Were the Great Recession and Financial Meltdown of 2008 an Inside Job?

Inside Job

I’m posting a message about something very important. My husband and I watched the film INSIDE JOB last night. INSIDE JOB won the 2011 Academy Award for Documentary Feature. It came out in DVD this week. You can get it on Netflix.

Here is the film’s synopsis from the Academy Award’s web page:

“The financial practices that laid the groundwork for the global economic crisis are traced to their sources in an examination that lays the blame for the collapse at the doorstep of many who are still in power. Predatory lending, credit default swaps, and financial deregulation are subjected to close scrutiny and criticism in a primer on the situation that affected the lives of millions.”

I looked forward to seeing this film because my family and I––like so many of the citizens of the United States and the world––were negatively impacted by the recession and financial meltdowns in recent years.

I also wanted to see the film because I am an economist. I hold a BA and MA in economics and was a doctoral student at Stanford’s Graduate School of Business in economics, public policy and business. I’ve held a number of professional positions in economics. What’s happened in the world economy is of extreme interest to me.

Was INSIDE JOB a good film? Oh yeah. Surgically good. Brilliant. The causes of the financial meltdown which filmmakers Charles Ferguson and Audrey Marrs examine are difficult. Derivatives, credit-default swaps and many other financial concepts are explained using diagrams and clear language. You will understand this! Too well, probably.

In addition to its intellectual content and interviews with people who were running the show as it collapsed and before, this film is very well presented. The bites of theoretical material are interspersed with shots of the cities and buildings associated with high finance. The “work hard, party harder” culture of the ultra rich is presented in flaming color and sound. The editing is snappy and the sound track is snappier. The interviews are crisp and illuminating, or very painful and illuminating.

One of the things that INSIDE JOB makes very clear is that what happened in 2008 isn’t the fault of either political party. Its roots have been there since the 1980s, spanning many presidential administrations, with presidents belonging to both parties.

Why am I writing this? Because the conditions that caused the meltdown haven’t been fixed. Even though the world economy still reels, structural changes have not been implemented. Not a single perpetrator has gone to jail or even been charged with anything. It could happen again.

Watch the film. In all probability, you are not among the mega-rich who sailed through the crises and came out in better shape than before. In all probability, you were hurt financially, just like I was. It behooves us to fully understand what happened.

I’m writing for another reason. I was deeply embarrassed and ashamed to watch the interviews of the top names in economics interviewed in the film. These include the heads of business schools and departments of economics in some of our best universities. Turns out they weren’t giving the government sage advice to preserve our economic well-being and prevent the crash. Many were well-paid advisors to the financial institutions that nearly broke this country.

Economics is a mathematical discipline. It was when I was in school, and it was becoming more so by the year. The guys and gals in econometrics and the truly mathematical forms of economics were the top dogs. If you didn’t shine in those fields (I didn’t), you were subjected to a more than subtle put down.

The problem with mathematical analysis is that it seldom matches the messy reality that we humans create. As the mathematics become more pristine, their relationship to what they’re describing grows looser. So we have economists saying that derivatives were safe and stabilizing. It looks like the most conservative branches of economics, personified by the non-interventionist monetarist policies of the late Dr. Milton Friedman of the University of Chicago, have taken over the profession.

Friedman advocated a free market economic system with little intervention by government. Nonintervention in financial markets is what we had in the crashes of the 2000s. That’s what we’ve got now.

Not all economists felt/feel like Friedman, but they seem to have been shouted down. Some economists value compassion, alleviating human suffering, and promoting justice and righteousness.

I feel sick at heart over what’s become of my profession.

I urge you to see INSIDE JOB and take what action you feel appropriate to curb misuse of power and corruption in high places. [Hint: The answer isn’t deregulation and political polarization.] I’m writing my senators and the president himself and demanding that our government do what its supposed to do: govern and protect the citizenry.

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