June 15, 2012 7:52 pm

Blame game

Charles Ferguson follows his Oscar-winning documentary on the financial crisis by setting out the case for prosecutions

Inside Job: The Financiers Who Pulled Off the Heist of the Century, by Charles Ferguson, Oneworld RRP £12.99, 384 pages, published in the US as ‘Predator Nation’ (Crown Business, $27)

 

Charles Ferguson’s Inside Job, winner of the 2011 Academy Award for best documentary feature, is essential viewing for anyone who wants to understand the causes of the financial crisis. Although narrator Matt Damon brought Hollywood glitz, the film’s stars were the bankers, regulators and academics interviewed by Ferguson. The director’s gentle interrogation and good humour coaxed his subjects into attempting to explain their actions. Most failed. Like all good political documentaries, it informed and infuriated, while the creator remained in the background.

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Ferguson’s new book, also called Inside Job, presents the reader with two questions. First, what does it add to the many books already written on the financial crisis? Second, what does it add to his outstanding documentary?

Ferguson wrote his polemic “to lay out in painfully clear detail the case for criminal prosecution”. Since 2008, a handful of civil cases have been brought by the US authorities against US investment banks but no Wall Street banker has been put in prison for his or her role in the crisis. Contrary to the line given by the Obama administration, Ferguson says we already know “a lot” about what happened and, crucially for criminal cases, who is responsible.

Wall Street’s catalogue of dodgy deals is well known. The brazenness of the Abacus (created by Goldman Sachs), Libertas (Morgan Stanley) and Timberwolf (Goldman again) trades, among several others detailed in the book, astounds on Ferguson’s sharp telling. There are better introductions to the crisis and better analytical accounts, but Inside Job offers a strong summary of its most nefarious aspects.

However, by his own admission Ferguson struggles to “detail the case” for criminal prosecution. This is no easy task; Senator Carl Levin’s report on Goldman runs to 640 pages and we still don’t know whether the US justice department will act on it. “Whether their [Goldman’s] behaviour meets the standard of criminal fraud may never be entirely known, but without question it was really, really greasy,” Ferguson reluctantly concedes.

Unfortunately, Ferguson moves on from these cases to a litany of “crimes” perpetrated since 1980 by Wall Street banks. There’s money laundering for terrorists and arms dealers, bribery, tax evasion, Enron, creating (or at least keeping inflated) the internet bubble, duping local governments such as Jefferson County in Alabama, and so on. Shady stuff, but I was unconvinced that the financial crisis was their logical conclusion, as Ferguson argues.

Ferguson is, however, right to be furious. Expectations for the Dodd-Frank financial reforms are low and getting lower as industry lobbyists and Congress slow an already sluggish process of rule-writing and implementation. JPMorgan’s recent $2bn (and rising) trading loss shows how little anyone can know about rogue elements within modern financial institutions. And the Financial Times’s discovery that a greater share of bank profits is going to employees than before the crisis suggests Ferguson is correct when he says little has been done to change the incentives of individuals working in the big banks.

Ferguson’s second reason for writing the book is to highlight “an even broader, and even more disturbing, change in the economy and political system that governs the US and the rest of the world”. A “new oligarchy” has taken over the US, he argues, and is creating a country divided by “caste” in which democracy has been subverted by lobbyists and campaign contributions. The Occupy movement and the Tea Party are signs that serious civil unrest is imminent.

There is much wrong with modern America, and the influence of money on politics is a good place to start. Inequality is widening, poverty and long-term unemployment rates are shockingly high and far too many young people leave school ill-equipped for the 21st-century economy. Politics is polarised and dysfunctional. Meanwhile, healthcare and military costs threaten to take up larger and larger shares of the US balance sheet.

Ferguson details all of this with vim and bile. But he adds little to other more thoughtful recent accounts of US decline, such as those by Raghuram Rajan, George Packer, Tyler Cowen, Paul Krugman and the FT’s Edward Luce. All of these do a better job at placing the US predicament in a broader, international context that encompasses technological change, globalisation and the rise of China and other emerging countries. His solutions are quite sensible but superficial and largely unfeasible in the current US political climate.

This broad attack on American finance and politics also implicitly undermines his argument in the first section. If the whole system is corrupt, then why create scapegoats? This is an argument that President Barack Obama has made, as well as senior Wall Street executives. It’s at times disingenuous: we can still prosecute thieves (and, say, urban rioters) even if we recognise that there can be complex reasons for those crimes. Unfortunately, Ferguson ends up halfway between sheriff and criminologist, while the bad guys get off scot-free.

The greatest Hollywood courtroom dramas do not prove guilt or innocence but reveal it. Day after day in To Kill a Mockingbird, Atticus Finch won over a little bit more of the courtroom, if not the jury. The Inside Job documentary may not have changed policy in Washington but it showed the ineptitude and hubris of some involved in the crisis. Or rather, they revealed that themselves. Ferguson’s book is a worthy and fiery supplement but on this evidence he is better at show than tell.

John McDermott is the FT’s executive comment editor

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