Sunday, August 19, 2012

"The Flaw" gives a simpler account of the 2008 financial crisis

At a time of year when a lot of the new movies are trite, I can recommend viewing (on Netflix) “The Flaw”, the 2010 documentary on the financial crisis of 2008 by David Sington, from Docurama and Dartmouth Films.  It makes a good companion piece to Sony’s much larger “Inside Job”, reviewed here Oct. 24, 2010, as well as Lionsgate's "Margin Call".

“The Flaw” is pretty simple to understand.  Wages aren’t rising quickly enough. So banks and lenders decided they could wave unaffordable houses in front of ordinary workers, on the theory that their “assets” would go up in value, if they would only take on the debt.

Of course, that created a bubble.  Since real wealth wasn’t being created to match it (unless you say that houses bigger than what people need are real wealth), it had to fail.  Or perhaps it wouldn’t fail if employers increases wages quickly enough and didn’t send all our menial work to dorms in China.

The film (with some animation) makes a good distinction between “goods markets” (based on items people use and need, which tends to control the price), and “asset markets” (based on the idea that the item is a financial asset which should increase in value, like real estate – supposedly finite in principle). The film paid less attention to the securitization issue (and the whole system of credit default swaps) than did the Sony film.

There’s something else here: a good old moral lesson on the value of work, and the dangers or relegating it to others around the world.

The official site (“What happens when the rich get richer?”) is here

Try this for some legal home late summer viewing.

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