I recently saw Charles Ferguson’s documentary, “Inside Job,” about the current financial crisis and I have a few thoughts to record. The movie was thoughtful, provocative, compelling, and sobering, and it did a tremendous job explaining some very difficult concepts without losing the audience and, in fact, drawing us in further. The movie correctly lambasted Wall Street operators, chastised the incentive and compensation structures within the system, and pulled the curtain back on academicians in bed with the financial services industry.
But as good as this movie was, I have to agree with an important criticism found in Gene Epstein’s review of the show on Oct. 23 in Barron’s. Namely, that Ferguson completely avoids the political causes of the mess and never brings to task those responsible for creating the laws and government backed institutions that allowed things to happen as they did. Perhaps he did not have time and felt his two hours needed to be devoted directly at Wall Street (as one thoroughly disgusted with my industry, it’s hard to fault him for that!). But for viewers, everyone needs to understand that this child has more than one father and they are all deadbeats who need to be held accountable.
I also need to offer a bit of support for many who are taking it on the chin only with the benefit of 20/20 hindsight. Chairman of the Federal Reserve Alan Greenspan is one who comes to mind most often. He is constantly criticized as being tremendously culpable because of his support for derivative deregulation, low interest rates, and the repeal of the Glass-Steagall Act. While each of these were direct causes of the catastrophe, we all quickly forget that a decade ago no one was challenging any of these policies that I can recall. So, while Greenspan is the easiest target, and he should certainly own up to his role in all this, I don’t think we can blame him any more than we can blame ourselves for not being able to predict the future. The mistake of Greenspan and the rest of us is that we forgot about human nature – that people will get away with what they can when there is no downside risk or someone to tell them they can’t. That is exactly why the chairman of Morgan Stanley, John Mack, famously said, “We cannot control ourselves. You have to step in and control [Wall] Street.” Spoken like a true flawed individual.
And that brings me to a thought I continued to have throughout the movie and one that probably frustrates me the most. While it is clear that many influential people in the financial services industry and academia are morally bankrupt and not worth a fraction of the compensation they receive, we need to realize that we are all to blame. These people wield the influence they do because we let them – we hold them up on an extremely high pedestal, listening intently to every word they say as if they have some god-like level of intelligence or ability to see the future. The fact of the matter is that they are people just like you and me. Of course they are intelligent, hard working, and capable. But no level of intelligence, hard work, or capability should be compensated like they are, especially in an industry that, for the most part, creates nothing. And what makes me most angry is that even though we have experienced what we have over the last few years and know what caused most of it, we have not changed the system and we keep rewarding the same kinds of people in the same kinds of ways. Shame on us.
I am not advocating that the government should limit executive compensation, quite the contrary. But we shareholders and patrons of their services should be far more vocal and active on these issues. How anyone can see this movie and continue to work with or for any of these firms boggles the mind. I must admit I am guilty, however, in that I still have a checking account at Bank of America and my mortgage is held by Wells Fargo. Unfortunately I can’t pay off my mortgage right now, so that is that; but I can take my checking account to a bank that wasn’t part of the problem (Bank of America/Merrill Lynch has been fined around $300 million just since February 2010) and so I plan to do just that. Our financial services industry has deep structural flaws in many areas and on many levels and none of that will change overnight. But if we continue to look the other way even though we know what we now know, none of us can claim innocence during the next inevitable crisis.
Please see this important and relevant movie, and let me know what you think…