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.

What the Americans could learn from the BBC

Whilst visiting Washington DC I popped in to the wonderful 'Newseum' to kill some time before my flight back to Boston. One cannot help but be impressed by the scale and interactivity of the exhibits: highlights include a giant segment of the Berlin Wall, a film on the history of journalism in 4-D and the chance to read the news live on camera. But the overall effect is dizzying. In truth, it is sensory overload. A bit like American news coverage.

At first, watching American news provides a novel and fun contrast to the more laid back coverage typical of the UK. Shows like 'Hardball' and 'Keeping em Honest' are refreshingly direct and deliberately designed to provoke a reaction from guests and audiences alike. But after a while it begins to overwhelm - it is just a bit too intense. For example, one favourite trick of American news broadcasters is to split the screen so that the viewer is given a close up of the interviewer and each guest's face, which when an argument becomes heated, creates a bizarre kind of angry talking heads effect. The only way to describe it is like being in a room with a bunch of angry, screeching, drug-fuelled schizophrenics. If you want a good example, click on the link below:

http://www.youtube.com/watch?v=MEvaw8jmU3c

I now long for the more dulcet tones of BBC news broadcasters and a calmer, more reasonable approach to political debate and news coverage. But perhaps I'm just an elitist who can't handle the sight (and sound) of real conflict and debate.

The cruelty of football

You spend all week looking forward to the game. You get up at 7.30 in the morning to watch it. You see your side go 2-0 up and start looking forward to rest of the weekend, being able to bask in the warm glow of victory.

But then you watch your team throw it all away in a tortuous second half - your team's bitterest rivals coming from behind to claim an unbelievable victory. You try to console yourself with the fact that you're not actually at the game having to witness such horror in the flesh. But its just as painful watching it on the other side of the Atlantic. And as the anger fades, the resignation sets in, that the rest of your weekend is ruined, knowing that your masochistic brain will replay the events of the match over and over, taunting you with alternative scenarios of what might have been. The cruelty of football...

Unintended consequences

One of the great things about the HBO show The Wire is the way it depicts the unintended consequences of policing on crime. Series 4 (my personal favourite) charts the rise of an upstart drugs dealer named Marlo Stanfield, who steps in to replace the territory vacated by the collapse of the Barksdale Crew, who's leader, Avon Barksdale, had been put behind bars at the end of Series 3. To the horror of the Baltimore Police, Marlo's reign turns out to be even more violent and anarchic than his predecessor's with murders carried out for increasingly trivial reasons, rather than as a last resort.

The paradox at the heart of this tale - that 'success' in policing can sometimes end up making things worse - can be seen in evidence today.

To take just one example: US-backed victories against drug cartels in Peru and Bolivia in the late 1990s appear to have driven the narcotraficantes closer to the US border, into Mexico, which has, over the last decade became one of the world's biggest 'hubs' for organised criminality. Meanwhile, the UN's most recent World Drugs Report suggests a key reason for the dramatic increase in the Mexican homicide rate is that demand for cocaine has begun to fall in the US, meaning that the narcotraficantes have been left fighting over a shrinking market. In fact the plight of Mexico could serve as a perfect case study in the law of unintended consequences.

None of which is meant to imply that I think we should give up trying to control the illicit flows of drugs. I do not subscribe to the view that ending prohibition would necessarily reduce drug harms. For example, there is strong evidence that if currently illegal substances were made legal, their popularity would increase, which would in turn increase the levels of morbidity and mortality associated with drug-taking. And it has always struck me as odd that the issue of drug control is uniquely subject to calls that the struggle should be abandoned, when, despite equally mixed results in international interventions, no one advocates accepting poverty as inevitable, for example.

But we should acknowledge rather than ignore or deny the existence of such unintended consequences, particularly when so many lives are at stake.

Why don't the UK police use Compstat?

Sorry for the lack of blogging recently. A combination of in-laws and deadlines have got in the way.

During dinner with some very illustrious ex-NYPD cops the other night, one of them asked me whether police in the UK had ever experimented with using Compstat?

For those not versed in the vagaries of police performance management, Compstat (which stands for computer comparative statistics) refers to a management tool pioneered by the NYPD under Mayor Rudolph Giuliani and Commissioner Bill Bratton during the 1990s. The system is very simple: ‘crime maps’ are used to track when, where and what types of crimes are occurring within a small geographical area. In weekly meetings, those maps are then used by senior NYPD personnel to hold local precinct commanders to account for crimes in their borough and to plan officer deployment accordingly.

