After submitting my master’s thesis in the recent weeks, the amount of spare time did not magically multiplied (that is what I naively hoped for), but nevertheless I pulled myself together to catch-up for literature- and movie-related unforgivable ommissions. One of them was “Inside Job”, a movie watched and discussed even by my friends with non-financial backgrounds, which ultimately made me act. Much has already been said about Charles Ferguson’s documentary, but I feel like sharing my views as well.
First of all, no one can deny, the movie is unavoidably biased. The director has a clear hypothesis and manipulates the input he managed to collect in order to exert the influence he wants. The issue of validity of this hypothesis is vague. He points out deregulation and financial innovation as the major, continuous factors that spoilt the markets. As a matter of fact, I cannot agree with such an approach. Deregulation itself is good. The thing that worries is the deficit of ethics in business. Ferguson touches this topic very superficially, mainly with relation to prevailing conflict of interest among U.S. academics. This is important, but does not make up for a one-and-only root cause. Ferguson is silly blaming e.g. Ronald Reagan for initiating deregulation back in 1980s, since the one may be blamed only for the foreseeable consequences of his decisions. True, many decision-makers rejected the opportunity to appear in the movie, but it may not be used as a tacit argument against them. It seems that the scope of “Inside Job” is too wide and complex. It does not really explain the direct causations of the recent turbulence, but rather meanders throughout the past and ambiguous actions that might, but did not have to cause the effects they caused. Too much time is devoted to topics unrelated (directly) to the crisis, e.g. drug consumption or luxury prostitution settled by corporate credit cards. As such, Ferguson’s picture becomes an arbitrary public persecution and a somewhat populist medium to express rage aimed at world’s top economic figures and the Wall Street as a whole.
Few people, if any, are able to grasp the crisis mechanism from cover to cover. However, from my point of view, even if we assume that bankers are inherently greedy and will always lack proper ethics, the following sources brought most far-reaching consequences:
- Rating agencies, assigning AAA to compound assets filled with junk instruments, have made market vulnerable to downturn by providing insidious profit opportunities; given lower rating, many institutions would not have been allowed to invest in such securities.
- Politicians have assumed that a decent home is a commodity; quoting George W. Bush addressing subprime borrowers: You don’t have to have a lousy home. The low-income home buyer can have just as nice a house as anybody else; therefore, yes, the deficit of regulation is important here, but it regards retail credit, rather than derivatives traded by professionals.