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The Best Movie You Haven’t Heard Of: Inside Job

Here are the ratings (% who liked) from Flixster for some of the movies playing this weekend:

90%            The Social Network

88%            Inside Job

81%            Unstoppable           

78%            MegaMind

78%            Jackass 3-D

77%            Red           

75%            Skyline

65%            Due Date

65%            Morning Glory

64%            The Next Three Days           

54%            Saw 3D

You know The Social Network. But how about the #2 movie, Inside Job? Ever hear of it?

96% of the critics liked it. Rotten Tomatoes rated it 96%.  It’s narrated by Matt Damon. Feeling out of the loop yet? Why haven’t you heard of this movie?

More on obscurity later, but here’s the official synopsis:

‘Inside Job’ is the first film to provide a comprehensive analysis of the global financial crisis of 2008, which at a cost over $20 trillion, caused… ‘Inside Job’ is the first film to provide a comprehensive analysis of the global financial crisis of 2008, which at a cost over $20 trillion, caused millions of people to lose their jobs and homes in the worst recession since the Great Depression, and nearly resulted in a global financial collapse.

Through exhaustive research and extensive interviews with key financial insiders, politicians, journalists, and academics, the film traces the rise of a rogue industry which has corrupted politics, regulation, and academia. It was made on location in the United States, Iceland, England, France, Singapore, and China.

There has been no shortage of books and articles about the meltdown. But most of those have had a reporter’s flavor to them—here’s what happened, then here’s what happened next.  I felt that no one had really pulled it together with a narrative theme and the data to back it up. Until this weekend, that is.  

The theme is now clear. Bad things happened. They were not an accident. They were the results of bad people behaving badly. They knew what they were doing. They did them anyway. And to this day, they refuse to acknowledge responsibility.  The issues of trust that became so manifest were not just about systems and markets; they were inescapably about people as well.  It’s one thing not to trust a system; it’s yet another to not trust those who inhabit it.

Think of this movie as what Michael Moore would produce if he had a PhD in economics and a career as a Federal Prosecutor. It’s the project of Charles Ferguson, who in fact does have a PhD in political science from MIT (he has also consulted to the White House and the Department of Defense, was a Senior Fellow at Brookings, and a member of the Council on Foreign Relations).

You may know Ferguson as the director of No End in Sight, a powerful documentary about the Iraq war. He’s confident enough to interrupt an economist and say, ‘You can’t be serious about that. If you would have looked, you would have found things.’ Or to tell a former Bush administration under-secretary of the Treasury, “Forgive me, but that’s clearly not true.”

Here is a review by A.O. Scott, in the New York Times.

Boston.com calls it “a masterpiece of investigative nonfiction moviemaking — a scathing, outrageous, depressing, comical, horrifying report on what and who brought on the crisis.

Here’s Kenneth Turan’s review in the LA Times.

Go see for yourself; see the trailer here.  

The Role of Ideology in the Meltdown

There’s much to say about this documentary; I’ll limit my thoughts to just one—the role of ideas in the meltdown. 

In this day and age of neuro-explanations and insistence that only measurable behavior is relevant for management, the role of ideas gets pooh-poohed. Big mistake. 

I’ve written before about the power of strategic doctrine taught in business schools to negatively influence our general business thinking. But after seeing this documentary, I’m newly persuaded. Ideas have huge power: especially when those ideas happen to greatly serve the economic interests of patrons.  

In the pharmaceutical industry, it’s become well accepted that a researcher or writer who takes money from a drug company is at the very least subject to rules of disclosure. Failure to do so constitutes an immediate presumption of conflict of interest.

Yet somehow, we have never held our nation’s leading economists and business school faculty to the same standards. One of the most eye-opening aspects of Inside Job for me was to put this issue front and center. 

Some of Fergusons’ hardest-hitting interviews are with the elite heads of academic institutions: Frederic Mishkin, a former Fed governor, now at Columbia Business School; his boss Glenn Hubbard, chairman of the Council of Economic Advisers under George W. Bush; John Campbell, Harvard’s economics department chairman; and fellow Harvard economist Martin Feldstein

They come off, respectively, as incompetent, blustering, inarticulate, and smug. None of them seem to have noticed a disconnect between their laissez-faire ideas and the disasters engineered by those who quoted them; much less any sense of impropriety at the comfortable financial relationships they shared with those very firms. 

