Yesterday afternoon I went to see Inside Job at the Village East Cinema on 2nd Ave in NY. It's a haunting movie. It fills in a lot of missing pieces on the meltdown of 2008, vs what we were hearing on TV and NPR and reading in the news. Not that any of the journalists did anything wrong, they didn't. It's such a complicated story and the misdeeds are so enormous and on such a huge scale, that it takes some time and probably a few tellings for it to sink in.
At the same time I'm reading The Big Short by Michael Lewis, which is filling in the details about how the idea of CDO's and CDS's developed. What's amazing about it is that, according to Lewis, the people doing it were fully aware of how depraved and immoral it was. (It would be hard to see how they wouldn't be aware of it.) How they were deliberately creating bad products to sell to their customers, and then betting against them. The worse they were, the more money they made! And they were doing it on such a massive scale that the only way to clean it up would be with public money.
It's as if you are selling $100 notes for $1 and getting a 20 percent commission on each sale. The notes come due in two years, but you get your bonus at the end of this year. Who cares? You're selling off your own employer, knowing that when this process unravels, and it will unravel, they will die. That's not old-fashioned free market goodness, that's new-age cocaine-inspired depravity. (And yes they were doing coke.)
BTW, one thing I didn't understand about credit default swaps, which is simply insurance on a bond becoming worthless (simple enough idea), is that I could take out insurance on a bond I don't hold. It's as if you could take out insurance on my house. Hundreds of people could. And you can bet as much as you want! I might have built my house on a hill where it rains in winter. And the guy selling you the insurance didn't even look to see where the house was. Unbelievable as it may be, that's the story.
We tend to believe the free unregulated market is the best, and maybe it was when we were trading goats and wheat, and selling our own goods, not our neighbor's. But computer networks and creative lawyers and people with no pride, honor or empathy have made it possible to pervert that so that even if there were laws to protect us from them, there would be no one to enforce them. That's made totally clear by Inside Job.
I think of my former colleagues in Silicon Valley who are understandably proud of their Davos invitations. You guys should watch the movie before you go, and know that's who you are hanging out with. It's playing at the Bridge Theater, 3010 Geary Blvd, San Francisco. I think they should have a showing of the movie at Davos, it's so important. Might really change the discussion.
And the academics, well I'm proud to say that the only academic they interviewed with any integrity was Nouriel Roubini, from NYU. The others, from Columbia, Harvard and elsewhere, were on-camera saying some very awful things about their own ethics. Just awful. These people have a lot of explaining to do.
As do the members of Congress. The movie shows some of the most famous ones, of both parties, grilling execs from the banking industry after the meltdown, asking the right questions, and not accepting bullshit answers. You want to cheer for them, except now it's 2011, and they're in the pocket of the banking industry again, pushing more deregulation, gutting more investigations, putting the same foxes in charge of our hen house.
It looks very much like it's happening again, and we're in the dark. Hopefully there will be enough left of our economy after they rape it this time for Charles Ferguson and company to do another chilling expose like Inside Job. Or you all could watch it now, and let's figure out how to put a stop to this, before it's too late.
Krugman: "I think this film will stay with us; when you ask how the even worse crisis of, say, 2015 happened, the fact that these people got away with it will loom large."