'Inside Job': Watch it while you have the money

I love horror films, especially ones that end with the promise of an even more terrifying sequel. And of all the horror flicks I have seen in my life, Charles Ferguson’s Inside Job is by far the most frightening. It is scarier than a film like Paranormal Activity or The Shining because it is not fiction. It is a documentary, where all the characters and demons depicted are real entities that exist in the world out there. Like evil spirits, they remain invisible to ordinary individuals, but quietly control the levers that determine the very survival of millions of people across the world.

What are these ghosts, these vampires, these demons that never die and suck the blood out of mere mortals? This is what Inside Job is all about.

The 2008 crisis was not an accident
In 2008, the world witnessed its worst financial crisis since the Great Depression of the 1930s. Millions lost their jobs, their homes, and their savings. While the media may have pretended that India wasn’t badly affected, the fact remains that hundreds of thousands, especially those employed in export-oriented units, lost their jobs as recession choked Western economies, the stock market crashed to four digits, and an untold number slipped below the poverty line.

Inside Job is an extraordinary film that explains, in a language that even a seven-year-old can understand, that the 2008 financial crisis was not an accident. It was orchestrated — by an incestuous cabal of bankers, politicians and regulators in the United States, the nerve centre of the world’s financial system.
The narrative is divided into five parts: How We Got Here, The Bubble, The Crisis, Accountability, and Where We Are Now. It opens with a case study of Iceland, a beautiful country that, in 2000, was as close to paradise as any nation could aspire to be: small population, high standards of living, vibrant economy, sound regulatory structure, high employment rate, and breathtaking natural beauty. And then began the “purest experiment in financial deregulation in the history of mankind”. By 2008, Iceland’s economy had collapsed, the country was bankrupt, and almost overnight, it seemed, everyone had turned poor and unemployed. What had happened?
Swiftly, the film zeroes in on financial deregulation as the root cause of the crisis. From the end of World War II till Ronald Reagan came to power, the US enjoyed several decades of uninterrupted prosperity, without any crises. It had strong regulatory mechanisms on board that kept bankers’ greed — in financial lingo, it would be called ‘risk appetite’ — in check.
Then two things happened: the derivatives market boomed; and investment bankers, who made billions trading in derivatives, lobbied for and brought in legislation that effectively banned regulation of the derivatives market. All the seemingly complex details — derivatives, collaterised debt obligations (CDOs), credit default swaps, and how the average man on the street went bankrupt pouring billions of dollars into the pockets of fat cat bankers — are explained in the film with breathtaking clarity.

The economist as a rogue
But how did everyone end up believing that deregulation is good? Well, this is where the next bunch of rogues come in: economists in prestigious universities such as Harvard and Colombia who gave mainstream currency and respectability to deregulation as an ideology, and at the same time were busy making millions as consultants or board members of investment banks and hedge funds that stood to gain the most from financial deregulation.
The film exposes these economists — many of whom worked for the Clinton and the Bush administrations in the build-up to the crisis — as undercover pimps for investment banks. They published papers in journals stating that deregulation was a stabilising force that dispersed risk, whereas the reality was the opposite: it multiplied risk. In a series of interviews, intercut with some hilarious court depositions by investment bankers, eminent (and honest) economists like Raghuram Rajan and Satyajit Das explain how.

Watch it, SEBI, RBI, Montek
This film is a must-watch for anyone who’s ever had anything to do with money. Every employee of SEBI (Securities and Exchange Board of India) and the RBI (Reserve Bank of India), the two apex bodies whose job it is to oversee the financial sector and protect investors, must watch it at least twice, and take notes the second time. It would be interesting to hear what Montek Singh Ahluwalia, the doyen of deregulation in India has to say about this movie.

But the really chilling part — and this should worry us in India — is that there is every chance that the same kind of crisis will recur, for the same guys are in charge in the US, and their country cousins are in charge in India.

When Barack Obama won the presidential elections in the aftermath of the crash in late 2008, he promised to put in place regulatory systems to keep a check on predatory financial firms. But the film nails every one of his promises as a lie: Obama gave the job of regulating the sector to the same bunch of people who helped create the horror story in the first place — Ben Bernanke, Larry Summers, Timothy Geithner, Rahm Emanuel — all of whom, to borrow a metaphor, have carnal relations with the financial services industry.
But how could Obama do such a thing? What about the ‘change’ he was blathering about? Well, investment banks like Goldman Sachs, JP Morgan and Merrill Lynch had spent over $5 billion from 1998 to 2008 on lobbying and political campaign contributions. So what did you expect? The film says, in effect: Meet the new president, same as the old president.

It’s happening all over again in India
Financial expert and columnist Ajit Dayal has written eloquently about the ongoing corruption of India’s regulatory system in a recent column titled “How government and captains weaken institutions’. Interested readers can look it up on the internet.

Dayal points out that it was the RBI and its former governor Dr YV Reddy who protected India from the US financial crash by stubbornly refusing to let India become a more ‘open’ capital market and allow foreign bankers to sell their toxic derivatives in India. Not surprisingly, after he retired, Reddy wasn’t appointed to any government committee. Instead, as Dayal points out, it is lobbyists for investment banks who are making it to key financial committees. This is an eerie replay of what happened in the US, where lobbyists from Goldman Sachs and other mortgage companies occupied key posts in the Treasury Department.

The current SEBI chairman, CB Bhave, who took on Anil Ambani and the Sahara Group for financial irregularities, forced mutual funds to stop making opaque payments to distributors, and sought to bring ULIPs — securities-linked insurance products — under SEBI’s purview, has done a fantastic job of trying to protect the lay investor from financial predators.

Should it then surprise us that, Bhave, who in the normal course should have got an extension for another two years, is on his way out after three years on the job? It would be interesting to watch if the new SEBI chairman, UK Sinha, who has a history of spearheading “capital market reforms”, reverses any of the progressive measures undertaken by Bhave.

What’s even scarier is that the central government wants to clip the wings of the SEBI and RBI — which have been looking out for the interests of the vast majority of small investors instead of dedicating themselves to serving the powerful banking/industrial elite. It wants to set up what Dayal calls a “super-regulator”, the Financial Stability and Development Council (FSDC), which will be under the purview of the ministry of finance and “control the independence of the RBI, SEBI and IRDA (Insurance Regulatory and Development Authority).”

Bankers and industry chieftains, who now have a hard time dealing with RBI and SEBI in Mumbai, can then go over their heads and settle matters directly in New Delhi, as Mr Raja and Co. showed us all how. It would be a “one-stop shop” for lobbying power. If this happens, well, after the crash that will follow, and the inevitable bail-out that you and I will pay for, we may not even get the solace of a brilliant film that would explain what hit us.

The root of the danger is the simple fact that while bankers enjoy humongous rewards for risk-taking, there are no penalties when the risk-taking flops, and the bill is paid by someone else — the average tax payer, who individually does not have the same power to influence national policy that the financial elite does.

One hopes that Inside Job is seen as a cautionary tale of what could happen to us if India follows the American path of deregulation. SEBI and RBI, instead of being sidelined by a government minion like the proposed FSDC, ought to be strengthened, and have their independence protected.

Backed by stupenduous research, shot exquisitely, scripted and edited like a thriller, with background score to match, this Oscar-nominated film will serve as a benchmark in the years to come for socially relevant documentary filmmaking.