Movie Review

I'm a little busy this morning, so I'm going to have to make this quick, for which I apologize.

Inside Job

The thesis of this movie is that Wall Street caused the financial crisis by acting irresponsibly, and they were permitted to act irresponsibly by lack of regulation and by regulatory capture (my words, not theirs) which comes from the fact that they essentially dominate the economics profession and provide the government with most, if not all, of its financial authority figures.

In some areas, such as its excoriation of the behavior of the ratings agencies, the movie scores bullseyes. There are some problems with this hypothesis, however.

Problem One: Lehman's Repo 105 scheme wasn't even disclosed to its own board. "Wall Street" is not a monolith that does bad things: it encompasses giant firms where the left hand does not know what the right is doing, tiny hedge funds, and so on. Blaming "Wall Street" for things is not quite in the same category of error as blaming, say "The Mexicans" or "The Muslims", but it's close.

Problem Two: When it gets to the bankruptcy of Lehman, the movie appears to switch tracks abruptly. Up to this point we have been instructed to believe that Washington is run for the benefit of the biggest firms on Wall Street. Now we are instructed to believe that Washington is so eager to get rid of one of those firms that it can't be bothered to figure out the impact of European bankruptcy laws. Are Hank Paulson, Bernanke and Geithner evil pawns, or not?

Problem Three: Where's the role of monetary policy in all this? Lots of time is spent raking Greenspan and Bernanke over the coals, but there's not one word about the credit bubble they created. Lots of time is spent on the corruption of the economics profession, but not one word is spared for Paul Krugman and his now-infamous declaration that the Fed needed to create a housing bubble to replace the dotcom bubble. The Community Reinvestment Act is never mentioned. Liberal malfeasance (or stupidity) is not on the agenda in this movie.

Given all that, would I recommend you see it? Sure, why not. Ambush journalism (which is what the interviews here are) is fun. None of the big names agreed to be interviewed, but you can watch some Treasury and Fed spares squirm for your amusement.