Somewhere there is a researcher at Harvard Medical School screaming at the injustice of his not being published in NEJM because of some disclosure requirements, while his academic counterparts in business and economics were happily and openly opining on the health of the Icelandic banking system and the liquidity of the US subprime mortgage market, all the while getting very well paid. (Note: b-school profs provide functional consulting services to companies all the time; I don’t see that as an issue. This is vastly different; more another time). 

Results of the Meltdown

Ferguson touches clearly, albeit briefly, on one enduring outcome of this decades-long debacle–the increased gap in the US between the haves and the have-nots. 

In 1976, the richest 1% of Americans had 9% of the income. Now they have 24%. From 1980 to 2005, 80% of the gain in income went to the top 1%Guess what industry disproportionately accounts for that gain?

But the most significant casualty, I think, is a great old American belief: the belief that you can make it here in the good old USA, land of opportunity, where anyone can be what they want. You don’t have to be limited by the circumstances of your birth, like in all those Old World countries.

Sorry: no longer true. By one study, it is harder for someone to get ahead now in the US than it is in Denmark, Australia, Norway, Finland, Canada, Sweden, Germany, Spain, and even France. Only Italy and the UK are more class-bound, and I’ve seen other studies where even the Brits are less class-bound than we are. That decline in opportunity is another result of greater income disparity. Again, one of the legacies of the financial industry. One trust expert states very clearly that a key driver of low trust is high income inequality.  And here’s a good explanation of just why that is true.

You may disagree with a lot of what I’ve said here. You may think this movie won’t change your mind; and since it’s extremely hard to change people’s minds, you may be right. But if so, may I suggest you owe it to yourself to see it—if only to write back and point out the flaws in the movie.

The Trust Buzz of 2010: The Summer of Trust?

There’s a lot of buzz about "trust" this year.

Just look at the headlines: BP, Goldman Sachs, Toyota, Tylenol . . . . But the question remains, is all this talk going any where? Have we figured out how to make business more trustworthy? (And while we’re all talking, is anybody listening?)

At BusinessWeek.com this week, I explore what 2010’s trust buzz is all about:

2010: The Summer of Trust
Love was the buzzword in 1967, but that year’s legacy was justthe opposite. Trust is this summer’s "love." What will the legacy be this time?

Do you think the "summer of trust" will have any real effect? Do you believe that trust and trustworthiness will improve going forward or get worse?

Read 2010: The Summer of Trust  and let me know what you think–in the BusinessWeek.com comments section this time.

(I’m listening!)
 

The Goldman Hearings: Who’ll Take Home the Iconic Moment Award?

The Army-McCarthy Hearings

On June 9, 1954, in what was known as the Army-McCarthy Hearings, Senator Joseph McCarthy was dramatically taken down by Joseph Welch, a Hale & Dorr lawyer representing the Army, after McCarthy’s attack on a young associate of Welch for associating with an alleged communist front, famously saying:

"Let us not assassinate this lad further, Senator. You’ve done enough. Have you no sense of decency, sir, at long last? Have you left no sense of decency?"

(Do not miss the video here).

It didn’t take long for that several minute interaction to become an iconic moment—the downfall of a demagogue, and the inflection point in a nation’s shift from shrill commie-phobia to a lower-temperature Cold War.

The Watergate Hearings

Cut to the summer of 1973. Tennessee’s Senator Howard Baker captured the iconic moment of the Watergate Hearings when he first said “The question is—what did the President know, and when did he know it?”

That phrase encapsulated the disbelief and revulsion that a nation felt as it’s head of state was deeply implicated in an ongoing illegal coverup of a sleazy burglary.

To me, the Senate Iran-Contra Hearings didn’t measure up to the previous two. The only statement I remember is, “What am I, a potted plant?” voiced by Ollie North’s lawyer.

And now we have the Goldman Hearings. Will they measure up? Will they stand the test of iconic history?

Do the Goldman Hearings Measure Up?

To become a top-ranked iconic Senate Hearing, two things must happen at the same time: there has to be a major shift going on in society, and someone must utter a clever turn of words that encapsulates the shift. Only history will tell if the Goldman Hearings end up in the top ranks: but if they do, which moment will turn out to have been the clincher?

The awards in this category are called The Ikes, for Iconic Moment. There are three nominees for the Ike in this hearing.

