If you decide not to take my advice and watch the movie, The Inside Job, here is the primary takeaway I want you to understand:
The financial services industry is not in business for your benefit, but instead, its own.
You may recall that I reviewed Michael Lewis’s book, The Big Short, in January of 2011. That book was an insider’s view of the financial collapse. It tells the story of the collapse in lurid (and often vulgar) detail from the inside out. The Inside Job (ironically) is actually a retelling of the financial collapse narrative from an outsider’s perspective, with the benefit of hindsight and complete with a catchy soundtrack and the cool-factor of Matt Damon as its narrator. It begins with the following quote: “The global economic crisis of 2008 cost tens of millions of people their savings, their jobs, and their homes. This is how it happened."
And if it stuck merely to “how it happened,” I could’ve given it the highest marks possible. But instead the writer and director, Charles Ferguson, chose to proffer, directly and through a great deal of implication, his thesis on how the crisis could’ve been avoided (through more and better regulation). That gave the film a less objective journalistic feel, but didn’t cost it its two-thumbs-up rating from me (I’m sure they were relieved), nor did it stop it from winning the Academy Award for Best Documentary in 2010.
The film surprised me with a preamble set not in the struggling U.S. heartland or on battered Wall Street, but instead in Iceland. The story of Iceland’s economic demise—almost a microcosm of ours but in a country too small to bail itself out—is fascinating and the sweeping Icelandic landscape accompanying the story made me want to visit. Then, the story of the movie is told in five parts:
- How We Got Here
- The Bubble (2001-2007)
- The Crisis
- Where Are We Now?
As opposed to a play-by-play, here are a few tantalizing tidbits that grabbed my attention:
Investment banks—the companies that raise money to birth new companies—used to be partnerships, not publicly traded. This is noteworthy because when the banks were private partnerships, it was the partners themselves who risked their own capital. If the companies they brought to life failed, it was their own funds that were lost. The conversion to public companies—initially spurned by most of the establishment firms—meant, among other things, that investment bankers could make more money and spread the risk of each transaction to shareholders instead of bearing it themselves. Eventually, each of the major investment banking firms went public.
The last major investment firm to do so was Goldman Sachs. Goldman is so demonized in The Inside Job that I was expecting Lucifer himself to be indicted as its CEO, but while it feels at times like you’re watching a conspiracy theory aimed specifically at Wall Street’s most venerable member, it’s hard to argue in Goldman’s favor. It is uncanny how many Goldman big-wigs ended up in senior government positions making decisions that materially impacted their fortunes and those of their cronies. Don’t forget, “Hank” Paulson, the U.S. Treasury Secretary during the financial collapse, was the former Chairman and CEO of Goldman Sachs. Should we be surprised that his fierce competitors, Bear Stearns and Lehman Brothers, were left to die on the vine while Goldman (which also played a material role in causing the crisis) emerged almost unscathed?
Unscathed, that is, but for their public image. The movie details the congressional hearing with Goldman execs where they were forced to hear emailed quotes of their salesmen writing “Boy, that Timberwolf was one shi**y deal,” followed by confirmation of a manager (at a later date) prodding his salespeople, “The top priority is Timberwolf.” (Watch them squirm under questioning in the video clip below.) It’s scenes like these throughout the movie that will provide you with more pure entertainment value than you may have expected.
But I assure you this is far more than entertainment. With the aid of visuals, The Inside Job does a very effective job of educating the viewer on the dramatic shift in the banking industry, detailed in-depth in The Big Short, from banks lending money directly to homeowners to banks lending to homeowners, then selling the loans to investment banks who sold the loans to investors who then purchased insurance created by the investment banks to cover their bets on poor quality investments that were rated high-quality by the rating agencies who were paid by the investment banks. (See, it needs a visual.)
And despite its obvious left-of-center lean, it’s almost as condemning of Clinton and Obama as it is of the Bushes and Reagan. While “W” takes the most presidential heat throughout the film, Obama’s criticism may be the harshest—after all, he employed many of the same exact people as the previous administrations in his highest economic posts, all on a platform of “Change.” But I recommend you try not to get too hung up on the politics or obvious biases of the film. It does too good of a job educating and exposing to dismiss it completely for bias.
The Inside Job is PG-13, but tame enough for a great educational piece for teens. It will certainly become part of my curriculum (in addition to the movie I.O.U.S.A.) at Towson University.
It is not my desire to promote paranoia or incite bitterness and hatred toward the financial industry, but your future financial decisions will be better informed when you recognize that most of those clamoring for your brokerage, banking and insurance business are following policies purposefully designed to enhance their corporate bottom-lines, not yours.
*This article will appear on TheStreet.com.