“It’s All Relative”

By James Kwak

I finally saw Inside Job at a friend’s house tonight. I don’t have anything original to say about it. I thought it was a very, very good movie. There were lots of little things that weren’t quite right (many of which were probably conscious decisions to simplify details for the sake of comprehension), but I don’t think any of them were substantively misleading. I wouldn’t have made some emphases or drawn some connections that Ferguson did. For example, the parallel between the rise of finance and the decline of manufacturing at the end felt a little shallow to me, not because they’re not related, but because the causality could run down any number of paths. But everyone would tell the story a little differently. Overall I thought it was both a relatively accurate narrative of what happened and a compelling explanation of why it happened.

My favorite scene was when the interviewer (Ferguson, I assume) asked Scott Talbott, the chief lobbyist for the Financial Services Roundtable, about the “very high” compensation in the financial sector. Talbott said something like (I may not have the words quite right), “I wouldn’t agree with ‘very high.’ It’s all relative.”

47 responses to ““It’s All Relative”

  1. I think Talbott was just being frank. We are clan creatures by nature and, for most of us, our values and motives are derived therein. If one is born among the wealthy, attends the schools of the wealthy, and works among the wealthy, then one’s income is naturally measured by that standard. For him, it IS relative. That doesn’t make huge income disparities right in the big picture, but we don’t need to judge individuals just because they are at the top of the food chain. In the end, that is small-minded, and an indulgence on our part. Just fix the system.

  2. With the financial malfeasance comes a complete enabling ideology.

    Over the past 30 years Republicans have created and nurtured a broad set of completely false story-lines to defend and justify a distorted set of policies to favor the super-rich. All of the following are factually untrue:
    1. Reducing upper-bracket tax rates increases tax receipts
    2. Reducing upper-bracket tax rates promotes innovation
    3. Reducing upper-bracket tax rates promotes job creation
    4. Reducing Federal spending promotes job growth
    5. Raising the minimum wage costs jobs
    —etc., etc., etc. (long list in production)
    [Lest I forget: Reducing upper-income tax brackets cures cancer!]

    You can get these fictions from Murdoch at Faux News or WSJ at any moment you like. And they’re all demonstrable lies. Only an ignorant and/or distracted public could possibly accept this stuff for 30 years.

  3. It was extremely misleading the way he gave Barney (“roll the dice on subprime lending”) Frank a hall pass. Clearly Frank was a major source – so how can you not go after him about his support, when clearly “gotcha” journalism is such a significant part of the movie?

    And if you are going to go after the sex lives of bankers, how can you ignore Frank’s love affair with a senior executive of Fannie? Conflict of interest anyone?

    Additionally, the way Ferguson conflates the disappearnance of the middle class with Wall Street shenanigans is pathetic. No apologies for Wall Street, but what next – they caused ring around the collar too?

  4. @mollyrose: “we don’t need to judge individuals just because they are at the top of the food chain. In the end, that is small-minded, and an indulgence on our part. Just fix the system.”

    In a competition for small-mindedness, I don’t think the folks at the bottom of the food chain would win.

    Mollyrose, you say “Just fix the system” as if those with their hands on all the levers of power were not at the top of the food chain. They HAVE fixed the system, in their own interest, and they have no conceivable incentive to fix it again in a way that would benefit the country as a whole.

    Poor and working class people (80 percent of the population at least) are dismissed, denigrated and condescended to every minute of every day by our policies, our politicians, our media and ourselves.

    This is so routine that we tend to accept it as normal. I think the complacency with which so many people regard these attitudes harbors a true epidemic of small-mindedness.

    So my question is, given the power structure now in place, how does the majority of the population enlarge our minds, attitudes and actions in an organized way to fix the system?

  5. Carla, I think you missed my point. You are making several unfounded assumptions about what I was saying. Bloated incomes are a RESULT of what is wrong but they are not the cause — Focussing on big bonuses is outrage-porn, an outlet for our impotent rage. A distraction. Let’s go for action.

