Inside Job is an Inside Job: A Misleading View of the Economic Crisis

by Dave Stratman.
(first published byAxis of Logic)

Monday, Oct 25, 2010

Charles Ferguson’s new documentary about the current financial crisis, Inside Job, has gotten rave reviews from TIME, the Washington Post, and the Boston Globe among others. The Globe’s reviewer virtually guaranteed the film would lead to riots in the streets. As you can imagine, my expectations were high for this movie, if tinged a bit by cynicism about its Establishment reviewers. Unfortunately my cynicism was well-founded.

Inside Job is an entertaining but misleading view of the economic crisis. True, watching the Chair of Harvard's Economics Department and the Dean of Columbia Business School make fools of themselves on camera is worth the price of admission. But the documentary minimizes the extent of the looting of America and the world by the bankers, insurers, and their government enablers. It parades some very guilty and inviting targets across the screen but fails to look deeper into the forces behind the crisis. It obscures the role of the Federal Reserve. It presents some of the perps and other Establishment figures as reliable commentators. Finally the movie offers laughably inadequate solutions to the banking disaster.

Minimizes the extent of the looting: The movie discusses TARP--the $700 billion bank bailout engineered by Treasury Secretary Hank Paulson, fresh from his job as CEO of Goldman Sachs, and the $120 billion bailout of AIG, the world's largest insurance company. The entire AIG bailout, it so happens, went straight from AIG to Goldman Sachs, paying Goldman 100 cents on the dollar for bad investments it had made in AIG. While the obvious conflict of interest here and the fact that U.S. taxpayers have been left holding the bag for bankers' losses on unwise, often fraudulent, investments are surely causes for outrage, the amounts in these two instances are mere drops in the bucket compared with the heavy-duty bailouts undertaken in the following months. The combined Bush and Obama bailouts were estimated in July 2009 by Neil Barofsky, Special Inspector General of the Troubled Asset Relief Program, at $23.7 trillion dollars. (According to the NYT, 10/5/10, the Treasury now estimates the cost of the bailout at $29 trillion.) Inside Job's focus on the relatively piddling amounts--less than a measly trillion dollars, for Pete's sake--gives an entirely false picture of the extent of the damage that the bankers and government have wrought, the real effects of which will impoverish generations of Americans.

Hides the real forces at work: Inside Job gives the impression that the current economic disaster is the result of the unrestrained greed and egomania of a relative handful of executives and stockbrokers at the highest echelons of the banking industry, aided and abetted by Washington lobbyists and university economics professors, who will apparently justify any crime if paid generous consulting fees by the bankers. To its credit the film indicts both Republicans and Democrats. The disaster begins to unfold as the Reagan Administration promotes the deregulation of Wall Street and of corporate America. The Clinton Administration, which moved Robert Rubin from Goldman Sachs to Secretary of the Treasury, then repeals the Glass-Steagall Act, the Depression-era legislation meant to protect citizens from the rapacity of the banks. The George W. Bush Administration tops this by reducing the staff of the Securities and Exchange Commission, the institution meant to regulate Wall Street, to one.

Obama reveals himself in the film to be "Wall Street's man." Despite running on promises of reform, once in office Obama appointed Larry Summers, Tim Geithner, and reappointed Fed Chairman Ben Bernanke as his economics team. Larry Summers had led the Clinton Administration’s push to repeal Glass-Steagall. Summers was paid $20 million in consulting fees from the big banks in the years before he accepted Obama’s offer to head the Council of Economic Advisors. Tim Geithner was chair of the New York Federal Reserve Bank when Obama nominated him and was up to his neck in the reckless and fraudulent practices of the Wall Street banks. Geithner declared at his Secretary of the Treasury confirmation hearings that he does not believe in regulation. Ben Bernanke, who succeeded Alan Greenspan as chair, had already showed himself to be Wall Street’s man at the Fed.

The film effectively indicts some of the chief actors in the economic crisis and the pathological culture they represent, but fails to place the earth-shattering crash in the context of real existing class society. Encouraging banks to leverage their bets on Mortgage-Backed Securities (MBS) up to 30 to 1 and even 50 to one; refusing to regulate "innovative" banking practices that were often fraudulent and always intentionally opaque so that clients couldn't understand them; promoting fraudulent and predatory lending on an unimaginable scale; refusing to indict, prosecute, or even to discipline executives and firms guilty of egregious criminality; permitting firms to pay out billions of dollars in bonuses to their employees and hundreds of millions in salary to their CEOs even while the executives were bankrupting their companies (bankruptcies for which taxpayers were to be held liable): the consequences of these practices were foreseeable and their outcome predictable. They would result in a crash of monumental, unprecedented, global proportions.

