Inside Job - a review

A new year a new start. After an extended Christmas break I intend to start blogging again with more regularity.

To start off the new year I thought I'd have a stab at reviewing the film Inside Job. Its an account of the causes and consequences of the 2008 global financial crisis, which started with the unravelling of thousands of 'sub-prime' mortgage loans in the US and eventually brought the entire financial system to the edge of total collapse.

Although most critics have praised its clear sightedness, pointing out that the Director, Charles Ferguson is an academic by training, the film is fundamentally a polemic: its overriding objective is to leave one angry, rather than enlightened (although I think it does a good job of both). Greedy bankers are the prime target - the film paints them basically as criminals who took advantage of decades of deregulation in order to get rich quickly and didn't give a damn about the consequences.

As you might expect, the film packs in a lot of information (including a fair amount of economics theory) but does a good job of explaining, in laymen terms, how the invention of complex financial derivatives (famously described by Warren Buffet as 'weapons of mass destruction) made it possible for banks to bundle bad consumer loans into securities, certified as sound by credit rating agencies (who were paid for by the banks) and then insured via credit-default swaps, which allowed bankers to both sell those unreliable securities to gullible clients whilst simultaneously betting that they were going to fail.

Thankfully, the film does not make the mistake of wallowing in conspiracy theories or wheeling out half-baked narratives of capitalism's demise, but tells an essentially simple story of how a combination of rigid ideology and groupthink drove some very intelligent men to pass some very bad laws, which encouraged some very greedy men to take risks with other people's money. In fact, one of the most interesting aspects of the film is its critique of the role of the economics profession in providing the intellectual framework that legitimised deregulation, in particular, suggesting more than a few prominent economists were corrupted by consulting fees, seats on boards of directors and so on. I look forward to asking Larry Summers about his own role when I attend his lectures at Harvard in the Spring...

The film does has weaknesses. It is perhaps overly fixated on the issue of regulation (in many sectors of the industry, regulation was tight - the point is that banks found ways around it) and does not sufficiently cover the role of the shadow banking system (hedge funds, money market funds etc) in the financial collapse. Its also a little manipulative and intellectually disingenuous at times, for example, the tendency to assume borrowers were all gullible victims, rather than active participants in the crisis. However, overall, its extremely thought provoking and very well made. In summary, highly recommended.