Log in below to vote for your favorite. Vote for:

Candidate Moment A: Caveat Emptor vs. Fiduciary Responsibility

Senator Susan Collins: Could you give me a yes or no to whether or not you considered yourself to have a duty to act in the best interests of your clients?
Daniel Sparks: I believe we have a duty to serve our clients well.

If this moment takes the Ike, it will be because we have evolved away from the deification of market forces as self-correcting to a view that businesses have some social responsibilities, particularly to customers. As a corporate business model, the trader’s ethos of pure competition and markets will have been judged in adequate to run serious economy-critical business organizations.

Candidate Moment B: The Legal vs. the Ethical

Senator Carl Levin: If your employees think that it’s crap—that it’s a shitty deal—do you think that Goldman Sachs ought to be selling that to customers…when you heard [your employees saying] what a shitty deal, god what a piece of crap—when you read about those emails, do you feel anything?
Goldman CFO Viniar: I think that’s very unfortunate to have on email.

If this moment wins the Ike, it will be because the nation is fed up with hair-splitting legal defenses in response to unethical behavior. Viniar’s instinctive response belied a selfish and self-oriented view of navigating the legal thickets, unimpaired by ethical concerns.

Candidate Moment C: Ego and Hubris Gone Wild

This is actually an email preceding the hearing, from “Fabulous Fab” Goldman VP Fabrice Tourre: The whole building is about to collapse any time now. Only potential survivor, the fabulous Fab.”

If this becomes the Iconic Moment Winner, it will be because “Fab” personifies the abstract: this is what the “best and brightest” have figured out to do? And this guy is what they turned into?

So, what’s your vote? What moment will take home the “Ike” Award for Iconic Moment of the Goldman Hearings?
 

The SEC Chose Wisely in Goldman Case

The SEC earlier today announced a civil suit against Goldman Sachs.  This act was the talk of Wall Street—the DJIA dropped 125 points, Goldman’s stock lost 12.6%, and CNBC broadcast a special evening show called “Fraud on the Street.”

The suit charges Goldman with not disclosing information. I won’t bother with the detail, you can read that in the above links—the point is, the charge is non-disclosure.

Now, that’s an interesting charge. It amounts to some form of misrepresentation. In the non-legal world, that’s generally known as lying. In that same world, the teenager defense of “I didn’t actually tell a lie, I just let you think what you thought” is considered a distinction without a difference.

The point is, the SEC chose to charge Goldman with something that’s not only illegal, but resonates easily with Main Street as also being unethical. Since the gap between the illegal and the unethical is one of the main casualties of the recent financial debacle, this is a welcome sign—a charge that re-unites the legal and the ethical.

The Spin–Red Herring Issues

Goldman itself responded that the charges are “completely unfounded in law and fact.” Look for a splitting hairs defense a la “it depends on what the meaning of the word ‘is’ is.”

Goldman and others make several arguments that are pointedly red herrings. One is that they didn’t do this transaction to short the market (non-responsive). Another is that the buyers of the CDOs were big boys, and should know what they were getting into (ditto). Another (by Goldman) is that they themselves lost money on the deal (again…).

The pro-Wall Streeters are not alone. NBC News led with “if the government is right, people all across the country are still paying the price for schemes like this that we’re only learning about this now.” Their commentator presented the charge as betting against a carefully constructed product; not the SEC charge. Lisa Myers said, “essentially Goldman Sachs is accused of helping rig the game against investors.” And Robert Reich said the real crime is not what was done illegally, but what was done legally. Fair point, but not a commentary on the crime. CNBC’s Erin Burnett tried to get commentators to say it was suspicious timing, to buttress financial legislation in Congress or to deflect press attention from the SEC’s shortcomings in the Stanford case. Again—not on point.

What the SEC Did Right

I’m no lawyer, but I’m guessing the SEC could have pursued many other charges. It chose to pursue this one—the legal equivalent of what laymen call ‘lying.’ Lying is the most trust-corroding thing that can be done. It not only ruins credibility, it casts motives into doubt. Lying kills trust.

A charge of failure to disclose is exactly the kind of charge a responsible regulator should be pursuing. It reunites the legal and the ethical—a casualty of Wall Street’s actions—and aims at restoring trust.

Greed is not illegal, though it may be unethical; ditto for fleecing one’s customers. But misrepresentation—or the near-equivalent of selective disclosure—is both.

Good for the SEC for taking this route.