    How indeed. That is the issue. I think revolution begins when people talk to each other in the street, in elevators, in checkout lines. Strangers. They say it was like that in Russia when the USSR dissolved. First we find consensus, then we move in unity. That is our only ace in this game.

  6. Herbert Wetherby

    That is our only ace in this game.

    Oh good, that leaves four aces to play the rest of the game. Enjoy : > )

  7. Stephen E. Shaw

    Back to favorite scenes: Nouriel Roubini is asked why no criminal investigation has been launched, to which he responds, completely deadpan: “Because they would find the culprits.”

  8. I agree that the simplification was needed for the movie. But a couple of hours is not going to sum up the complexity of the financial system.

    However it does seem that the film was driven by populist sentiment at the time, rather than actually dealing with the crux of the causes of GFC.

  9. Steve in a Flyover Red State

    You don’t think decisions on Wall Street have much to do with the export of our manufacturing economy?

    I don’t know whether to laugh, or throw up.

    I’ve been on the tip of that spear. The Banksters have everything to do with it.

    -In the eighties, buying “undervalued, badly managed” companies, then “improving their performance”, usually by screwing the employees out of pay raises, benefits, pensions, increased copays for insurance, etc.

    -Or the inverse, company management borrowing money to make themselves a less attrative takeover target; see above for how all of this was financed.

    -Or the “private equity buy out schemes” taking a company private, screwing the employees, gutting the R&D budgets, gut the maintenance/capital improvement budget, pump the numbers for a few quarters, then make bank on an IPO.

    -Or, my favorite, strip cash/assets from the company, sell them, pocket the cash, borrow money out the azz, pocket this money also, then file Chapter 11.

    We are continuing the same. Companies that manufacture in the US are seen as losers on Wall Street, because they could make more money if they outsourced. Aerospace jobs being exported to China and Mexico, because that $15 buck an hour employee in Kansas building wire harnesses for their corporate jets “costs too much”

    A thousand jobs here, a thousand jobs there, and pretty soon, you don’t have an economy (or a tax base)anymore. But this is not happening on Wall Street or inside the Beltway, so it doesn’t mean squat.

    One thing I’ve noticed. These jobs go overseas, and labor costs are cut 90%, but the price anyone pays for the product is never cut 90%.

  10. The entire thing was limited hangout; that was its purpose. Ferguson is a darling of the CoFR, and if iirc, also a card-carrying member. You want to drill in a bit more and find the culprits? Head for Oxbridge/LSE/Max Planck / SFI and talk to the whiz kids they sent over with the fancy math to teach our mobsters how to *really* make some easy money. Then ask why. Again, the mechanics of the thing were simple: Give people enough rope and they will hang themselves. Ask why they did this.

  11. I was pondering why make a movie at all. Who does it reach? The reality is most voters don’t read very much but they love to go to the movies or watch TV/ shout jourmalism. So this movie will not enlighten anyone who has already read gobs of articles and books on the recent decline of the American empire. It won’t be seen in the theaters by the other crowd. It will only have an impact if it makes it to the History channel in time for the next election. By then the owners of the History channel may just confine themselves to the “Origins of the Bible Stories” and other related chaff.

  12. The movie failed to mention anything about 1998 fiasco of LTCM which clearly showed how dangerous derivatives can be.
    On the other hand, it rightly took economists to task — something not commonly done.

  13. I think it’s a PR vehicle for Ferguson himself, to give him extra cred for future projects or other activities.

  14. “Talbott said something like (I may not have the words quite right), “I wouldn’t agree with ‘very high.’ It’s all relative.”

    Which, in the context necessary to make this evaluation relative, makes no sense whatsoever. With no thinking like that, we can see why these people need to be put on a very short leash.

  15. I also saw the “Inside Job” the film about “The Global economic crisis of 2008 cost ten millions of people their savings, their jobs, and their home. This is how it happened”. The movie is promoted as “Scarier than anything Wes Craven and John Carpenter have ever made”

    It was the Basel Committee that came up with that crazy idea of having the banks double count for the credit rating agencies’ opinions; first, naturally, when setting their interest rates and then, artificially, having their capital requirements based on these same ratings. This sent the banks in crazy pursuit of the triple-As for which they were allowed 62.5 to 1 leverages, which caused this crisis, while simultaneously keeping the banks from lending to small businesses and entrepreneurs, and for which banks were limited to a 12.5 to 1 leverage.

