‘Inside Job’ Director: ‘Obama Blew it’

This article originally appeared on Death and Taxes October 1, 2010:
On September 15th 2008, one of the most venerable and storied financial institutions in the world, Lehman Brothers, declared bankruptcy. Charles Ferguson smelled a rat.

'Inside Job' Director: 'Obama Blew it'

Like he had done with “No End in Sight,” his 2007 film about the failed U.S. war effort in Iraq, Ferguson set out, in his clear and unblinking manner, to document what actually caused the monumental financial collapse.

As was the case in Iraq, not everything was at it seemed during the financial crisis. Ferguson spoke to me about “Inside Job“, and what he thinks is in store for America, and New York City.

At what moment did you realize the financial crisis would be the subject of your next documentary?
I began following this in 2007 because two of the people who are in the film, Nouriel Roubini and Charles Morris, I have known for a very long time. They were among the earliest people to warn this was coming, and they began speaking with me about it in 2007.

I was becoming gradually sensitized to the issue and there was a day when I decided I had to make a movie about this. And it was the day after Lehman weekend — which was really Lehman, Merrill Lynch, AIG weekend — when those three firms simultaneously collapsed. We found ourselves staring into the abyss, when serious people were really thinking, Are we going to be able to get money out of our checking account next week?

“Inside Job” features footage of the Goldman Sachs congressional testimony in April. CEO Lloyd Blankfein is questioned as to whether or not his firm behaved improperly during. He replies, “In the context of market-making, no.” Can market-making be squared with morality?
Market-making can be, but what was deeply deceptive about his answer was Goldman weren’t just making markets. When you make a market, when you’re doing it properly, you create an arena where buyers and sellers can come together and transact on fair terms. That’s not what they were doing.

Goldman was taking one side of a transaction that they were themselves creating and structuring so that it would cause the other side of the transaction to fail. Then they could profit from their side of the transaction. That is not market-making. They were claiming that it was because they wanted to pull the wool over the public’s eyes, and more importantly, wanted to avoid criminal prosecution.

If it’s not market-making, then what is it?
Fraud. In principle it is legal to create a security with the intention of betting against it and then to sell it to other people. In principle it is legal to do that. As a practical matter it is very difficult to do on a large scale over a long period of time without committing fraud because if you tell people the truth you’re not going to do very much business.

If you’re going to do this on a large scale, with tens of billions of dollars worth of securities, which is what was done, and you’re going to make enormous amounts of money from it, I think it is overwhelmingly likely if you were to investigate, you would find criminal fraud. That’s why I find it shocking, and the film makes the point that there haven’t been any criminal prosecutions.

Are finance guys corrupted by the institutions they work in, or were they already corrupt when they got there?
It’s a combination of both. As finance has changed over the last thirty years in the way that it has, it’s begun attracting less ethical, more ambitious, greedier people. I think the experience of working in that environment for a long period of time has a corroding effect. Everyone around you is doing it, you’re pressured to do it, you’re incented to do it, so pretty soon you start doing it. And then you start finding rationalizations for it.

“Inside Job” doesn’t paint a pretty picture of post-crisis America. Will things change?
I am optimistic that the American people are going to respond to this. It’s going to be slower and more gradual than certainly I would like. I think we had an opportunity when President Obama was elected, and he had an opportunity and a mandate, in fact, to really do something transformative about this, and he blew it. And that’s a huge tragedy for this country.

He really did have an opportunity at a historically important moment and he had the power to do it, I think. Now that he has chosen not to, it’s going to have to be a much more gradual process of the American people becoming more informed and angry and activist and eventually forcing their leaders to act.

Is that what the Tea Party is?
So far I would not say so. So far I don’t think they are a very productive reaction. There are many people in the United States, including quite influential people, who are very disturbed at all of this. But what they aren’t yet is organized. To some extent that’s because the general population is not yet well informed, which is part of the reason why I made the film. I think there is a widespread feeling in the country that something happened that hasn’t been corrected and justice has not been done.

What’s your perspective on Obama?
He had an opportunity to behave very differently. It’s extremely disappointing that he didn’t. The American people elected him in significant measure because they really hoped he would do some of the things that he, in fact, promised to do during his campaign. He said things that made a lot of people, including me, very hopeful. But it turned out to be more of the same. Why? I don’t really know, but I’ve been told a number of things that seem plausible.

Like what?
One is that he had very little experience with these issues when he was elected. Very little training in economics or finance, never held a private sector job. He never had a significant personal fortune so he knew what management of assets was like. He hadn’t had much contact with the financial world. He comes into office in this huge crisis, and I am sure people told him that he needed to appoint people that Wall Street could deal with and respected because otherwise the markets would fall further, and we’d have an even worse crisis.

Some people have also said he just made a cold-blooded political calculation. If so, he made a mistake. I don’t think it was in his long-term political interest to behave this way. It’s going to show in the mid-term elections and I think it is going to show even more strikingly when he tries to run for reelection.

“Inside Job” opens Friday, October 8th in New York City.