THE FINANCIAL CRISIS AND HOLLYWOOD
By Mimi Pérrez
During the last four years several movies came out, and their common theme has been the financial crisis that we’re all going through, and it reminds us about other films that were premiered in the 40’s that talked about the crisis of the 30’s such as “It’s a wonderful life” by Frank Capra. This time, I’m talking about “Wall Street 2: Money Never Sleeps” (2010) by Oliver Stone, “Margin Call” (2011) by J.C. Chandor, “Up in the Air” (2009) by Jason Reitman and “The Company Men” (2011) by John Wells. Documentaries dealing with the same issues have been released like “Inside Job” (2010) by Charles Ferguson and “The Flaw” (2011) by David Sington. Currently, Constantin Costa- Gavras is shooting “Capital”, based on the novel by the same name written by Stephane Osmont. Also, it’s better to put aside the weak and shallow efforts of Michael “I’m a film buffoon” Moore. “Margin Call” and “Inside Job” are the most decent flicks out of that group, but none of these films give a detailed explanation of the crisis, which is something you can’t argue about because economists, in real life can’t agree in the actual cause either.
“Margin Call” and “Inside Job” are the most decent flicks out of that group, but none of these films give a detailed explanation of the crisis, which is something you can’t argue about because economists, in real life can’t agree in the actual cause either.“Inside Job” it’s a great documentary because of the questions asked by the interviewer, because of the visual rhythm the movie has and because of the group of people that are featured in it. This documentary talks about the unspoken, and it even features professors from colleges like Harvard who were living in denial about the crisis and who were getting money from private corporations.
These movies and documentaries explain part of what really happened. Bankers and businessmen with no compassion do whatever they can for exploiting the average Joe, but it was important to spell out the fact that when something goes wrong in their business, they ask the government for help. These type of business people that generate money and give away benefits to their employees like the creators of Apple, Facebook or Google, show off their virtues and no one doubts of their abilities. The bad businessmen who are helped by the Government distribute their wealth among themselves but they don’t create or invest in employment.
They want to take a big chunk of the amount of money paid by the taxpayers. In this group, there’s a big number that convince the public opinion that the rescue plans they come up with are for the everyone’s welfare, and that these investments will help the general public, just like it happens in “Wall Street 2”. Now, let’s talk about the reality that’s not portrayed in these films. There’s a general agreement that the crisis started with the real state companies. Since the 30’s, it all started with the American dream, where each family got to own their own house. With this ideal, Presidents Roosevelt and Kennedy created two businesses: Fannie Mae and Freddie Mac that were part of the stock market, but they were semi- public, and when they went broke in 2008 they were bought by the government using taxpayers’ money. These businesses allowed bad mortgages so they could help the American lower class. In the end, they got to control more than a half of the real estate market. The house process rocketed to the sky, and when the buyers couldn’t afford their payments, the bubble popped.
Dollar’s low price and the large amount of marketability handed out by the Federal Reserve (public bank that gives money in the US) helped to make the real state bubble bigger. The Federal Reserve stimulated the idea of buying houses to low prices, so banks would give away mortgage deals. This means that the ideas designed by politicians, the actions made by semi- public business, and the marketability of the Federal Reserve made that the economists explored riskier activities which lead to really bad consequences in both short and long terms. The Federal Reserve increased their margin call for covering the spots the bubble wasn’t covering in the online businesses, and for improving the market because of 9/11. From this point, other areas in the financial world, and other countries started to do the same. Many businesses went broke, and millions of citizens ended up in the streets with no house, no money and no job. This is a very well known story, and it’s not worth being retold.
From the previous analysis, it’s easy to tell that the crises wasn’t initiated by a group of greedy capitalists using public money for themselves (they’ve always been like that before, during, and will be like that after the crisis), but instead it all started because of a group of politicians and bureaucrats who just wanted to make an easy living. The famous markets that are continuously brought up by the press are not the reason of the crisis. Politicians and bureaucrats won’t admit their mistake, and in their case, it’s a lot less complicated to blame it on somebody else that solve any of the current issues. One mustn’t forget that us, the taxpayers, are the ones who pay for the solutions proposed by politicians.
