Crash course

It surely takes a lot to get actor Matt Damon to badmouth Barack Obama. But after watching the Oscar-winning documentary Inside Job, you can kind of see why he feels let down. Damon, who narrates Charles Ferguson’s examination of what caused the financial meltdown of 2007, was one of the most outspoken of Obama supporters. He now finds himself in a pissy, backpedaling mood: Promises were not kept. Things have not changed for the better. Hope is evaporating.

Inside Job is one of those documentaries that makes you feel that the game is rigged, the deal is fixed, the house is always gonna win, no matter what you bet. It’s a bummer, for sure, but also an eye opener.

The layperson might need a Wall Street Journal or Wikipedia propped open in front of the screen while watching this autopsy of the latest global recession, but stick through all the talk of derivatives, credit default swaps and collaterized debt obligations, and you might end up feeling that… well, things have got to change.

Change was what Obama promised, of course. He inherited a toxic death bomb economy that was helped along by the active negligence of the Bush administration, but Ferguson’s film takes the story way back, and no government — whether Democrat or Republican — has a squeaky-clean record in overseeing the US financial sector.

Unlike, say, Banksy’s entertaining “fakeumentary” Exit Through the Gift Shop, or Michael Moore’s impassioned agitprop, this one is just the facts, ma’am. But Ferguson has a way of making those facts resonate.

Revolving door: Henry Paulson served as US Treasury Secretary under George W. Bush, where he strongly pushed deregulation; previously he was CEO of Goldman Sachs; currently he’s a fellow at Johns Hopkins University’s School of Advanced International Studies (SAIS), probably promoting deregulation.

It begins with a look at lovely Iceland, population 320,000, which almost capsized under $100 billion of bank losses when the crapola hit the fan in 2008. It was a “stable democracy with a high standard of living, no debt and low unemployment,” intones Damon, until deregulation came to town. This allowed aluminum smelting plants to enter the country, exploit the natural resources, and of course inject steroids into the economy. At the same time, Iceland’s largest three banks were privatized, allowing an unprecedented free-flow of capital. But the orgy of lending and spending had dire consequences when the US financial sector nearly tanked in 2008. New York banks called in their debts, and Iceland was left with a short hand. It’s not the only country to nearly go bankrupt in recent times, but Inside Job makes you feel their pain.

Overall, tens of millions of people worldwide lost their jobs, their savings, and their homes because of the dealings of a handful of financial institutions. What caused such a thing?

It began with deregulation. Back in the ‘80s, when Ronald Reagan’s advisers envisioned a freer marketplace, even they didn’t really seem to believe that wealth would “trickle down” to the rest of the economy by lifting regulations and lowering taxes for the wealthy. But it was a strong sales pitch. Greed was deemed “good,” not just in the movies, but on Wall Street.

A policy of deregulation has been followed ever since, and Inside Job shows you how players from the Reagan, Bush and Clinton (and now the Obama) eras keep creeping back into power through a revolving door of appointments — from government to the private sector, to academia and back to the government in an ever-repeating merry-go-round. Often, the people who caused banks to crash end up in key government posts — and those who allowed too much lending and no overseeing to take place as a matter of policy, end up in academic jobs as deans of Ivy League business schools, training a new generation of reckless graduates and collecting fat checks on the side by writing pro-deregulation policy papers for places like… Iceland.

Thanks to deregulation, risky practices came to dominate in a business — banking — that used to be largely prudent, safe and sensible. Suddenly, subprime lending was promoted by government as a way for people with less-than-sterling credit to get home loans. Of course, the banks loved the idea because the Mortgages for Dummies applicants paid higher interest on their loans, which meant bigger bonuses for bank execs. Hundreds of thousands of such loans were bundled together, further disguising the risk. But guess what happened when the home interest rates shifted upwards, and the subprime people could no longer carry their monthly mortgage loads? Multiply this effect by a couple hundred thousand.

Then there’s the story of AIG, a global insurance provider that got into the credit default swap business — another toxic product of deregulation. Normally, investors could buy insurance to cover their investments in case they failed from AIG; but AIG also sold, to Goldman Sachs alone, some $22 billion in credit default swaps, which allowed the huge investment firm to bet against those other people’s investments — if somebody’s investment tanked, Goldman Sachs got paid. And guess what? Goldman Sachs also engineered many of those very same bad investments. “They started selling CDOs (collaterized debt obligations) specifically designed so the more their customers lost, the more money Goldman Sachs made,” Damon narrates.

“What do you think about selling securities that your own people see as crap? Does that bother you?” a senator asks Goldman Sachs CEO Lloyd Blankfein during the inevitable investigation. “Is there not a conflict when you sell something to somebody and then are determined to bet against that same security, and you don’t disclose that to the person you’re selling to? Do you see a problem?”

Of course there’s not a problem, in a system where no laws exist against doing just that! Blankfein doesn’t hesitate, doesn’t even blink: “In the context of market-making, that is not a conflict.”

If evil has an address on the planet, it’s Wall Street.

Operating expense: Wall Street madams are just part of the sleazy landscape of Inside Job.

The capper to the story is this: when AIG nearly collapsed, unable to pay the huge insurance losses on all those bad home loans, and American taxpayers had to foot the bill, Goldman Sachs demanded that it — and its CEOS and executives — be paid 100 cents on the dollar on its credit default swaps. And the rest of the insured could go frak themselves. It’s kind of like the captain and crew of the Titanic dressing up in women’s clothes so they can get their asses into lifeboats before everybody else.

Ferguson’s documentary doesn’t pound you with angry rhetoric, the way Michael Moore tends to. He just quietly, emphatically makes his points, and the rage comes as a natural consequence. He’s especially good at making financial leaders squirm, simply by asking them inconveniently pointed questions, then keeping the camera in place. There are awkward pauses, sometimes bitter outbursts (“Give it your best shot!” sputters Glenn Hubbard, dean of Columbia Business School, glaring at the camera. Ferguson quietly, effectively, does just that).

Another aspect of the tale is Wall Street’s jackal culture — a boy’s club that is freely serviced by local call girl services, conveniently located right in the financial sector; where cocaine and hookers are considered part of the “operating expenses” of traders and loose cannon bank executives. It kind of raises the question: Inside a jackal culture, would you really expect anyone to act any differently?

Inside Job leads us to conclude that it’s not so strange that such disasters befall the financial sector, thereby sending tsunamis of economic pain throughout the world. What’s strange is that it doesn’t happen more often.