The Oscar-nominated director wants us to understand what really happened in the financial meltdown
Published: November 3, 2010
Charles Ferguson is one of those guys you look at and just say, “Wow.” He’s produced three movies—the Oscar-nominated documentary No End in Sight: The American Occupation of Iraq, the short doc “Between Earth and Sky,” and now Inside Job, a full-length dissection of the financial meltdown. Ferguson received his doctorate in political science from M.I.T., taught in universities and wrote deep thoughts at the Brookings Institution, and started and sold a software company, netting, well, he won’t say. More than enough to retire on, obviously. Film, business, and academia. Any one of these careers would be impressive; living all three means Ferguson is not like you and me. He has more smarts and more gumption.
He’s also got more anger. Inside Job, which opens Nov. 5, names the folks responsible for our financial mess—Alan Greenspan, Robert Rubin, Lawrence Summers, Phil Gramm, and the cabal of mad deregulators perched like sovereigns on endowed academic chairs while also drawing huge paychecks from hedge funds, megabanks, and the think tanks they fund. He demands answers from them (those who agree to be interviewed, anyway). He gets few honest ones. City Paper spoke to him by phone from London last week.
City Paper: Who is this movie meant for?
Charles Ferguson: The American population. Pardon me if that sounds pretentious. I made the movie so people could understand what happened.
CP: They don’t?
CF: I think that there is a very broad sense that something very wrong happened here, but that they don’t understand exactly what happened and who did it.
CP: So what do you hope to accomplish with the movie?
CF: Of course, I hope that it will stimulate people to think about these things. And lead to some action being taken about them.
CP: What kind of action?
CF: There are many things that need to happen. Many of the things that should be done are relatively uncontroversial. . . . Changing compensation in financial services is pretty essential—and there is pretty broad agreement among those not financially concerned. Most of the people I spoke to think it is imperative to regulate compensation in finance. We have to do something about the ratings agencies. The issuer-pays system [in which investment banks that are selling bonds pay Moody’s or Fitch to rate them, and the buyers of those bonds rely on those ratings] is not good for us. The level of concentration in the finance industry stimulates somewhat collusive behavior in the financial services industry [and] concentrates their power, so that needs to be addressed. And we need to pay our regulators well, and incent regulators, financially, to be independent—not to feel that in order to put their kids through college they have to go to work for the people they regulate.
CP: How do we do that?
CF: It’s not that difficult. I had a long conversation recently with Singapore’s prime minister. He makes $2 million a year. The senior civil servants [in Singapore] make well over a million dollars.
CP: Is financial-services industry fraud a bigger problem in the United States today than it was in, say, the 1970s or ’50s, and if so, why and what is to be done about it?
CF: I think, actually, probably the single most important thing—in fact, more than these others, which are important—would be to appoint a very well-funded independent special prosecutor [to investigate the financial services industry]. We already know a great deal of unethical practice occurred. It is extremely difficult to imagine how this could have happened without a large quantity of criminal fraud occurring.
CP: But are things worse today than they used to be? Is it a cultural issue?
CF: The level of dishonesty in the financial system has reached really epidemic proportions. It has become normal and accepted practice.
CP: Talk about income and wealth inequality. Why is it so high today, what should be done about it, and why would these solutions be good and how would they work?
CF: It’s a big complicated problem. There are two very obvious things to look at. One is the tax system . . .
CP: What about the tax system?
CF: When you have capital gains and dividend taxation at 15 percent, and no estate tax, and the hedge fund loophole [which allows people like John Paulson to pay 15 percent income tax or less on his $3.7 billion 2007 income] those things add up. So I would reinstate the estate tax. Institute a 20- to 25-percent cap gains tax. And marginal [income tax] rates would be considerably higher for people with incomes over a million dollars a year.
CP: Define “considerably higher.”
CF: Forty to 45 percent.
CP: So half what it used to be during the Nixon Administration then?
CF: When tax rates go over 50 percent very strange things happen—[rich people] make money by losing money. Very bizarre things . . .
CP: Why did you focus on the academic guys so much—Martin Feldstein [of Harvard], Glenn Hubbard [dean of Columbia University’s School of Business], Frederick Mishkin [former Federal Reserve governor, also at Columbia, paid $124,000 by Iceland’s chamber of commerce to write a paper saying the country’s banks were sound]?
CF: I focused on them because they’re very prominent economists who have had public roles and spoken out publicly on these questions and have major roles in government and have very serious conflicts of interest. Google . . . the Law and Economics Group. The web site is very eye-opening.
CP: How did you learn of this issue?
CF: I saw the beginnings of this problem when I was an academic in the 1980s, so when I decided to make the film I said, “I know this problem. Let’s see how much worse it’s gotten.” Their academic salaries are in the neighborhood of half a million a year, so it’s not like they’re in poverty. But the amount of money they can make by prostituting themselves [to the financial services industry] is very, very high.
CP: Did you get any answers from the financial sector lobbyist, Scott Talbott? Are you concerned that leaving just your questions and no response from him on camera might lend some sympathy to him and his cause?
CF: I certainly hope not. His answers were extremely unimpressive. If I had included more from him, it would not have reflected well on him.
CP: So you’ll include those answers in the outtakes?
CF: Yeah, we’ll probably put those on the DVD.
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