CANNES, France — If you don’t quite get what happened to the global economy over the last two years, or who’s at fault, you’re not alone. Indeed, that’s nearly everyone’s situation. The big crash of 2008 and 2009 and its ongoing ripple effects — such as the European fiscal crisis that’s rendering my visit to France a little cheaper every day — seemed to come from nowhere as if by natural causes, as unpredictable and unmanageable as the Icelandic volcano or a Gulf Coast hurricane.
Charles Ferguson is here to tell the world that the crisis that wiped out trillions of dollars in wealth, threw millions of people out of their homes and out of work, and further widened the gulf between rich and poor was no accident. It was a crime. Ferguson, a former software entrepreneur and policy-wonk scholar turned filmmaker, is definitely no left-wing bomb-thrower or closet Marxist. But he plays one in the movies, you might say. His new documentary, “Inside Job” — arguably the smash hit of Cannes so far — offers a lucid and devastating history of how the crash happened, who caused it and how they got away with it.
Furthermore, Ferguson argues, if we don’t stop those people — preferably by removing them from power, arresting them and sending them to prison — they will certainly do it again. “Inside Job” is as elegant, penetrating and well researched as Ferguson’s Iraq war film, “No End in Sight,” but it’s a hell of a lot angrier. To the discomfiture of some antiwar viewers, Ferguson struck a nuanced position on the war itself: It might have been a reasonable idea, in theory, and might have worked out if it hadn’t been managed by a coalition of ideologues, incompetents and idiots.
This story is quite different. There was nothing reasonable or decent or redeemable about the world of high finance, in Ferguson’s judgment, by the time the 21st-century bubble reached its peak around 2006. As he illustrates with a damning parade of interviews, images and public testimony, the financial industry had ridden 20-plus years of manic free-market deregulation and neoliberal fiscal policy from one crisis to the next, surfing a rising tide of greed and corruption. (There are several people in this movie, prominent among them former George W. Bush advisor Glenn Hubbard and Harvard economics chairman John Y. Campbell, who will rue the day they agreed to talk to Ferguson.)
In a captivating conversation with former New York Gov. Eliot Spitzer (who looks here like a knight in shining armor, believe it or not) Ferguson suggests that the financial industry has become a criminal class insulated from society, where profit justifies everything and morality and ethics, not to mention basic human decency, are totally irrelevant. Gaining remarkable access to a wide range of financial insiders, experts and academics, he builds a persuasive case that by conquering Washington with piles of campaign money and conquering the economics discipline with free-market ideology (and more piles of money), the financial industry built a fortress of deregulation that allowed it to plunder the peasantry with no control or oversight.
In one amazing sequence, we watch Goldman Sachs executives testify to Congress, admitting that at the height of the housing bubble, they sold their clients mortgage-backed securities they knew were likely to become worthless. Indeed, they had almost certainly been designed to become worthless, because Goldman was betting its own money on a big-time housing collapse that would turn the paper it was selling its biggest institutional clients into junk. So it was that municipal and state employees’ pension funds were wiped out, while senior executives at investment banks — even those that went bust — walked away with hundreds of millions of dollars. In many cases, they simply stole that money from you and me, or from our parents and grandparents.
In case you think the whole thing can be blamed on Ronald Reagan and George W. Bush and deregulation-crazed congressional Republicans, it can’t. Bill Clinton’s economic and fiscal policies were shaped and implemented by Wall Street insiders who joined his administration, and he signed numerous major acts of deregulatory legislation. After a year in office, Barack Obama has done little more than reshuffle the chairs, leaving the same investment-bank insiders and free-market ideologues who blew up the store to plaster it back together again. As one commentator notes in the film, whether Democrats or Republicans hold power, we have a permanent “Wall Street government.”
You’ll definitely hear more about “Inside Job” before it reaches U.S. theaters, most likely in September. (Given the response here, Sony Pictures Classics is mulling pushing that forward.) I met Charles Ferguson, a lean, intense fellow in his mid-50s, for a post-breakfast conversation at a restaurant overlooking the Cannes beachfront.
I’ve seen both your film and Oliver Stone’s “Wall Street” sequel here, which both tackle approximately the same subject matter. He’s built his movie around the financial term “moral hazard,” which interested me. What you show in the film — a situation where we’ve deregulated the entire universe and created a strong disincentive for people to behave ethically — isn’t that the ultimate illustration of moral hazard?
Yes. Deregulation permitted, allowed and created an industry where moral hazard was the norm and the universal condition. And people took advantage. When there is moral hazard one usually finds that people take advantage and in this case a whole industry took advantage.
