The phrase 'inside job' is generally used by the police while describing crimes. If a house is robbed and a servant or a family member turns out to be one of the criminals, then we call that an inside job. And that's a pretty good description of what the financial crisis of 2008 really was, as this polished and immensely watchable Oscar-winning documentary shows.
As director Charles Ferguson tells the story, the financial crisis of 2008 didn’t just happen. It wasn't a calamity like an earthquake or a tsunami. Instead, it was the inevitable result of the waves of deregulation that have swept over the global financial industry in the last two decades.
There's a mainstream view of the 2008 crisis that paints it as an unfortunate and unforeseen side-effect of the way global markets had developed. This view, which is the one you will generally find in the mainstream business media, is that at worst, the financial industry is guilty of incompetence and hubris. That's not what this movie says. What it says —and it says it with great anger but great clarity—is that this was a deliberate and well-planned crime that has paid off fabulously.
At the heart of the problem lies the fact that the financial regulatory system in the world's dominant market, the USA, is completely dysfunctional. Over the last three decades, the US regulatory system has been systematically emasculated by politicians working at Wall Street's behest. However, despite the anger underlying this movie, its central argument is utterly clear. It identifies-with far more clarity than anyone else what the problem was.
From the post-Depression regulatory reforms all the way till the mid-80s, the financial industry was serving society well because the banks and the brokers were not in business for themselves. From the eighties onwards, regulations were loosened one by one so that the banks could themselves trade, effectively create the markets as well as manipulate the rules under which the markets operated. As a result, a greater and greater proportion of the wealth generated by society was doing nothing but enriching the financial industry. The smartest people in the world, in league with the crooked politicians and the dumbest regulators have combined to rob all of us and they have gotten away with it.
Nothing in the movie gives more of an insight into the psychological make-up of Wall Street than a couple of short interviews with a prostitute, a lady named Kristin Davis, who apparently runs a high-end escort service much favoured by Wall Street types. Ms Davis describes how cocaine and prostitutes were a normal part of the extreme risk-taking and reckless attitude to life that traders from the big banks had, and how her most expensive (1,000 dollars an hour) girls were kept on retainer by the biggest names on Wall Street to entertain clients.
The sad part of the whole story is that this movie is not a report on a crime that is over and done with but one whose perpetrators got away and are still doing the same things. This is a frightening movie to watch, because by the end of it you will be convinced that the 2008 crisis was neither the last one, nor will it be the largest one. Nonetheless, don't just read this review. Please get the DVD (it's available at many shops and rental libraries) and watch this movie. It's as much of an education on investing as anything else on this website.