'Inside' Jobbed

There was a weirdly tardy review of "Inside Job," the Oscar-winning documentary about the financial crisis, this week in the Washington Post by Ezra Klein.

Klein says the movie was wrong to assert that people should have/could have easily seen the real estate bubble forming, and/or the risk to the credit system growing. He repeats the "S--- Happens" defense offered by JP Morgan's Jamie Dimon (what Dimon actually said, to Congress, was that S... happens every seven years). 

Klein cites the case of author Michael Lewis, who wrote a book ("The Big Short") about investors who DID see all of it coming, and bet accordingly. The subjects of Lewis book are the exception, Klein argues, that proves his rule. He also cites pre-crisis pieces by Lewis himself, downplaying the danger.

Two questions for Klein -- did he read Lewis' book? Did he really watch the documentary? "Inside Job" interviews one of the men (there were many, including state regulators) who went banging on the doors of the Federal Reserve, begging them to regulate the out-of-control subprime industry. The Fed -- under both Greenspan and Bernanke -- consistently refused, and actively prevented states from doing so, on the grounds the states could not interfere with interstate commerce. But forget about"Inside Job" for a second. You could watch CNBC almost any night during the 2000s and see Nouriel Roubini and Gary Schilling telling Larry Kudlow that there was a catastrophic housing bubble forming. 

Klein also writes: "What's remarkable about the financial crisis is not just how many people got it wrong, but how many who it wrong had an incentive to get it right."

Here's where the Lewis book comes in. Lewis writes specifically and elegantly about how the perverse incentives established by mechanisms for betting on complex mortgages pools paid everyone in the Wall Street food chain NOT TO KNOW, OR CARE, about the damage they were doing. 

To see Klein completely reamed by somebody who knows about this stuff, read this blog.