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Ezra Klein on Charles Ferguson

by Robert Teitelman | Published June 23, 2011 at 5:08 PM

Ezra Klein has a column up at The Washington Post that takes apart "Inside Job," the Charles Ferguson documentary that has been praised so lavishly, not least by walking off with an Academy Award. Ferguson himself has been able to wander about offering up a whole series of declarations about the crisis: that it was completely predictable; that it resulted from deep conspiracies as opposed to intellectual errors; and, most popularly, that we need to convict perpetrators and send them to jail (two corollaries to this follows: the notion that we can never get past this episode, we can never achieve closure, until folks are dispatched to the Big House; and the fact that none of the fat cats have gone to jail for this suggests that the administration is engaged in its own conspiratorial cover-up). Klein is brutal about what "Inside Job" really accomplishes: "It was an excellent documentary for people who don't want to understand the financial crisis but want to believe they would've seen it coming. Watching it, you'd think that the only people who missed the meltdown were corrupt fools. But that's not true. Worse, it's dangerously untrue. In telling the wrong story about how the financial crisis happened, it misinforms about how to keep it from happening again."

Exactly. The more you learn about the financial crisis, even if you focus strictly on the subprime mess, the more you realize how deep were its roots, how broad was the complicity and how ambiguous the actions of many Ferguson would consider inside players (his "inside" isn't always, well, very far inside). The Wall Street Journal has yet another story Thursday explaining why fraud convictions are so difficult; this, like Klein's column, will be undoubtedly pilloried as excuse making -- or worse. To many out there, particularly in the blogosphere, failure to adhere to the crime critique is evidence that you're somehow in the bag for plutocratic interests.

In "Inside Job" Ferguson, for instance, suggests broadly that conservative academic economists -- he hammers economist and Columbia Business School chief Glenn Hubbard, who was foolish enough to sit down for an interview -- supported deregulation because they were "captured" by corporate and Wall Street clients. Similar charges have been made about financial journalists, regulators and, of course, anyone on Wall Street down to the shoeshine guys. This is an incredibly simplistic charge -- whether it's aimed at Hubbard for deregulation or Paul Krugman during the Enron scandal (he got pounded for giving some paid talks there) -- particularly when so many who were "unconflicted" also failed to see the disaster building. Is it not enough to say that errors were made, without suggesting that those errors stem from corruption and conflict? Who, beyond the hermit, is free of some conflict, including Ferguson himself, who has parlayed his populist documentary into some fame? Doesn't the substance of the argument -- on deregulation, say, or efficient markets, or housing policy -- matter?

Moreover, some of the key decisions that, in retrospect, led to the crisis can be traced back as far as the '30s, while others, notably deregulatory decisions, begin in the '70s. This tendency to apply a retrospective moral judgment on events and characters is a feature of Gretchen Morgenson and Joshua Rosner's "Reckless Endangerment," an otherwise straight and damning examination of the mortgage implosion. It's easy to crucify Jim Johnson for building Fannie Mae into a political machine and, perhaps, even for planting the seeds of later accounting problems. But Johnson clearly never foresaw how expanding home ownership would turn into such a massive problem, just as Hank Greenberg, who can be criticized for many things, cannot be blamed for the morass his successor at AIG would stumble into with credit default swaps. Indeed, reading this history backwards turns this exploration of cause into a Manichean political critique.

Morgenson and Rosner broadly suggest again and again that most federal housing assistance, at least back to the Johnson presidency, was somehow complicit in the subprime cancer; that there was an inevitability, a determinism, to the history. Poor homebuyers and taxpayers need to be protected by eliminating the possibility that they might be tempted to take on too large a mortgage or to use their homes as piggy banks. This is both a very broad brush and deeply nostalgic for a golden age that barely exists. If we had to live with all the unforeseen, long-term consequences of our actions, who could get out of bed? Bethany McLean and Joe Nocera make a more sophisticated point about the same set of facts in "All the Devils Are Here" when they present these complex chains of causation as a race to the bottom. One thing led to the next. The end was ugly, motivations were sometimes suspect, even conflicted, but it was a complicated process of greed, ignorance and denial, not a crime.

Klein makes the excellent point that incentives can work both ways. "What's remarkable about the financial crisis isn't just how many people got it wrong, but how many people who got it wrong had an incentive to get it right," he writes. "Journalists. Hedge funds. Independent investors. Academics. Regulators. Even traders, many of who had most of their money tied up in their soon-to-be-worthless firms. 'Inside Job' is perhaps strongest in detailing the conflicts of interest that various people had when it came to the financial sector, but the reason those ties were 'conflicts' was that they had substantial reasons -- fame, fortune, acclaim, job security, etc. -- to get it right." Klein is also right that this reality is scarier than the presence of a few criminals. Indeed, the biggest problem with the populist fantasies about the crisis is that, like so much of our politics, fanciful cartoons allow us to avert our eyes to the real difficulties. - Robert Teitelman

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