Written by Hazel Weiser
Inside Job is the new documentary by Charles Ferguson that examines the financial crisis that erupted in 2008, but which had been brewing since Ronald Reagan began his campaign to convince the American public to accept two “undemocratic” principles. First, Reagan conflated a free market economy with civil democracy and the ability to self-govern, so that evidence of capitalism, no matter how corrupt, was evidence of at least a nascent democratic form of government. Second, Reagan delegitimized the essential role government plays in curbing the power of private enterprise, which is mainly driven by greed and consumption, through regulation and policing.
Ferguson, with his Ph.D. from MIT, had extraordinary access to influential people, although a gimmick of the film is a screen that lists the latest member of this administration or the prior one who refused to grant an interview. There is an extraordinary conversation between Ferguson and former Bush adviser Glenn Hubbard, who just so happens to be the current dean of Columbia Business School. An important point that Ferguson makes in the film is that the academic culture in the nation’s most influential business schools has not only permitted the distortion of the study of economics, but has transformed the purely political and ideological view of deregulation into legitimate economic theory. The shuttle of academics between business schools, private industry, and the apparatus of government—the Federal Reserve, the White House, and Congressional hearings—paid for by the players who want to be freed from government interference shames the very idea of scholarship.
In an interview with NPR, Ferguson described what he learned from making the film: “Very prominent professors of economics, often people who’ve also held high government posts, are paid to testify in Congress,” Ferguson explains. “They are paid to be expert witnesses in both civil and criminal trials. They’re often paid to write papers that praise the financial services industry, and argue on behalf of deregulation of the industry. They make millions, in some cases tens of millions of dollars, doing this. And this is usually not disclosed.”
A reprehensible example of this is Frederic S. Mishkin, once a member of the New York Federal Reserve, and once again a professor at Columbia Business School. Mishkin was paid big bucks by the Icelandic Chamber of Commerce to write a paper on the “stability” of the Icelandic economy. Once the Icelandic economy failed because of deregulation and outlandish borrowing by its three banks, Mishkin (who resigned his position on the Federal Reserve just as the 2008 crisis was unfolding) changed the name of the paper on his CV to read “instability.” (A review this morning of his CV reveals that he has returned the title to its original form.)
Greed has been identified as a human failing since way back when history was still oral. Why can’t we get that governments are the only entities capable of curbing this impulse to hoard which rears its ugly head when markets are left alone to self-policing by individuals who want to live like rock stars: private planes, multiple residences in posh places, diamonds, cars, mistresses (because these players are invariably men, and with only several exceptions, white), prostitutes, cocaine, all the accouterments of royalty. The United States of America now has the largest equity gap of any developed nation, according to Ferguson. In an interview during Inside Job with Paul Volcker, former chair of the Federal Reserve, when he left private industry, he was making $45,000 a year, and that was considered an enormous compensation package. Compare that to the story of Henry Paulson’s compensation package in 2006, when Bush II named him as Secretary of the Treasury.
CNN reported, “Paulson made more than $38 million in 2005, according to Goldman’s proxy statement, with most of that, $30.1 million, coming from restricted stock awards, and stock options valued at $7.3 million. He got $29.2 million in stock grants in 2004 and $20.8 million in 2003, on top of his base pay of $600,000 each of the last three years.”
“His Goldman stock holdings at the end of 2005 were worth just under $700 million at current prices, not including the value of his stock options.”
Obscene. These compensation packages are obscene, and what irks me the most, on a Sunday morning, is that in addition to conflating capitalism with democracy, many of these same folks, especially Republicans, interject Christianity in there, too. Since when is greed not condemned by Christianity?
In an October 3, 2010 article in the Chronicle of Higher Education, the corruption of academia is highlighted, by the filmmaker Charles Ferguson, rather than by a leading academic. It’s definitely worth reading, especially if you don’t have time to see the film, because Ferguson names names and shows how the same “academics” who bolstered deregulation with academic writings, successfully argued against any regulation of derivatives, and saw no reason to limit the leverage ratios of investment banks, profited from their consultations. Those names are very familiar, including Larry Summers.
Which leads me to consider the move to deregulate law schools, an intention that is sweeping through the three-year comprehensive review of the Standards and Interpretations for Approval of Law Schools. There was a time when the structure of the academics of law schools was just forming, when Christopher Columbus Langdell at Harvard, attempted to make a science out of teaching law. It was called the “case book” method and students were instructed to excise legal principles from within judicial opinions, often ignoring the unstated historical and political justifications for the resulting rules of law. What law students needed was found within the four corners of the judicial opinion, because they were led to believe that the “conflict and controversy” requirement of judicial intervention transformed economic and political disputes into situations capable of legal resolutions with crystalline rules of law that could be transported to resolve similarly situated disagreements. The beauty of the American legal system is that this myth has in some astonishing ways worked, but no one in modern times can genuinely pretend that the justifications for many of these rules of law aren’t hewed from political and economic ideologies and practicalities.
Just as the business school and economics departments of this country’s major universities played an essential part in deregulation and development of the clever financial products—bundled bad mortgages and credit default swaps—developments that crashed the American and international economies, what will happen if law schools are deregulated? Will the freeing of full time faculties at research institutions promote social justice and access to the rule of law, or will their intelligence be lured by greed and consumption into more justifications for more deregulation? Just wondering.