The financial fallout was an 'Inside Job'

Director Charles Ferguson.

TEXT OF INTERVIEW

Kai Ryssdal: I know I said yesterday that I'm not a big fan of anniversary stories, but this is kind of a big week. Two years ago today, Lehman Brothers went broke, kicking off a stretch of a crazy couple of months that we're still trying to recover from.

Documentary filmmaker Charles Ferguson has a new movie out -- "Inside Job, it's called -- that tries to explain what happened that fall and to figure out who's to blame.

So that's where we started when we talked, with me asking whether it's possible to blame individuals for the whole financial crisis, or whether the problems on Wall Street were more systemic?

Charles Ferguson:What has happened is that a very substantial fraction of the financial services industry has come to be outside the law, and as it has become increasingly powerful, it has attracted increasingly amoral people. Its behavior has become more and more dangerous to the financial system and to the American economy.

RYSSDAL: There was also a sort of trend of not talking about any of this stuff. There's a great moment in the film when one of the few regulators you've got on camera was Christine Lagarde, the French finance minister. And you started asking her about Lehman Brothers, and when she found out that it was going under.

FERGUSON: When were you first told Lehman in fact was going to go bankrupt?

CHRISTINE LAGARDE:After the fact.

FERGUSON: After the fact? Wow, OK. And what was your reaction when you learned of it?

LAGARDE:Holy cow.

RYSSDAL: Clearly, we're connected financially, but not so much along the lines of communication, huh?

FERGUSON: I was truly, truly dumbstruck when I learned the extent of the ignorance and disconnect in this, of the American regulatory system during the crisis. Paulson, Bernanke, were astonishingly ignorant of the consequences of their decision. They did not understand foreign bankruptcy laws, they did not understand that all transactions in London would be halted and then that would cause catastrophic financial results cascading throughout the financial system almost immediately.

RYSSDAL: I want to play something from the film. It's Allan Sloan, he's a senior editor at Fortune magazine. He's a well-respected financial writer. He tells a little story.

ALLAN SLOAN: A friend of mine who's involved in a company that has big financial presence said, "Well, it's about time you learned about sub-prime mortgages." So he set up a session with his trading desk and me. And the techie who did all this gets very excited, runs to his computer, pulls up in about three seconds this Goldman Sachs issue of securities. It was a complete disaster. Borrowers had borrowed on average 99.3 percent of the price of the house, which means that they had no money in the house.

RYSSDAL: So for all the blame that Allan puts on Goldman Sachs -- and certainly they deserve it -- what about Americans looking in the mirror and saying, you know what, a little bit of this is our fault too.

FERGUSON: Well, certainly that's true to some extent. There was a bubble, and it was a big bubble and many people bought houses that they couldn't afford and were careless with regard to the loan documentation that they signed. But over half of people who received sub-prime mortgages actually would have qualified for a less expensive prime mortgage. They were steered into more expensive sub-prime mortgages by mortgage brokers who were paid extra money the more expensive the loan they made was. So it was something that was cultivated, and in many regards, forced upon the American people by the financial services industry.

RYSSDAL: How come nobody went to jail?

FERGUSON: Well, there's a simple obvious answer and then there's a deeper, more complicated answer, which I don't fully understand. The simple obvious answer is that this has become an out-of-control industry; a very, very powerful industry.

RYSSDAL: What's the more subtle reason that you haven't quite figured out?

FERGUSON: For some reason that I truly don't understand, this situation has not generated the level of popular outrage that similar or comparable things have generated at other times in American history. There have been other times in American history -- some recent, some long ago -- when our leaders, our business leaders, and/or our political leaders, have done something terribly wrong and more than once, the American people have risen up and said, "We simply will not permit this." And that hasn't happened here, yet. I think that part of the reason that it hasn't happened might be that people think that finance is too complicated for them to understand, and that the situation is too complicated for them to understand. And indeed one reason that I made the film is to make it clear that actually they can understand it.

RYSSDAL: Charles Ferguson, his new film is about the financial crisis and the events of fall two years ago and how it got there. It's called "Inside Job." Mr. Ferguson, thanks so much for your time.

FERGUSON: Thank you.

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