The system has long been credited with being a major contributor to the dramatic fall in crime in NYC from the mid 1990s onwards (crime fell by over 50% in four years, almost twice the speed of the national average) and has even been dramatised by the popular HBO series, The Wire.

Although most UK police forces are now beginning to use crime mapping technology, it is mainly being done for the public’s benefit (so they can see what crimes are happening in their local area and raise the issue with their neighbourhood police team). As far as I’m aware, no police forces yet use this information as an accountability or resource deployment tool.

And as I had to admit to my colleague over dinner, I don’t know why that is, given the success it has had in the US.

Any ideas?

Putting police reform into perspective

Police protesting over pay in 2008

It is the sight that no Home Secretary ever wants to see: the police marching down Whitehall in protest against the government.

As a primary source of the state's monopoly of the use of force the police hold a uniquely powerful position in the relationship between state and citizen. That is why organised police protests tend to have a more symbolic and emotive impact than most other industrial disputes. It also explains why the structure and shape of the police workforce - and its various anomalies (for example, tenure-based, rather than performance-based pay) - have remained largely intact over the last fifty years: even the most reforming and combative Home Secretaries have tended to quail at the sight (or threat) of the police marching against them.

No doubt Teresa May and her team in the Home Office will be busy working out how best to mitigate the risk that her Police Pay Review will provoke similarly damaging protests. However, their response is likely to be tepid in comparison to the actions of the Ecuadorian police in response to President Rafael Correa's proposals to reform police pay.

Ecuadorian prosecutors have announced that a total of 57 officers are now in custody following a 'spontaneous revolt' by rebellious police who roughed up and tear gassed the president. Apparently the revolt only ended when army commandos rescued Correa in a hail of gunfire and concussion grenades at a hospital where he had been surrounded by insurrectionists...

No matter how bad things get for Teresa May and David Cameron, surely they won't get as bad as that?

The Social Network

I enjoyed David Fincher’s new film, The Social Network, on Saturday evening. This being the opening night and being Harvard, the cinema was packed to the rafters, mainly with excited students hoping to catch a glimpse of a street/ lecture theatre/ bar they knew or had been to. So it was a fun atmosphere.

For those unfamiliar with the story, the film is based on the real life events surrounding the founding of Facebook in 2003 and its creator, Mark Zuckerburg - now the world’s youngest billionaire. It also attempts to unravel the claims and counter-claims made during several costly litigation battles that followed, with Zuckerburg accused of stealing the idea behind Facebook from other students and cutting his best friend (and former business partner) out of the company.

The film avoids the usual clichés by managing to paint a more subtle picture of Zuckerburg’s character than I would have expected. Played by the brilliant Jesse Eisenberg, Zuckerburg appears contradictory: simultaneously confident and insecure, a creative genius but socially inept. Partly because of this subtlety, American audiences appear divided on how to interpret him.

On the one hand, are those that see the film as a classic tale of individual ambition and drive – celebrating the cornerstones of American capitalism. To them Zuckerburg is a visionary who saw the potential power of the internet to transform social interaction and then seized the opportunity to exploit it before anyone else.

On the other, are those who see Zuckerburg, not as a hero, but as a hubristic and flawed individual who betrays his friends in order to achieve wealth and stardom. To this audience, the central irony of the film lies in the fact that the man who has transformed the experience of social communication for millions is singly incapable of forming the most basic bonds of friendship. As David Carr comments in the New York Times, “the movie could well serve as a referendum on business aggression and ambition that breaks along generational lines”.

Aside from the question of what the film says about American capitalism, it has also made me think about the extent to which Facebook has transformed our experience of social interaction. To its cheerleaders, Facebook represents the front line in a movement to democratise social interaction by strengthening networks of peers at the expense of the old established social order, which left information in the hands of elites and meant social organisation was confined to hierarchies. However, as Malcolm Gladwell has convincingly argued in this month’s New Yorker, online social networking does not and will never replace the kinds of deep interaction, commitment and yes hierarchies that were necessary to achieve change in, say, the American civil rights movement in the 1960s.

As you can see I’m no Barry Norman but I hope this will convince you to at least watch the film on DVD – I think you’ll enjoy it.