    Inside Job covers in a good and expensive production almost all under the sun, like money laundering by Riggs bank for Pinochet, academicians writing papers without disclosing that they have been paid to do so, the role of prostitutes and cocaine in finance, as well as most of the other actors we have seen related to this crisis over the last couple of years. The movie though does not mention, not even once, the Basel Committee and it brethren the Financial Stability Board; just like the recent over 2.000 pages of financial reform approved by the US Congress does not mention them either.

    Since the Basel Committee and the Financial Stability Board are now preparing Basel III, that is indeed as scary as it gets!

    Mary and Richard Corliss of the Time opine “If you´re not ENRAGED by the end of the movie, you weren´t paying attention”. I paid attention and I was enraged at the movie. This is not a documentary this is a propaganda movie for an agenda, which probably also explains why it received an Oscar.

  16. Thank you Per K. You enlighten us once again. We are not just in trouble, we are in BIG trouble.

    I bookmarked your blogspot and will be following it.

    Please tell me, do you think China is a wild card in how things will play out, or does the Basel Committee have the upper hand?

  17. “An Inside Job”, what today isn’t? I have yet to see the film, but look forward to viewing.

    A recent example of insiders controlling everything, including the body politic by corporate honchos, is Obama’s appointment of Jeff Immelt to the Council on Jobs and Competition. This is like making a summer camp counselor out of the B*itch of Buchenwald, as absurd as it gets.

    Anyway, my hero Ralph Nader wrote an open letter to the POTUS yesterday, pushing for Liz Warren, as so many on this forum have done. Imagine what a populist boost Obama would receive from whole-heartedly backing this outstanding person? It’s dumb politics not to, and Ralph is trying to clue in the puppet Obama, here:

    http://www.commondreams.org/view/2011/04/02

  18. “It was extremely misleading the way he gave Barney (“roll the dice on subprime lending”) Frank a hall pass. Clearly Frank was a major source – so how can you not go after him about his support, when clearly “gotcha” journalism is such a significant part of the movie?” –Steve–

    I need someone to explain to me how a Congressman in the minority party in Congress with a President in the opposite party has the ability to be a “major source” or even a minor source?

    Exactly what power did Frank have before January of 2007? Y’know, when Elvis had already left the building?

  19. Thanks to Yves Smith of Naked Capitalism for promoting the fact that the film may be seen online for free. I added the details to a recent post on Learning from Dogs about the film. Details here http://learningfromdogs.com/2011/03/30/inside-job/

  20. @mollyrose “Please tell me, do you think China is a wild card in how things will play out, or does the Basel Committee have the upper hand?”

    China does not follow the Basel Committee and anyhow, if they did, they would not be in bigger Basel problems, for the simple reason that there is an enormous lack of AAA ratings there.

    The problem of the developed submerging world is that they suddenly believe they can go into a low-risk mode and still function… and there is nothing as risky as trying to avoid risks excessively, since even the safest haven can become extremely dangerous when overcrowded.

  21. Mr. Kurowski,

    Exactly.

    There is also a direct cause of the financial crisis embedded in your “overcrowding” comment.

    It was not subprime that caused the crisis, it was subprime masquerading as prime that cuased the crisis.

    There is nothing wrong, and a awful lot right with subprime financing, as long as it is priced and leveraged as subprime.

    The investment banks with the collusion of the ratings companies perpetrated the masquerade.

  22. @EMichael “There is nothing wrong, and an awful lot right with subprime financing, as long as it is priced and leveraged as subprime.”

    Absolutely! But what happened was that the regulatory incentives for banks when there was AAA rating present, were so extremely high that they went crazy looking for AAAs, and the market, being a market, when it could not locate authentic AAAs in sufficient quantities (a contradiction in terms) supplied Potemkin AAA-ratings instead.

