Hank Paulson's inside job

In a new documentary film Hank: 5 Years from the Brink (2013), Hank Paulson, former Treasury Secretary retraces decisions during the financial crisis, especially the horrific week of September 15 2008 when Lehman went into bankruptcy, Merrill Lynch was swallowed up, and AIG bailed out.  

The interview segments are interesting. While there are no new revelations, the director misses opportunities to go to new places. Instead, excessive archival news footage, retraces tired old ground. The production feels rushed, and the director's heart is not in the project. By contrast, Errol Morris gets the art of the interview-based documentary right in films such as The Fog of War, about Robert McNamara. 

I always felt Paulson, Geithner and Bernanke did a good job managing the crisis once it hit. What struck me in the film was how much of a dealmakers mindset Paulson brought to the job and how very hands-on he was.  I think Paulson did the best he could with the cards he had been dealt - and the film reinforces this. 

Director is Joe Berlinger and it's the first film by Bloomberg Businessweek Films. 

Inequality for All

Inequality for All (2013) is the title of a new documentary film on the financial plight of middle class America and the historic disparity in wealth between the rich and the poor. Two sets of numbers in the really popped out for me:

  • The richest 400 Americans have more wealth than 1/2 of the US population combined. 
  • The two countries that get the most money from the sale of each iPhone are Japan and Germany (both high wage economies). The US only gets 6%. 

The film is based around the ideas of Robert Reich, the former secretary of labor in the first term of the Clinton administration. Reich also anchors the documentary and it is his surprisingly (for me) engaging personality that keeps the film a fairly easy watch. 

These economic documentaries are hard to make because the arguments and the data can be pretty abstract and dry. So hats off to the director Jacob Kornbluth. (My favorite in this genre is still the Oscar winning documentary Inside Job (2010), Director Charles Ferguson.)

 

Starting again in Egypt

A new documentary by filmmaker Jehane Noujaim  illustrates the challenge of rebuilding a country when the social and political structures for running an economy and resolving differences have atrophied through decades of repression.  The Square (2013) traces the intensity of Cairo's Tahrir Square, from the downfall of Mubarak in early 2011 through the overthrow of Morsi in mid 2013.  The film makes sense of the street chaos by focusing on the daily lives of a group of "revolutionaries" from different backgrounds and religions  - people who met each other and Jehane in Tahrir Square: Khalid, an actor/filmmaker; Magdy, a member of the Muslim Brotherhood; Amid, an activist from a working class neighborhood; Ragia, a human rights campaigner; Ramy a singer/song writer; and Aida a filmmaker. The footage is so real you almost feel you are there. Still, the film has more optimism about Egypt than the news reports.

(The trailer has been removed from the web  - in the meantime here is an excerpt shown on BYOD, not yet updated for the Morsi chapter.)

Elections are fair game - in the US

When I hear that members of the US Republican Congress and Senate don't care about a backlash against their shutdown of the federal government because they almost all hold safe seats, I wonder how this can be. But this week The Economist magazine clearly explains the formula. Gerrymandered electoral boundaries are set by state governors - and they are mostly Republican. About setting these boundaries, The Economist explains:

“The ideal strategy for elections is to make sure your districts have just enough of a partisan tilt to ensure you’ll almost certainly win them, but not so much that you win them overwhelmingly and waste your votes. Meanwhile, you want to cram the opposition’s voters into districts which they win by overwhelming margins and thus waste their votes. Republicans can make sure their seats are both safer and more numerous by achieving lots of districts where they’re likely to win by a safe but not extravagant margin, say 15-30%. If they pursue this strategy, they should wind up with relatively fewer seats that tilt overwhelmingly Republican. Meanwhile for Democrats, whose votes have been “cracked” or “packed” such that they lose more districts, the districts that they do hold would be more likely to be overwhelmingly Democratic than is the case for Republicans.”
— The Economist, October 4, 2013

And so the Republicans lost the 2012 popular vote in Congress but hold many more seats than the Democrats.  I'm amazed there is not more backlash against this corruption of the electoral system. 

Growth without justice - a film about China

At the New York Film Festival I watched a new film by the Chinese director Jia Zhangke, called A Touch of Sin. It was a strikingly honest and up to date film about corruption, inequality, and what rapid economic transformation can do to the social fabric in China. There are four interconnected stories. The first one is a bit bloody - but bear with it if you are violence averse like me.  

If you get the chance to see any of Jia Zhangke's films, take it.  The Financial Times (September 20, 2013)  calls him one of the top 25 Chinese movers and shakers to watch. 

Bankers under pressure to break the law?

Bankers admit misconduct is still rife in the financial sector, according to a recent survey:

  • 26% of those surveyed said they had seen or had first-hand knowledge of breaking the rules
  • 33% said they felt under pressure from the bonus or compensation plan to break the law or behave in an unethical way.

The survey published by law firm Labaton Sucharow in 2012, covered 500 professionals evenly divided across the US and the UK. 

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How does a country heal after civil war?

Act of Killing (2013) is a striking documentary film about the carnage in Indonesia following a coup in the 1960s. A million people are estimated to have died.  Many were Chinese. 

The Director, Joshua Oppenheimer, invites his protagonist, a former leader of the violence, to re-enact his killings.  The co-producer is Errol Morris, master of documentary re-enactments, including his Oscar-winning film Fog of War about Robert McNamara (former US Secretary of Defense and World Bank President), where he uses archival footage to cleverly recreate the context for decisions. 

My experience of Indonesia is only a short 5 days in Jakarta. But I've always wondered what dynamic holds such a seemingly disparate country together. After this film I'm wondering even more. 

Are fines just a cost of doing banking business?

In a nice speech a few years ago about the importance of tone at the top for setting ethical standards in banks, Stephen Cutler then a respected regulator at the SEC said:

“Human nature being what it is, there will always be those who break the rules. But if managers don’t do enough to prevent those violations, or let them go unaddressed for too long, then they should be held responsible.”

The New York Times notes the irony that Stephen Cutler has been JP Morgan’s general counsel and head of compliance and that much of the bank's recent troubles happened on his watch. (At JP Morgan, Trying to do the Right Thing Isn’t Enough, September 20, 2013)

The Times quotes Donald Langevoort, a professor at Georgetown University School of Law:

“No one will say this, but it’s more effective to run the risk of noncompliance and pay a few fines, which is just a cost of doing business.”

Too bad about the taxpayer, when this behavior runs amok across the industry.

 

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Beautiful banking minds fight over subsidy pie

Using IMF research earlier this year Bloomberg estimated the subsidy paid to US banks arising from the implicit taxpayer guarantee of banks (otherwise known as too big to fail) is a huge $83 billion a year (as of 2010). 

In an editorial from February 2013 Bloomberg wrote: 

"The top five banks -- JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. -- account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits (see table for data on individual banks). In other words, the banks occupying the commanding heights of the U.S. financial industry -- with almost $9 trillion in assets, more than half the size of the U.S. economy -- would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders."

Imagine if these banking brains were doing something more productive?

 

Source: Bloomberg

Source: Bloomberg