market could work, but in a world with the kinds of sociopaths who were working for firms like Goldman Sachs and with the collusion of equally self-interested rating agencies that put their seal of approval on obviously dangerous assets in order to reap a financial reward from investment banks, and with a revolving door of influence between government, business, and academia that rubber stamps all the house-of-cards schemes at every level of public policy and discourse – in that world, the one in which we happen to live, rampant deregulation doesn't work. End of story.
A popular media narrative refers to “class warfare.” When Obama intended to let the Bush tax cuts expire for the wealthiest Americans, it was described as “class warfare” – and Obama caved. In Wisconsin, currently, teachers and other union workers are being treated as greedy, overpaid fat cats, but if you try to limit CEO compensation to curb incentives for risky behavior, it's “class warfare” that will lead to job losses. Let's talk about class warfare for a moment. We're told it's anti-freedom, anti-capitalist. Practically speaking, though, class warfare is already underway and currently involves the middle class fighting for its survival and demanding accountability from a very small minority of Americans, whose rights we're being asked to protect to safeguard the jobs they're supposedly creating with business models like the ones that crashed the economy and caused millions to lose their jobs. We should want them to keep all their money, we're told – and some of ours too. Late in the film Ferguson points to an increasing class divide in American society, where wealth and influence are concentrated farther and farther up among fewer and fewer people. All this overblown talk of “class warfare” and “redistribution of wealth” is really just a smoke screen. The mass of Americans, who are hurt by a top-loaded economic structure, are being asked to take up arms against themselves.
Nobody has gone to prison for defrauding the world out of billions of dollars. Nobody has been prosecuted. Nobody has even been arrested. Ferguson, whose message is strengthened by how stringently non-partisan it is, expresses deep disappointment in the Obama administration, which was elected largely out of outrage against the abuses on Wall Street that nearly destroyed the international economy. Since being sworn in, he has not taken action to significantly reform the financial sector, and in fact has appointed to key positions many of the same people who were part of the problem in that disastrous revolving door of influence. No change at all is change Wall Street can believe in. They're so disconnected from the lives of average human beings that if any of them went to jail, they'd probably shrug their shoulders and ask, “But what for? It was only a few decimal points.”