Moore capitalizes on our current economic malaise to launch a broad attack against capitalism in general and close out his film with a full fledged endorsement of socialism. While many of his complaints about banking and insurance are spot on, his failure to distinguish them from the good parts of capitalism, nor identify the real primary causes of our current problem have the potential to march some lemmings off a cliff. Spoiler warning for anyone who reads further, I saw this last night for FREE at the Charles Theater.
Moore spends much of the movie railing against derivatives, credit default swaps, questionable types of insurance and the public bailout that capped it all. He also points out how for about a decade our best and brightest were financial engineering instead of real engineering and the immeasurable loss to productivity and humanity by having smart people figure out exotic finance rather than curing cancer, cellulosic ethanol, or cold fusion. These are good valid points. We can all agree that taking money from those with median incomes of 45k and giving it to those who are millionaires is wrong. As to how we got here and as to the suggested solution, he is clueless, but so are many people, so allow me to enlighten you.
We got here principally through 3 legislative acts. These are 3 legislative acts that can be undone, but no one in any position of power is talking seriously about this at all. I will first concede that with any complex problem there were many, many causes, but the following are the primary 3:
1. In 1973 the SEC revised its capital rules for broker-dealers. The revision mandated that any firm dealing in securities (fancy word for bundled loans) had to get them rated by a rating agency and if they didn't they would be penalized by not being able to do as much business as a firm that did get their securities rated. The SEC then went onto say that to get a qualified rating it had to come from one of 5 existing companies at the time. Those 5 have since consolidated down to 3, Moody's, Fitch, and S&P. This effectively bared any new ratings agencies from forming, and turned the existing 5 into a government sponsored oligopoly (small group of monopolies). It also made the ratings those agencies assigned critical to investment banking. Today the ratings agencies run 50% profit margins, a margin unheard of in any competitive market and clearly indicative of a monopoly. The bogus AAA ratings given to bundled garbage were absolutely necessary to get the big institutional money from pension funds, insurance companies, 401ksand sovereign wealth funds, most of which are BARRED from investing in anything not rated AAA. Were it not for the bogus AAA ratings this would have been an interesting academic study, and probably even made front page for a while, but would not have been a black swan or six sigma event. Competing ratings agencies must be allowed. Further, the payment structure must be reversed. Currently ratings agencies are paid by the company that comes up with the securities. This is a HUGE conflict of interest. They must be paid by the company buying/investing in the security.
2. The repeal of the Glass Steagall Act in 1999 allowed the bank you have your checking and savings account at to get involved in the risky securities ratings agencies rate. From 1933-1999 this was disallowed for the very reason that we have witnessed, allowing traditional depository banks to expose themselves to that much risk exposes the average person and the entire economy to too much risk. Glass Steagall MUST be restored if there is any hope of real change and preventing this from happening in the future.
3. The Commodities and Futures Modernization Act of 2000 turned Wall Street into a Vegas Casino. It too undid a long standing law that barred banks from highly risky/questionable activity. From 1907-2000 there was no such thing as a credit default swap or a modern derivative (they had been allowed for future agricultural delivery contracts). I will repeat:
FOR 93 YEARS THERE WAS NO SUCH THING AS A CREDIT DEFAULT SWAP OR A DERIVATIVE.
They weren't regulated, they were illegal as they should be. The majority of the CFMA 2000 must be repealed, but there is no talk of this. There is only talk of how to regulate CDS's and derivatives. That's like talking about how to regulate fraud and deceit, you don't regulate such activity, you ban it outright.
The movie closes with some powerful scenes of Chicago factory workers having a successful sit in, and some former homeowners in Miami who broke back into their foreclosed home, had the bank come out to repo it again, had the cops called out, and a huge group of community protesters turned them all away and reportedly the family is still in the home 8 months after the fact. It then goes onto endorse FDR's "Second Bill of Rights" which would have guaranteed a job with a living wage, freedom from unfair competition, a home, medical care, education, and recreation. FDR died less than a year after proposing this and then Truman took over. While everything on the list is quite noble, the logical and difficult question is who do you take from to make it happen and how do you take it from them?
It deeply concerns me that there is no one who has made any mention of reforming the ratings agencies, restoring Glass Steagall, and repealing the CFMA 2000. We are going to have a few million people who form their opinion of what went wrong and how to fix it off of this movie and I fear the actions that could result. Moore makes another good point that a significant amount of government is controlled by big business and acts in the interest of big business. It would seem undoing two relatively recent laws that passed at the behest of big business would be a logical start for getting back on the right path.