“Oh boy, oh boy, oh boy! Matt Damon wants to interview me. ME! He'll autograph one of his pictures, and (blush) he'll probably want one of my own. After all, he's reached the top of his field and I've reached the top of mine.”
But wait! Matt Damon is interviewer for a movie called Inside Job. About root causes of the 2008 financial collapse! Aren't you worried he may ask embarrassing questions?
“Nah! He's just a dumb actor. What does he know? I'll razzle-dazzle him. He may be good at pretending to be a successful person, but I'm the real thing! He'll be thrilled to meet me. Not a problem. I'll generously grant him a few minutes of my time.”
But it turns out that Mr. Damon's not so dumb after all. Plus he's a quick study. Plus he's been coached by the best. It's just my guess, but I think the filmmaker used him as bait, to lure in unsuspecting hotshots. You never see his face, you only hear his voice.
And if Glenn Hubbard [chief economic adviser to the Bush administration, and Dean of Columbia Business School] fell for the Damon bait, I've no doubt he's lived to regret it! “This is not a deposition, sir,” the cornered Hubbard huffs, getting hot under Damon's unrelenting questions. “I was polite enough to give you time, foolishly, I now see. But you have three more minutes. Give it your best shot!”
I knew he was toast the moment he said it! If only I could have warned him! Words like that don't work. I know, because years ago I used those exact same words on Mrs. Harley when she was ragging on about some shortcomings she imagined I had. It's amazing what a woman can do in three minutes!
But Mr. Hubbard is not the film's villain. Not by any stretch. He has a role, but it's only a tiny one. He's in a cozy “you scratch my back, I'll scratch yours” society, that's all, which nets him a good chunk of change. ($100,000 to testify in defense of a couple of hedge fund managers, who were nonetheless convicted of fraud) But that's very small potatoes compared to the massive misdoings that Inside Job lays bare. All the really big fish were smart enough to lay low…they weren't taken in by any 'oh boy!….let’s talk to Matt Damon!' ploy. They have enough dough to buy and sell a hundred Matt Damons.
With patient clarity, Inside Job lays out what led up to financial disaster in 2008. “This crisis was not an accident,” the film asserts. “It was caused by an out-of-control industry. Since the 1980s, the rise of the U.S. financial sector has led to a series of increasingly severe financial crises. Each crisis has caused more damage, while the industry has made more and more money.”
Back in the day, the film explains, if you wanted to buy a house, you approached a bank for a loan. That's what I did. And then for the next 'what seemed a lifetime' you'd pay off your mortgage. The bank was careful loaning you money, because it was their money. They wouldn't loan it if they thought you might not pay it back. Isn't that simple? It had been that way forever.
But starting in the 1980's investment banks went public, raising millions from the stock market, and came up with new ideas to make money. Since Americans had never defaulted on their mortgages….I mean, who wants to lose their home?…even in times of crisis, it was the absolute last expense one would renege on……why not buy those mortgages from whoever wrote them, then sell them to investors in the stock market, reaping a fat commission on the way? Of course, no investor's going to buy a single mortgage, but if you bundled them up several thousand at a time, then it became something people would invest in! Brilliant! Profitable! A win-win! Well…..maybe not that last adjective. Does anyone see the flaw?
See, the mortgage writer held that mortgage for only a short time. He sold it to an investment bank straight away, who also held it only a short time. The bank put it on the stock market for individual investors to purchase. So, in time, it occurred to these two middlemen that they needn't worry too much about whether the mortgage could be repaid, so long as they could stick it to some investor further down the line, who was removed from the original translation and might just assume it was sound investment! Especially if outside authorities….call them rating agencies….like Moody's, Fitch, and S&P….assured them that those investments were absolutely rock-solid. Rating agencies did just that! After all, they drew their fees from those very same investment banks bundling the mortgages, and money blinds people. If they ever came to have misgivings as the mortgage quality deteriorated, they chose to look the other way. Such investments enjoyed the highest ratings right up until they crashed.
And crash they did. Enticed by fat commissions, and over the span of two decades, it became easier and easier to get a mortgage. People could do it with limited income, sometimes even with no income, since it got so that oftentimes nobody bothered to check if the applicant was creditworthy or not. Home prices began rising so quickly that people would buy one, even if they couldn't quite afford it, with the notion that they could flip it for a big profit in just a few months!
Here's Alan Sloan, senior editor of Fortune Magazine, interviewed by Inside Job:
“A friend of mine, who, who's involved in a company that has a big financial presence, said: Well, it's about time you learned about subprime mortgages. So he set up a session with his trading desk and me; and, and a techie, who, who did all this – gets very excited; runs to his computer; pulls up, in about three seconds, this Goldman Sachs issue of securities. It was a complete disaster. Borrowers had borrowed, on average, 99.3 percent of the price of the house. Which means they have no money in the house. If anything goes wrong, they're gonna walk away from the mortgage. This is not a loan you'd really make, right? You've gotta be crazy. But somehow, you took 8,000 of these loans; and by the time the guys were done at Goldman Sachs and the rating agencies, two-thirds of the loans were rated AAA, which meant they were rated as safe as government securities. It's, it's utterly mad.”