  23. Yep.

    And even now we have people blaming poor people of color and gay politicans.

    One day some bright boy will evntually get to the bottom of all the houses bought during the housing boom and discover that the majority of them were investment properties sold to wealthy white guys.

    Last numbers I saw had more than 40% of those houses being second and investment homes. And there are continuing changes to those numbers as we discover many owner occupied propeties were no such thing, but fraudulently registered as such to obtain lower rates and terms.

  24. @EMichael “that the majority of them were investment properties sold to wealthy white guys”

    The real driver of what produced the badly awarded mortgages to the subprime sector though, was intermediation profits… for the brokers and for the packagers of securities backed with mortgages packagers.

    Here is the deal! If you convince risky Joe to take a $300.000 mortgage at 11 percent for 30 years and then, with a little help from the credit rating agencies, can resell that same mortgage in a securitized version to risk-adverse Fred for $510.000, which will yield him an expected return of six percent, then you pocket a tidy profit of $210.000.

    And of course, banker George, when seeing that an “expected return of six percent” could be leveraged 62.5 to 1 times because the regulators allowed it… also went gaga!!!

  25. Yep.

    But the key is finding an investor. And most of them are limited to AAA securities, or a huge percentage of their portfolios are limited to AAAs. So the key is to make that garbage into gold(at least for a little while). So it was a lot more than a “little help” from the rating agencies.

    Personally, I never thought the US could go after the banks for fraud. It would result, at best, it the collapse of the banking system.

    But I did hope they would go after the rating agencies, as it would be easier to prove; not have the negative effects as prosecuting the banks; and shut off that necessary ingredient for the future(hopefully).

    Instead, we got nothing.

  26. If so, you should really go after the intellectually responsible for this crisis… the regulators… but they still regulate… or the PhDs who should have spoken out about how crazy Basel II was… but they are tenured and still teaching.

  27. EMichael – Frank was a major source for the movie – multiple interview scenes were included. How could you not bring up his role (or “roll) in Fannie/Freddie when they are an integral part of the movie, and his lover at the time the crap was going down was a senior exec at Fannie? Just shows how Ferguson chose to ignore any aspects of the story that did not fit his story line.

  28. Steve,

    I am talking about the financial crisis. Frank’s love interests are of no concern to me in light of the fact that Fannie had very little to do with the crisis and Frank had no power to impact anything Fannie might have done even if he had wanted.

  29. BTW,

    I am not intersted in bankers doing cocaine or playing around with prostitutes either.

    Just filler to me.

  30. No but the toes of those who are after the banksters, curl in pleasure when they hear things like that. I guess that is much more rewarding for them that going through some boring regulations.

  31. A really well done documentary. It’s pretty amazing how well Ferguson distilled the various threads into a coherent narrative.

    The bonus materials are also worth watching (e.g. snippets of interviews — including one from Baseline Scenario’s Simon Johnson). One of the factoids that I picked up from the the cutting room floor snippets was that the top financial regulator in Singapore earns over $1 million a year. Kind of puts part of the dilemma that we have in the U.S. into perspective.

  32. Herbert Wetherby

    @ Steve in a Flyover Red State

    One thing I’ve noticed. These jobs go overseas, and labor costs are cut 90%, but the price anyone pays for the product is never cut 90%.

    That really is a fable, one picked up probably from following gvt stats too closely.

  33. Bruce E. Woych

    WOOP:
    Thanks for the tip on the alternate site:

    http://www.commondreams.org/?nocache=1

    Time to move on; … the crony corporatists are infesting this stream.

  34. Bruce, great website!

  35. @Paul Handover: I followed the links, but it took me to a site which provides the trailer and refers people to Amazon for the DVD. Am I missing something?

  36. @Uncle Billy: I think Inside Job is no longer available to view for free now that the DVD is for sale at Amazon (well worth the purchase, BTW).

    But at the same site I found “The Money Fix,” which you can watch for free: http://topdocumentaryfilms.com/money-fix/

    Also, there’s another site with some good free docs: http://www.freedocumentaries.org.

