For this weekend's upcoming Motley Fool Money radio show, I interviewed Charles Ferguson, an Academy Award-nominated director, about his new documentary film Inside Job, which details the financial crisis of 2008. What follows is part of our conversation.
Chris Hill: You interview over 40 people in this film. One of them is Nouriel Roubini, the economics professor at NYU. One of the things you ask him is, "Why don't you think there isn't a more systematic investigation being undertaken?" And he says very directly, "Because then you would find the culprits." That seems to point toward the government protecting the wrongdoers. Do you think that's the case?
Charles Ferguson: Yes, I do. There is no question in my mind that that is going on, and while I am not entirely certain what the calculation is in President Obama's head that has led him to condone such behavior, there is no question that that is what is going on. There has not been a single criminal prosecution, which is quite extraordinary and very different from previous economic crises, financial crises. After the savings and loan scandals of the late 1980s, there were several thousand criminal prosecutions and hundreds of financial executives, perhaps thousands, certainly hundreds, went to prison.
Even after the dot-com bubble and the collapse of Enron and WorldCom roughly a decade ago, a smaller number, but still substantial number of people, certainly dozens, went to prison. This time, not a single person has even been arrested. There has also been no special prosecutor appointed. There has been no equivalent of the Pecora Commission or other really serious investigative commissions. There have only been a handful even of civil cases filed by the government. It is really extraordinarily shocking.
Hill: How much of this problem is about the people involved, and in particular, I am talking about executives at the major financial firms like Goldman Sachs
Ferguson: That's a good question. By this point, I think it is both, but the system was in very significant measure, created by a relatively small number of people. Meaning hundreds, perhaps a few thousand people in the financial services industry, running the financial services industry who made a very concerted effort to lobby the government, to change laws, to weaken regulation, to weaken law enforcement and by paying off the economics discipline, to spread the idea that deregulated and unregulated finance was OK and was even a good idea.
Hill: Before your filmmaking career, you were a consultant at some of the biggest tech companies in America, companies like Apple
Ferguson: Yes, it is. It is absolutely the case and one sees that in many different ways in the behavior of the two industries. In the first place, the technology sector is, for the most part, quite competitive, and while sometimes a firm such as Microsoft
Another thing that you see is a remarkable difference between technology and financial services pay structures and compensation structures and incentives. When I started my software company, I started and ran a software company in the mid-1990s, successfully so. It was a venture-funded start-up. The venture capitalists who invested in me sat me down and told me extremely directly, "Your salary is going to be $100,000 a year. It is never going to go up. Your stock is going to vest over five years. You cannot sell any of it, so go make your stock worth something. And also, no outside activities." Needless to say, the cash in the company was not spent on lobbying or entertaining, it was spent on developing products.
If I had gone to them with the typical compensation package of a trader or a Wall Street executive these days and said, "I have this great idea. Please pay me a guaranteed cash bonus of $5 million next year," it would have been a very short meeting.
The interview with Charles Ferguson airs this weekend on Motley Fool Money on radio stations across America and on iTunes. Chris Hill owns shares of Microsoft. Microsoft is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor choice. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Microsoft. The Motley Fool has a disclosure policy.