How Hollywood explains the 2007 crisis and does it explain well?

Nicole Gelinas and Judith Miller of  City Journal discuss and review the two movies on the global crisis – Too Big to Fail, HBO Movies, 2011 and Inside Job, Sony Pictures Classics, 2010.

Miller says:

How accurate are these movies? How ideological are they? Do they assign blame appropriately? Do they agree on who the “villains” were? Are there any heroes—other than the directors, of course? Finally, how well are the roots of the financial crisis explained to Americans, many of whom will learn about how close our nation came to economic Armageddon primarily from these films?

My own take, which may tell you more about my own economic policy biases than about the movies, is that both films did remarkably well in explaining one of the more complicated crises in our recent history. Both films blame the nation’s politicians, Republicans and Democrats alike, and our financial regulators for failing to do their jobs. Both the documentary and the docudrama assail the regulators for letting financial mechanisms and institutions spin out of control, thus endangering the housing and financial markets upon which the nation’s and the world’s economies depend. What do you think?

Gelinas points to more details. Inside Job probes more into what caused the crisis. TBTF is more on the moments of crisis:

 I agree that both movies were well done—riveting, really. They’re accurate as far as they go, though one should not watch one without the other. I don’t find them ideological. Neither overtly assigns more blame to “the free market” than to the government—or vice versa. Nor do the movies blame one political party over another. They feature leaders of both parties, from Ronald Reagan to Bill Clinton, extolling financial-industry deregulation.

I wish that Too Big to Fail had spent more time showing viewers how the financial system got that way in the first place. Inside Job does this better, though not enough (more on that tomorrow). Ferguson’s documentary does a terrific job of explaining derivatives and how they contributed to the meltdown—in particular, how AIG was able to use credit-default derivatives to “insure” hundreds of billions of dollars’ worth of mortgage securities and other assets that underpinned the global financial system without having cash to back up that “insurance”.

In discussing derivatives, Ferguson’s film also makes an important point: the disaster was preventable. He interviews Michael Greenberger, a former top financial regulator, who explains that during the Clinton years, his boss at the Commodity Futures Trading Commission, Brooksley Born, moved to regulate new types of derivatives, including the swaps that AIG would use. Larry Summers, then the Treasury secretary, gathered 13 bankers into his office, telephoned Born, and told her to back off. When she wouldn’t, Congress, with the support of Summers and Fed chief Alan Greenspan, passed a law halting Born’s efforts to govern new financial instruments with old-fashioned rules.

However, IJ has issues as well:

I think there are some problems with Ferguson’s account, including confusion of cause and effect. But I’ll get to that tomorrow, too, along with the “heroes and villains.” Paulson and Bernanke are heroes in Too Big to Fail, I think, but they’re villains in Inside Job. What do you think is the truth?

🙂

Bernanke surely erred in setting of the crisis. He ignored financial developments and risks. Though, once he understood it was a depression kinda situation he was very creative and aggressive in preventing it from happening. This aggression has led to many qs about monetary policy. I have read a bit of TBTF and Paulson was very reluctant to take up the Treasury job and was aware of conflicts of interest. He does not come across as a villain but surely led to many questions over this revolving door facility between G-Sachs and Treasury.

More questions:

Let me ask you a few more questions. You said that the films explained the crisis “remarkably well.” Did the films change your mind about anything? You say that you’re convinced that leading up to the crisis, politicians and regulators let “financial mechanisms and institutions spin out of control.” After watching the movies, what do you think was the single biggest mistake that politicians and regulators made? How much blame do you assign to the banks versus the politicians and the regulators?

Finally: in Too Big to Fail, French finance minister Christine Lagarde (Laila Robins) castigates Paulson for letting Lehman to go under. “What on earth were you thinking?” she says crisply over a transatlantic telephone line the morning after. “You allowed it to fail, Hank. It was a horrifying mistake.” Do you agree with that judgment?

Haven’t seen either of the movie so can’t say anything. Regarding Lehman fallout, I don’t think saving it would have helped. It might have just postponed the crisis and some other firm might have collapsed. It was sheer madness by financial firms who piled up tons of greed backed by ignorant regulators.

What do you think? Has Hollywood depicted things correctly?

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One Response to “How Hollywood explains the 2007 crisis and does it explain well?”

  1. Gary Anderson Reno NV Says:

    Bernanke and Paulson were not heroes. When a fireman sets and forest fire he is not a hero when he puts it out.

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