  37. @ Carla

    Yep…a “motion pic`ture” is worth a zillion words made-up’ in La-La-Land, worthy of a spinning top, embossed only with, “If’s, And’s, an But’s”,…with no answers!

    Noteworthy: Chris Dodd is now formally the CEO of the Motion Picture Industry…isn’t that special?

  38. Herbert Wetherby

    Now just like you said awhiLE back Earle, a peson is still just a person. When a vaccum is created, there is always the possibility that it will be filled. (outer orbit type syndrome) Even if its not your vaccum.

  39. @Uncle Billy

    You’re right – my link now defunct. Agree with Carla, well worth watching.

    Carla, thanks for those links!

  40. First, the movie was indeed good, but nothing new really. Glad to see that subject matter was packaged for the masses though :-)

    Without a doubt, the star of the show was MISHKIN!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    What a hoot that guy was!!!! I had several friends overs to watch the movie and we all agreed that Mishkin has to either be a total genius or a complete idiot :-) I’m leaning toward idiot, LOL

  41. @ Carla But at the same site I found “The Money Fix,” which you can watch for free: http://topdocumentaryfilms.com/money-fix/

    We watched the film last night! What a find and big thanks for mentioning it. Still musing over the implications!

  42. @ HW
    “even if its not your vacuum”

    “the universe is a vacuum;
    the solar system we call our neighbors are in a vacuum;
    is not the planet earth in a vacuum as such…
    as our primordial instincts unknowingly dictate;
    that said, in a fixed precarious way;
    awash in a definitive pressure cooker;
    that whimsical sucking sound we hear is the gravity of discourse which creates a dynamic flow, filling the void;
    but it is the charlatans’ matter nearest the void that illuminates the ideal”

  43. Bruce E. Woych

    @Carla:

    Your on-line educational documentary links are fabulous!

    Thank You Carla:

    http://www.thinkprogress.org/
    You might check this site as well for more political economic issues…up to date and relevant!

    http://www.thinkprogress.org/

    It seems unfortunate that “Baeline” is “just” catching up to Inside Job; and equally so that it is a fairly weak movie “review” (favorite part…really!)
    offered in this late hour of recognition. No insights or deeper elaborations in that quest for truth!

    It is alwo disturbing that Richard Posner called a candidate for the Supreme Court a “bitch” recently (an interweaving “legal” issue ito our real politik in the domestic capture and takeover of America…and our newly trained James Kwak did not feel compelled to comment or even bring it to his readers’ attention.

    All in all, the problems are growing deeper and greater and the people who thrive on the establishment are content to ratify the “stall” while they sit back and enjoy their “…favorite parts” at the movies…
    POPCORN anyone?

    Go to:
    http://www.thinkprogress.org/

  44. Bruce E. Woych

    sorry: too late to correct that “Posner on the brain” mistake in the reference to “bitch” statement:
    see:
    http://thinkprogress.org/2011/04/05/david-prosser-bitch-not-all-my-fault/

    “…Justice David Prosser, a close Republican ally of Gov. Scott Walker (R). Prosser has been embroiled in scandal in recent weeks after emails revealed that he called Chief Justice Shirley Abrahamson a “bitch” and threatened to “destroy” her. Prosser has since apologized for his outburst at Abrahamson — the first woman to sit on Wisconsin’s Supreme Court”

    (Unforgivable fatigue mistake…but the circumstances in regard to adequate coverage of our “baseline” aren’t altered. Too little too late and not on the mark!)

  45. @ Per:

    Were the spreads that big?

    @ EMichael

    IIRC, the proportion on investor loans was about 25% in the second half of 2003 (after refi-mania was over), and reached 40% by late 2005. I wouldn’t necessarily say it was rich white guys, although that was part. It was frequently “investors” (breathing people) who got paid most (all) of their expected profit up front buying low cap rate property on which they quickly defaulted. The aggregators who funded these loans were the first to go down in the fall of 2006.

  46. @MinnltMan “Were the spreads that big?”

    Take a small spread and it they allow you to leverage it a lot, like 62.5 to 1 then just one half of a percent spread, results in over 30% return on equity!!!