Inside Job director Charles Ferguson caused a stir with his Oscar speech, but his suggestion that people should be jailed over the financial meltdown is simplistic
It was an easy line for an eager crowd. Picking up an Oscar for his scattergun credit crunch documentary Inside Job, director Charles Ferguson got a cheer from Hollywood's finest for a rant about the absence of prison time handed down to Wall Street banking bosses.
"Forgive me," Ferguson told his fellow movie-making luminaries. "But I must start by pointing out that three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail. And that's wrong."
The baldness of his sentiment, widely shared by the public on both sides of the Atlantic, has caused a stir in the financial community. Interviewed afterwards by the Wall Street Journal, Ferguson expanded on his theme, declaring that "there should be dozens or even perhaps hundreds of senior financial executives in prison now".
Unfortunately, it's just not that simple. Ferguson's remarks are in tune with his entertaining, polemical film, which contains interviews with financial players ranging from George Soros to Christine Lagarde, Nouriel Roubini and Eliot Spitzer. Using the briefest of quotable snippets from each, the documentary builds a crude argument that the global financial meltdown was a conscious "inside job" caused by greedy, ruthless, mendacious, out-of-control bankers.
But responsibility for the global debacle is as diffuse as liability for the typical sub-prime mortgage derivative – it can be sliced, diced and attributed to recklessly overstretched homebuyers, sly on-the-ground mortgage salespeople, flawed credit rating agencies and blind regulators as well as avaricious, bonus-hungry bankers.
Much as we might like to see some big names doing porridge, prosecutors have struggled to build convincing cases of willful lawlessness. In the US, the department of justice thought it had struck gold with a string of emails sent by two Bear Stearns hedge fund managers – Ralph Cioffi and Matthew Tannin – who privately worried that the sub-prime market was "pretty damn ugly" and "toast" while telling clients that everything was sunny. Their funds, which had investments of $20bn, collapsed, contributing to the subsequent demise of Bear Stearns in its entirety.
But during a trial in Brooklyn in late 2009, a jury decided that private expressions of self-doubt didn't amount to criminal fraud. That acquittal seems to have put paid to efforts to lay charges elsewhere on Wall Street – including the top brass at defunct Lehman Brothers.
In Britain, the RBS chief Fred "The Shred" Goodwin escaped sanction from the Financial Services Authority despite driving the bank into the ground. Although the FSA is yet to publish its findings in full, the authorities clearly felt that dreadful misjudgments and foolish lending policies didn't amount to criminality. Simon Bevan, an expert in fraud investigation at accountancy firm BDO, says: "There are many degrees of recklessness that may be reprehensible but aren't dishonest."
A 545-page tome landed on my desk last week: the full text of the US Financial Crisis Inquiry Commission's findings. This bit of bedside reading concludes that the credit crunch was down to "human mistakes, misjudgments and misdeeds that resulted in systemic failures". It adds: "A crisis of this magnitude cannot be the work of a few bad actors."
Demanding imprisonment isn't the answer to this fiasco. Neither is it particularly constructive. However frustrating it may seem, we can't invent laws retrospectively to snare our chosen villains. But what remains so desperately disappointing is the lack of remorse shown by those who made such errors – and the failure of the government to implement lasting reforms. The head of America's biggest sub-prime lender, Angelo Mozilo, still thinks his business was "one of the greatest companies in the history of this country", responsible for delivering dream homes to thousands.
The Bank of England's governor, Mervyn King, declared last week that he was surprised that public outrage over bankers' failures had not been greater. On the single issue that most enrages the public – bankers' bonuses – there's been precious little reform, with the government crumbling in the face of threats by institutions to shift investment elsewhere in the world. But, encouragingly, Sir John Vickers's independent commission on banking is showing signs of backbone. Its members are said to have threatened resignation when George Osborne suggested he might take a break-up of banks off the table during the Project Merlin peace talks with the City. We could yet see some radical action.
As to whether the crisis was truly an inside job, Ferguson's own documentary cites a remark during the boom years by Citigroup's former boss, Chuck Prince: "We have to dance until the music stops." As George Soros subsequently pointed out, unbeknown to Citigroup, the music had already stopped.
If Clive can't survive, HMV has little hope
Sad tidings for music lovers in the Shetlands. The islands' main independent music store, Clive's Record Shop, has been put up for sale. Joint owner Clive Munro has decided that "the shop, as it stands, is no longer viable". Digital downloads, together with an expansion of the local Tesco store, are to blame. One local customer, on Clive's Facebook page, expresses regret: "I love comin in fir a yarn and a nosey aboot fir stuff."
Clive's shop isn't alone. HMV has sounded its second profits warning in as many months and is expecting to breach its banking covenants.
Since the demise of Zavvi at the end of 2009, HMV has been the only remaining nationwide high-street music chain. And if the last man standing can't make a decent return, music on the high street is surely not much longer for this world.
We'll end up trying to explain to our children that there were actual shops that sold physical discs loaded with musical recordings – as anachronistic as a blacksmith's forge or a wooden abacus.