November 14th, 2010
Documentary film-maker Charles Ferguson is a bona fide scholar with a 1989 Ph D in Political Science from MIT and several books about the IT industry with respectable Google Scholar counts on his cv. He also cofounded a high-tech startup, Vermeer Technologies, which was sold to Microsoft in 1996 for $133 million.
He has in effect endowed the Charles Ferguson chair in public policy research at Charles Ferguson University and communicates his findings in film rather than print. (I’m reminded of an introduction political scientist Harvey Mansfield gave to Camille Paglia: noting that she is a faculty member at the unheralded University of the Arts in Philadelphia, he observed that “Camille Paglia teaches at the university Camille Paglia teaches at” and asked how many other people that could be said about.)
Inside Job is a well-crafted and thought-provoking documentary about the causes, major milestones, and consequences of the financial meltdown of 2008. At times it looks like a Powerpoint deck with slides depicting financial flows and leveraging of credit default swaps.
In making the documentary, Ferguson attempted to interview a large cross-section of financial sector players, academic experts, and public officials. Ferguson’s style of presenting his interviews is similar to Errol Morris’s, but without the Interratron technology. We hear Ferguson’s voice, but we never see him in conversation with his interviewees. The camera focuses directly on the face of the interviewee and, for some, this turned out to be an unnerving if not excruciating confrontation.
Ferguson had the most expansive co-operation from the analysts, for example Nouriel Roubini, who saw the meltdown coming and were most critical of the financial deregulation that caused it. He also had access to senior overseas officials such as French Finance Minister Christine Lagarde and IMF Managing Director Dominique Strauss-Kahn.
But he was virtually shut out when he attempted to talk to senior officials from the Bush or Obama administrations or to anyone in the finance sector. It appears that the word quickly got out that Ferguson was asking uncomfortable questions on camera, and players, likely advised by counsel, refused to speak to him.
But before the door slammed shut, he managed to interview a handful of leading economics and finance academics who served as both policy-makers at the Fed and Council of Economic Advisers, as well as directors and consultants to the financial sector firms. The most notable were Martin Feldstein and John Campbell of the Harvard Economics Department and Columbia Business School Dean Glenn Hubbard and Finance Professor Frederic Mishkin.
Ferguson zeroed in on two questionable practices, writing consulting reports arriving at conclusions the financial sector wanted to hear (“deregulation is good and we need more of it”) and serving as directors of financial sector firms. Ferguson unearthed a study lauding Icelandic financial deregulation for which Mishkin was paid $125,000. Feldstein was a long-time director of the insurer AIG until its collapse in 2008. When asked about the Iceland study, Mishkin squirmed, and when asked about AIG, Feldstein smilingly refused to say anything.
Campbell began his interview cheerfully enough, but when Ferguson suggested that consulting reports like Mishkin’s are comparable to medical research supported by the drug companies, he was at a loss for words. And Hubbard finally told Ferguson the interview was not a deposition, regretted speaking to him, and – on camera – gave him three minutes before booting him out.
(Hubbard’s previous claim to fame was as one of those short-listed for the chairmanship of the Fed in 2006. A group of Columbia Business School students made a satirical YouTube video with a viewcount now approaching 1.7 million – titled Glenn Hubbard every breath you take – depicting his assumed envy towards Ben Bernanke.)
In my view, when academics do consulting, they should be attempting to speak truth to power, that is, giving their best professional judgment, as opposed to telling clients what they want to hear. This should mean seeking out views that the client likely doesn’t want to hear, and seriously discussing them. When academics serve as directors, they should be adding value to the deliberations by bringing an outside and skeptical perspective to corporate decision-making.
The big challenge to acting with integrity is corporate money. $125K is a very rich consulting contract. Ferguson tells us that corporate directorships like AIG and the major US banks pay $250 – $300K, which is the equivalent of a handsome salary in academe. That kind of money seduces otherwise smart and skeptical people into saying what the client wants to hear. In addition, there is always the fear that if you don’t say what the client wants you to say, someone else can readily be found who will.
Ferguson’s film is an attempt to hold bankers, financial regulators, and finance academics accountable. It’s one thing to be held accountable in the court of public opinion, another in the court of law, and Ferguson is skeptical that the latter will ever happen. Whether or not the US ever develops a better way of regulating the financial sector is another matter. The issues are complicated and the government is now divided. Still, Ferguson deserves acclaim for his efforts to incite the moral outrage in civil society that might lead to better governance of the financial sector. I consider his film a must-see.