Talk to St. Ambrose Review of Charles Ferguson and Audrey Marrs’s Inside Job

The Film’s Official Poster

Two weeks ago, nearly 38 million Americans tuned in to watch ABC’s coverage of the eighty-third annual Academy Awards ceremony.  While this year’s Oscars delivered the usual Hollywood dose of glitz and glamour, this post highlights merely one slice of the 2011 Oscars: the award-winner for Best Documentary Feature, Inside Job, directed by Charles Ferguson and Audrey Marrs.

Inside Job is relevant to St. Ambrose because it focuses on the origins and implications of the financial crisis, which, of course, are extensively tied to the housing and real estate markets.  Moreover, low and middle-income people have taken a particularly hard hit, as many have lost substantial equity in their homes—and by extension savings for college tuition, healthcare, and retirement—or have undergone foreclosure.

The film, however, doesn’t focus too heavily on everyday folks but instead provides a thorough, didactic chronicle of the public policy and irresponsible financial practices that led to the crisis.  Divided into five parts, Ferguson and Marrs begin their documentary by portraying the situation in Iceland, which, staggeringly, possessed a yearly GDP of $13 billion but found itself $100 billion in debt during the crisis.  Iceland’s troubles culminated in the sort of brutal unemployment with which we in the rest of the Western world are now familiar.  The filmmakers attribute this flabbergasting statistic to the fact that Iceland, in addition to privatizing it’s three largest banks, systematically unraveled its robust regulatory state, as it too was swept by the deregulation fervor that infected most other industrialized nations.  This allowed Icelandic banks to make highly leveraged investments—as in using more borrowed than in-hand capital—that, of course, failed miserably.

From this vantage point, the film explores how domestic deregulatory policy also facilitated U.S. bankers’ identical mistakes. Ferguson and Marrs graphically convey two of the most talked-about yet enigmatic securities that were apparently responsible for bringing down the economy, Synthetic Collateralized Debt Obligations and Credit Default Swaps.  The former refers to the process of banks’ securitizing bundled mortgages, repackaging them and selling them to investors at an inflated price.  The pervasiveness of these kinds of securities created a perverse incentive structure whereby local lenders were under pressure to sell as many loans as possible, even “junk” ones, since they knew that these loans would be purchased, regardless of their quality.  This then led to massive predatory lending.  The latter kind of “security,” if one can even call it that, are the notorious insurance policies that enabled investors to make bets on whether the borrower would sink or swim, get foreclosed or pay off the loan.

In addition to demonstrating the proliferation of both securities, the film, I think, works to dispel a few equally pervasive myths: these securities are complex, sophisticated products that the average Joe couldn’t possibly comprehend, and that the high fallutin’ investment bankers on Wall Street had everyone’s best interest in mind. On the contrary, Ferguson and Marrs show that CDOs and Credit Default Swaps amount to little more than the repackaging of other people’s debt, and rather than rigorously examining the loans that comprise their products, these bankers possessed a lazy tendency to put them on the market with little analysis.  (The directors contrast the financial services industry with the IT sector, for which one actually “needs an education”). They further point out that the perverse incentive structure extended to our three major credit rating agencies, which, having been commissioned by the banks themselves, systematically bestowed upon the banks’ junk loans the same AAA ratings that they gave U.S. Treasury bills.

What the film does best is cohesively weave together this unfortunate maelstrom of events, illustrating the ties between borrowers, lenders, banks, and their investors in a cogent and clear fashion that is lacking in the media.  The filmmakers expose how these ties emphatically reveal a truth recently reiterated by the Financial Crisis Inquiry Commission’s Report, that the catastrophe was avoidable.  To be sure, Inside Job has some setbacks: the directors could have done a better job conveying the human affect of the bankers’ practices.  They could have also further developed some important themes that they mentioned briefly, like the rising cost of college tuition relative to the rate of inflation, which is functioning to preclude more and more middle class kids from college.  Nevertheless, in an hour and twenty minutes, Inside Job manages to be informative, entertaining, and important, and we at Talk to St. Ambrose would welcome any thoughts or comments about the film.