There’s a strong debate regarding the solutions proposed for getting out of this crisis. The financial experts and politicians don’t agree in any proposal, and the average citizen is clueless and doesn’t really know whats going on. Let’s study three proposals: First of all, it’s important to clarify that every country has a different economy, and they’re not developed in a linear way, but they fluctuate constantly. This means that there are stages of expansion and stages of recession. The crisis shows up when there’s a profound deceleration in the growth of a concrete economy; therefore, it’s impossible to stage a plan where there won’t be a crisis ever. I’m aware that this commentary can seem quite heartless for the non-economists.Second of all, the politics that are supposed to stimulate the artificial demand aren’t working at all. In short term, it might look like there’s a safe step towards improvement, but in a long term, that’s highly unlikely. It’s like trying to overcome a bad break-up via gin and tonic. The first drinks can make us feel better, but if we drink too much, we’ll become alcoholics. In a long term, the artificial stimulus brings several harmful consequences:
a) An increase in the public deficit. At some moment it’s important to balance the expenses and the income so we don’t end up like Greece. The way for reaching this balance is still tougher: higher taxes, the issuance of public debt (this means that the future generations will pay the excessive expenses) or inflation. There aren’t enough budget cuts in the public expense, so it’s politically hard to achieve. It’s important not to forget that a chronic deficit can bring the Government to bankruptcy, and it can affect directly the basic needs (health, social security, and education). It’s important to be careful with politics that mean food for today and hunger in the future
b) The limited public funds direct a group of business subventions that now are considered old. These businesses have a higher capacity of organization for getting the limited public funds but, these funds are meant to be used by young entrepreneurs; however most of these public funds have been used by financial entities in high risk investments, and now they want all of us to pay for their mistakes. When these companies were making big money, they didn’t give the public any of their benefits.
Long story short, higher taxes, the investment in inefficient departments or the saving of financial entities is what brought indignation to many citizens around the world, and they’re right. They’re paying with their own money the expenses of a party they weren’t invited to. The measurements seem obvious, and on occasion the solutions might mean well, but they end up hurting the masses a lot more.
Third of all, there has to be a way to regulate the financial sector, so there will be no stimulation in erroneous behaviors in the financial agents, like the ones reflected in the movies mentioned at the beginning. There should be measurements that will reinforce the fact that entities won’t take any more risks or that the Government won’t save them when they face another crisis. The Federal Reserve and central banks (like the European Central Bank) should control the inflation instead of intervening in the economy – like they did with different Internet companies – creating more problems than solutions. What I mean by regulate and not intervene, is that when a bank intervenes, it just hands out large amounts of money for rescuing financial entities that haven’t worked in an adequate way. To regulate is to fully explain the rules for new investments so the economical agents won’t allow bad investments, fund’s deviation or corrupt financing. This legal frame is the base of the economic growth. It could be a positive thing to remove all the obstacles that entrepreneurs have to face when they want to start a business. I’m not talking about subventions. I’m talking about the reduction of paperwork that is required when someone wants to start a new company or to patent a new invention or a simpler way for paying taxes. Another way would be to fit in colleges – especially in Europe- demands of what society really needs. Academics should explain the idea of developing projects without immediate revenue, but that can have really good income in the future. To educate students to be more active and less passive in the knowledge exchange with the real world
An important note: analysts don’t know what sectors are the ones that will create a prosperous economy and neither do politicians. Nowadays, it’s important to produce tablets, but who knew about these five years ago? Clinton, Bush, Obama, Sarkozy, Cameron, Rajoy or Merkel? None of them, Steve Jobs came up with the idea among other inventors. There should be an easier process to innovators who want to improve the world and are working on discovering new sources of clean and cheap energy, so we won’t depend on people like Chavez or Ahmadinejad. By the way, kudos to these “Arabian springs” that are expelling governors who oppose the economic increase and the protection of human rights.
To conclude, I’d like to point out that people have every right to be angry when they claim that the ones who are actually paying for the crisis are lower class people, but they shouldn’t be easily seduced by slogans that have failed on them several times. A crisis it’s not solved by giving more power to politicians, nor by giving more competition and importance to Government entities, nor by granting subventions everywhere. According to what’s written in this article, the solution would be to demand from politicians a way to redefine the rules of the game where the economy would grow, and also, to tell them not to spend money paid via taxes in bad investments. In Spain, for example, airports are opened with no passengers or airplanes at all, but shelters where women seek refuge after being beaten up are closed. Who wouldn’t be offended when the current politician cuts the ribbon at the brand new airport, and every other day, the press publishes an article about a woman losing her life in the hands of her partner?
Before anyone jumps into conclusions regarding the last statement, the criticism to politicians and bureaucrats and their so- called well intentioned measures are meant to inspire them to follow the rules correctly and not to hide the truth from the taxpayers. The one who pays is the one who has the voice in the private sector; therefore, it should be the same way in the public one. Also, we shouldn’t get lessons from the CEO who saved his company using money from the government, not because he didn’t start the crisis, but he took advantage of the circumstances.
P.s: One must never forget that the taxpayers are the ones who live under payroll, and who didn’t have anything to do with the financial crisis.
Mimi Pérrez is a professor of economics and & writer.
All rights reserved. La Critica New York 2012.