In a two-hour film, you can’t go into much depth about how the deregulatory process began. But is it your perception that the deregulation of, say, the Reagan years and thereafter started from a pure ideological position? Or was it influenced from the beginning by the financial firms who had a great deal to gain?
The latter. Well, it was a combination of the two; it wasn’t just that. It was both of those things. And you saw in the ’80s for the first time the beginnings of this very unholy alliance between the financial services industry and the academics who pushed the free-market ideological-intellectual agenda. We talk a little bit about that in the film. About the fact that Charles Keating paid Alan Greenspan to write him a consulting letter, for example. We actually have a lot more material on that that was in a rough cut of the film, which I took out for reasons of length and I have many regrets about.
We have an awful lot of very interesting material that I took out purely for reasons of length or narrative continuity. One extraordinary thing that we have is a filmed interview, sometime in the late 1980s, with Sen. William Proxmire who at the time was the chairman of the Senate Banking Committee. He says in an extremely blunt, direct way: My committee was bought off by the savings and loan industry, which led to the passage of the Garn-St. Germain Act of 1982, following which there was this extraordinary wave of criminality. So the money was there from the beginning — both money and ideology. Over time I think the money has come to be even more dominant. Now, of course there are people who still believe in free-market ideology, but that’s not the core of what’s going on; the core of what’s going on is the money.
This may be forcing a parallel, but this occurred to me after seeing your film: At the beginning of Marxism-Leninism, you have leaders who believe in what they’re selling. I think we can posit that Lenin and Trotsky believed that they were changing the world for the better, history was on their side, and so forth. Maybe Stalin did too — at least at first. By the end of the Soviet state, you have a completely corrupt environment in which nobody, including the leadership, actually believes in the Communist future. I wonder if we’re seeing a speeded-up version of that same ideological decay in the world of free-market capitalism.
I think that’s an extremely accurate and perceptive analogy. And it’s also of course a very disturbing one. The idea that the United States is being taken over by this utterly cynical group of people who know that this is a rigged game and just kind of gives lip service. I think that there’s a lot of that. The United States has changed over the past 30 years. America has changed. And it really is time I think for the American people to unchange it.
Well, there’s an obvious corollary question about the way American politics is financed. These guys have taken very effective advantage of the way Congress works and the way congressional elections work to fund candidates, control the process and control and actually write legislation. It’s not quite enough to throw the bums out. We have to remake the political process as well. It’s an extremely daunting problem to deal with, isn’t it?
It is an extremely daunting problem, but I wouldn’t say that I’m entirely pessimistic about it. There have been times before in history where a country, a government, got taken over by some bad people who did some bad things and the population threw them out. I think there’s a reasonable analogy in that regard with Watergate. There’s a situation where one could have said — and many people did say — “Look, how are you going to get rid of the president? How are you going to get rid of a whole administration?” We did.
Just because the system has been taken over doesn’t mean that that always has to be the case. I am reasonably optimistic that over time the American people are getting angrier about this. That’s happening now. Will they get angry enough? Will there be enough action? We don’t know yet.
One manifestation of that, I suppose, is the Tea Party movement. One can put a positive spin on that, and say that it represents a kind of popular or populist anger. But if it’s just this nativist, incoherent rage, ultimately in thrall to an ideology that winds up supporting the corporate status quo that you’re talking about, that’s a real problem.
It is a real problem, and situations like this are dangerous and unstable in a number of ways. The Great Depression gave us Franklin Roosevelt, but it also gave us Adolf Hitler. When a system is under stress and things get extreme and people are angry, they call for reform but they are also vulnerable to exploitation, and that is disturbing. Despite the rise of the Tea Party, I would still say that on balance the popular reaction in America now is in a good direction. I think that most people who are getting upset about this are getting upset about it in the right way and for the right reasons.
You make very clear in the film that this is not a partisan divide, in the sense that one party has been for the bankers and one party has been against them. Both parties are up to their eyeballs in Wall Street money and have made no effort to separate themselves, isn’t that fair?
Yes, that is completely fair.
Does there need to be some kind of insurrection within either or both of the political parties for things to change?
Yes. One possibility is a movement from within the political parties. The other is the rise of a third party. What’s happened in Great Britain recently is kind of interesting in that regard. It’s not the same but there are a number of similarities. The rise of the Liberal Democrats in Britain has a lot to do with the same kind of forces, and with the sense that the Labour Party was taken over by the financial services industry in very much the same way as the Democratic Party has been.
Is our political culture so dominated by an individualist ideology, and by a private sector bias, that we can’t go back to the era of serious financial regulation? You look at the healthcare debate, and a very modest level of reform is referred to in some quarters as a government takeover. Doesn’t that ideology serve the interests of the bankers?
