Sunday, September 19, 2010

The Blame Game

. Sunday, September 19, 2010

So the maker of No End In Sight, a pretty good documentary about how short-sighted and inept the Bush administration was (among other things), has turned his attention the financial crisis with Inside Job. Apparently Mankiw and some of his buddies are nervous: they get raked across the coals for taking huge sums to "consult" for the financial industry, which basically meant lending their cred in exchange for cash. Feldstein, Mishkin, and others are targets and fair enough I suppose, although this is hardly Andrei Shleifer territory.

(Aside: At first I thought this film came from the makers of Loose Change -- the rabid, insipid, thoroughly-debunked clarion call of the 9/11 "Truther" movement. It's actually pretty fun to think what Inside Job would argue if Dylan Avery and co. had been behind it. Probably that the financial crisis was caused by Wall Street fatcats who figured out that the only way for them to gain wealth and power was to kill the goose that laid the golden egg, and that the Bush administration thought that if they sunk the economy just enough they could lose the 2008 election so severely that a black man with a vaguely Muslim-sounding name could raise taxes on the rich, give away free health care to the poor, and restrict the activities of the financial industry. Or perhaps reveal the buried truth that the true elite cabal that controls the global financial system are the Icelanders! The evidence: Frederic Mishkin apparently got paid a pretty large sum of money by Iceland's government to write a report about Iceland's booming economy that mentioned that Iceland appeared to have a booming economy. Maybe that film will come later.)

Anyway, Inside Job looks interesting if a bit too much "2 Minutes Hours of Hate". (The TIME reviewers quoted on the film's poster writes "If you're not enraged by the end of the movie, you weren't paying attention".) Ebert liked it (predictably), as did this guy. Ebert sums up the thesis this way:

Here is the argument of the film, in four sentences. From Roosevelt until Reagan, the American economy enjoyed 40 years of stability, prosperity and growth. Beginning with Reagan's moves against financial regulation, that sound base has been progressively eroded. The crucial federal error (in administrations of both parties) was to allow financial institutions to trade on their own behalf. Today many large trading banks are betting against their own customers.

Pretty standard fare, and also largely untrue. The 1970s was not a decade of stability, prosperity, or (much) growth. Nor, for that matter, were the 1930-40s. Conversely, it's pretty hard to argue that the 1980-90s were marked by instability, poverty, and declining growth. Reagan actually strengthened the financial regulatory structure after the Latin American debt crisis (Basel I), as did Dubya after the Enron collapse (Sarbanes-Oxley). The only major deregulation of the past three decades occurred during Clinton's second term (repeal of Glass-Steagall), and mostly what it did was allow American banks to trade on their own behalf... just as European banks had always been allowed to do. Anyway, claims that the repeal of Glass-Steagall caused this crisis are dubious, generally contain no functioning causal mechanism linking repeal to crisis, and require a higher standard of proof than I expect this film to be able to provide.

But I'll withhold judgment until I've had a chance to watch it, and perhaps I'll write a longer review then. It's sure to be better than Michael Moore's execrable Capitalism.

UPDATE: Drezner discusses some similar worries about Wall Street 2: Attack of the Gecko-Clones.


The Blame Game
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