They were called CDOs, “collateralized debt obligations.”
Didn't I write here back in 2008 about a couple of “douchebags” (not my word) who made a fortune writing “toxic” mortgages like this? Eventually, word got out that, contrary to the theorists, that people were defaulting in droves, and the entire market crashed.
But there's more. By 2006, the big investment banks realized the CDOs they sold were risky and might fail, so they began buying insurance, called credit default swaps, (CDS) from AIG Insurance, so that they would reap a profit if the CDO's really did go bust. Obviously, they stopped selling those toxic CDOs, right? Nope. All the while they continued to market CDOs as a high-quality investment! Meanwhile, they continued to buy CDSs till it dawned on them that AIG itself might go bust (which did happen). So they insured against even that! Is it any wonder I launched my ill-fated service presentation about “big-time bankers?”
But wait! Could all this possibly happen under the watchful eye of regulators? Again and again, Inside Job reveals how regulators saw all this developing….and did nothing. One such regulator, a former Fed banker, is convulsed with the worse case of the stammers I've ever seen trying to explain his role to Matt Damon:
“So, uh, again, I, I don't know the details, in terms of, of, uh, of, um – uh, in fact, I, I just don't – I, I – eh, eh, whatever information he provide, I'm not sure exactly, I, eh, uh – it's, it's actually, to be honest with you, I can't remember the, the, this kind of discussion. But certainly, uh, there, there were issues that were, uh, uh, coming up.”
There's not just bad guys in the film. There's good guys too. And one of the good guys is someone we've long thought was a bad guy, after initially thinking him a good one! Elliot Spitzer!
I have a whole blog category about him, which I was about to phase out, until this movie hit the screens. He was New York's governor for a short time, the state's potential saviour (and does it ever need one!). Almost single-handedly, as New York's attorney general, he took on these defrauders himself. He had to do it almost single-handedly, because nobody else would co-operate. Says he in the film: “The regulators didn't do their job. They, they had the power to do every case that I made when I was state attorney general. They just didn't want to.” It arguably was not even Spitzer's business, or at least not his mainline business, for Wall Street dealings came first under the scrutiny of the Securities and Exchange commission. (SEC) But they so glaringly neglected the job, that Elliot Spitzer stepped in.
“There is a sensibility that you don't use people's – uh, personal vices in the context of Wall Street cases, necessarily, to get them to flip. I think maybe it's, after the cataclysms that we've been through, maybe people will reevaluate that. I'm, I'm not the one to pass judgment on that right now.”
There's also Kristin Davis,
who ran a prostitution ring from her high rise apartment. She details the “personal vices” of her thousands of Wall St clients, so that we see Mr. Spitzer's carrying on was by no means unusual for the culture he was operating in. But he was the “good guy,” and I suppose you do expect the good guys to be good. Ms. Davis also emerges as a good guy, since she spills the beans on the colossal debauchery of the Street.
The top investment bank execs all steered clear of Matt Damon, correctly smelling a rat, but they couldn't really avoid Congress. The film provides footage of these big-time bankers being grilled by various legislators. Watch em squirm! It's lots of fun. But don't kid yourself. They only squirm to a point. And a little squirming can be endured if you're nonetheless walking off with a personal profit of millions, even billions of dollars.
Another aspect of them film which has a curious effect: Whenever you see a picture of some people and one of them is the United States President, and the camera begins to zoom in, you know it's going to zoom in on the President, until presently the other nobodies fall of the frame. Inside Job zooms in on the other guys, all high-powered banking types who, the inference is clear, are really running the show. Here is footage of Ronald Reagan and his Treasury Secretary, former Morgan Stanley CEO Donald Regan, and it is Regan who is the focus. There is Bill Clinton side by side with his Secretary Treasurer, then Goldman Sachs CEO Robert Rubin, and it is Rubin who takes the spotlight. Ditto for George W Bush and later Goldman Sachs CEO Henry Paulson; the same for Barack Obama and Tim Geithner, former President of the New York Federal Reserve branch. Who isn't reminded of Amschel Rothschild's words almost two centuries ago: "Let me issue and control a nation's money and I care not who makes its laws." Democrats in power? Republicans? Doesn't matter. “It's a Wall Street government,” says Robert Gnaizda, former director of the Greenlining Institute, with no reform in sight.
Does the movie really end with a call to arms?
“They [the investment bankers] will tell us that we need them, and that what they do is too complicated for us to understand. They will tell us it won't happen again. They will spend billions fighting reform. It won't be easy. But some things are worth fighting for,” the film concludes.