I actually don’t think that’s much of a problem in this case. One can be very entrepreneurial and individualistic and even pro-business and still be against bank robbery and against fraud. And that’s kind of where we’re at. I myself am entrepreneurial and pro-business. I started a software company and I think that’s a fine thing to do. It’s not like I’m ashamed of that — quite the contrary. I’ve spoken to many business people, particularly people in high technology, who are furious at what happened. Absolutely furious. Because they make real things and they contribute to the economy and they find their businesses and themselves significantly hurt by these people who basically robbed the country, the world. So I think reform of the financial system is perfectly compatible with the American ethos. I don’t think that’s the difficulty. I think the difficulty is just these people are wealthy and powerful and they’re not going to give up easily.
In your film we see recent congressional testimony — it was actually in April — where Goldman Sachs executives talk about how they sold securities that they were betting against. It’s shocking to realize that they were, apparently in good faith, selling people securities that they believed were going to fail, while actually betting that they would fail.
I wouldn’t say “in good faith.” [Laughter.]
Perhaps that’s the wrong phrase, yes. It’s hard to imagine how someone in that world justifies that behavior to themselves as ethical. Does that question not even come up?
When they’re doing the business I don’t think it comes up. And in fact, in a number of conversations I’ve had with bankers, I’ve been struck that they find it kind of surprising that somebody would raise ethical questions. They don’t find it surprising that legal questions could be raised. “Could I get in trouble?” That’s a discussion they’re very familiar with. But, “Is this right or wrong?” That’s not a discussion they have often.
That’s the thing people may find difficult to comprehend. As you depict it, this industry has completely absorbed the idea that there is no right and wrong, there’s only making money. That would be shocking to a large number of people, don’t you think?
I think probably so. It was shocking to me. It’s not like I didn’t know that there were greedy people in the financial world. When I started making the film I knew that there had to have been some bad behavior, but I had no idea that on a very large scale people had designed securities with the intention of selling them and gambling on their failure. I was stunned when I discovered it.
You have a fascinating conversation with Eliot Spitzer in the film, where you suggest that the financial sector has become an enormous criminal enterprise. You were talking just now about having been a high-tech entrepreneur, and what he says about the differences between the two worlds is very interesting.
I asked him about what seemed to be this very striking, distinctive, unique level of criminality in finance, which is not restricted to the behavior that led to this crisis. There have been many other examples of criminal behavior in finance. There are now three major banks that have been convicted of large-scale money laundering for Iran. Just a few days ago, ABN AMRO signed — I love this charming phrase — a “deferred prosecution agreement” and agreed to pay a $500 million fine because they did it too. So it’s an industry that has a very high level of criminality. It has become, I personally think, a criminal industry.
I asked Spitzer about that: Why this industry? I have some experience with high technology and the same thing doesn’t happen. He agreed with me, but we actually didn’t show his full answer. His full answer was: Look, high technology is an industry where you create money by doing something different. In contrast, finance is really kind of zero-sum. It’s a trading game, it’s a gambling game. There’s a relatively fixed pool of money, but there’s a lot of money and the way you make more, as a banker, is by making sure that someone else makes less. It’s really hard to keep that industry ethical without appropriate legal and regulatory controls. If Intel made microprocessors that blew up the computers they’re in, Intel would go out of business. The same is not true for financial services. It was a very sobering moment, actually.
You cover the question of executive compensation in the film, the insane and obscene salaries and bonuses these guys take home. But is that a largely symbolic question, or does it speak to the corruption of the system?
Oh, it’s an extremely real question. First of all it’s a very obvious symptom and example of the corruption of the system, but it’s much more than that. It’s also systemically important. These people do these things because they can make money doing them and get away with it. And if they couldn’t, they would behave differently. If there’s a place in the world where you can make a billion dollars by being a criminal, that place is going to attract criminals. And if you have a system that is appropriately regulated so the only way that you can make money is by doing something worthwhile, you are not going to attract criminals to run that industry.
We now have a situation where the way that you can make the most money is by doing criminal things. And you get away with it. You can even destroy your own company. In some cases, destroying your company is the way that you make the most money. And that’s bad. Personally, from the experience of researching and making this film, I think that legal controls on the structure of executive compensation are a very important part of fixing this.
By the way, from the experience of starting my software company, I can tell you that people in high technology are extremely aware of this. I dealt with the venture capital firm that invested in my company and they were extremely clear. They said: You’re going to get a salary. It’s going to be $100,000 a year. It’s never going to go up. You will never get a bonus. You will have no outside activities of any kind. You will not make a dime doing anything else. Your stock will vest over five years. And if you want to make money, you make that stock worth something. Period. It’s really simple.