And who would be made to pay for these crimes? Why, the working people of the world, of course. You and me.

The key point is not that the bankers got rich and the people got screwed. The question is, Why was this allowed to happen? Or rather, Why was it made to happen? This disaster did not happen overnight or by chance. It was engineered over decades of careful undermining of all the post-Depression regulations and legislation that protected people from just such catastrophes. None of the perpetrators of these monstrous crimes have gone to jail. How could the same bankers and bureaucrats who engineered this disaster, which supposedly threatened the very existence of the financial system, not be in prison but rather still be in charge? Because they did the job they were intended to do.

The banking collapse was a carefully planned strategic attack on the working people of this country and the world. It was designed to do exactly what it is doing here and in Europe: create a massive crisis to justify "austerity" for the masses. This is what Naomi Klein has styled "disaster capitalism" at its most perverse. The capitalist class--the bankers and corporations and the Super-Rich--planned and encouraged this collapse in a thousand different ways precisely to create a disaster so compelling that they could dismantle every social benefit that ordinary people have achieved in the last century and a half. Tens of thousands of people have lost their homes to the banks and thousands more will. Millions have lost their jobs and may never find work again; the real unemployment rate--that is, if you count people so discouraged that they have given up the job search, and those who can only find part-time work--is a Depression-level 22.5% Thousands of teachers and other government employees are being laid off and many more will be as the disaster unfolds. The voices that are already calling for gutting or cutting Social Security and Medicare will become a swelling chorus as soon as the mid-term elections are over. Throughout Europe governments are gutting the social programs that have been in place in some countries since WWII and in others since the 1880s. The rulers created this crisis to strip the working class of the protections it had gained and to reinforce raw elite power. The disaster is a strategy in the class war.

But weren’t these bailouts and the consequent austerity programs necessary? The answer is no. The gigantic bailouts were only necessary, explains John Hussman, President of Hussman Investment Trust, because Bernanke and Geithner and their backers in Congress chose to protect the bondholders of the “too big to fail” institutions rather than the public. The usual—and legally required—way of dealing with failed banks is to fire and replace their management, use their shareholders’ and bondholders’ capital to correct their balance sheet, and sell the bank's good debts to a solvent institution. This is the method used recently in the case of Washington Mutual, the largest bank failure in U.S. history, and hundreds of other cases. Neither depositors nor taxpayers lose a penny in this process. Hussman points out that the bonds backing the “TBTF” banks in question represent more than enough capital to restructure the bank balance sheets and discharge the toxic debt.

Obscures the role of the Federal Reserve in the disaster: The Federal Reserve Bank--the institution that controls our money supply and determines so much of our financial fate--is a private, profit-seeking institution owned by its twelve member banks. Most Americans are unaware of this fact. The Fed is not owned or controlled by the American people. Rather it owns and controls us. The Federal Reserve, backed up by Congress and the Bush and Obama administrations, has put us into a debt hole so deep we will never be able to climb out without impoverishing ourselves and our children. Inside Job never gives us this crucial bit of information: that the decisions of the Federal Reserve are the decisions of a private business looking out for the interests of the banking and corporate class it represents.

Presents some perps as positive players: The film offers Rep. Barney Frank, Chair of the House Financial Services Committee, as a voice of reason, when he is in fact one of the enablers of the bankers' crimes. Frank steered the TARP bill through the House. He is co-sponsor of the Frank-Dodd Financial Reform Bill, which provides a mere show of reform so that the games can continue. Former Fed Chair Paul Volker—who imposed 21% interest rates during the Carter regime to “zap labor”--and billionaire George Soros are part of the rogue's gallery of commentators offering words of wisdom in the film.

Offers laughably inadequate solutions: The film doesn't quite come out and say, "More regulation would solve the problems that created this crisis," but it doesn't offer anything more than regulation as the solution. Re-regulation is obviously inadequate:

  • Regulations--as we have just seen--can be repealed or left unenforced.
  • The criminals who dominate the industry and their allies in Congress and the White House are still in charge. How could one possibly believe that effective regulations could be imposed without first defeating these powerful forces?

If the film reported the real $24 trillion (now $29 trillion) extent of the bailouts and showed the "disaster capitalism" strategy behind the crisis, it would be perfectly clear that the problem can only be solved with a revolution. Since Inside Job minimizes the extent of the problem and diverts attention from the forces and purpose behind the disaster, of course it is not going to propose a revolutionary solution. But the fact of the matter is, if we are to have a promising future, the stranglehold of Wall Street and the Masters of Great Wealth on our society must be broken.


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