Inside Job: do yourself a favour!
23 February 2011
NOT blessed with the looks of Ralph Fiennes I find it difficult to recall what I ever did on long plane flights before individual video screens. That said, on a recent trip to LA I couldn’t actually recall, by the end of the flight, all the movies I had watched on that flight. I had to revert to the program to remind myself. By the time I was home again I estimate I had watched over 10 movies and most tend to blend into a blur of clichés. One movie, however, was riveting.
“Inside Job” is a very well written, researched and edited account of the global financial crisis, that I have since learned was selected for a special screening at the 2010 Cannes Film Festival and is quite likely to take out the Academy Award for Best Documentary Feature.
Inside Job is narrated by Matt Damon, which gives it a very different tone than a Michael Moore rant. But the real stars are some of the people who are interviewed. Many of the usual suspects for the prosecution are there: Roubini, Soros, Das – the people who warned of the impending doom but generally did it early enough that they were like the boy who cried wolf by the time 2008 rolled around. Their contribution is important and credible but for me what made the movie so enjoyable was watching interviews with people you don’t ordinarily get to see either speaking so candidly or being grilled so effectively.
There are a number of wonderful moments where government advisors and academics realise too late they have been cast as a defendant in the witness box for their role in this ‘inside job’ and not as an expert witness. There are also wonderful cameos. A botoxed and bleached Wall Street madam who invoiced her services to investment banks as IT services and consulting, and at the other end of the spectrum the very cool and elegant French finance minister Christine Lagarde who when asked how she responded to only learning about the tanking of Lehman after the event, said her response was, “holy cow”.
Whether you think you understand what created the events of 2008 and 2009 or you think you don’t care because it’s ancient history I implore you to go to see this movie and to take along your teenage (and older) kids. If they get nothing more out of it than understanding that investment bankers, academics, central bankers and governments have no more idea than the rest of us about why markets move or when, then you will have done them a huge favour. If it also dawns on them that the real danger to their future is blindly trusting these people and their belief that they know what they are on about because they are well paid or powerful, all the better. They need to know the emperors still have no clothes.
I wrote some years ago that I heard Bill Evans of Westpac say that a client remarked, “the GFC is over but it’s not forgotten”, to which he responded, “no, it’s not over but it’s already forgotten”. It’s impossible to walk away from Inside Job and not have that feeling. The lunatics are still running the asylum and they think they have it under control!
Fired up from the movie and the sheer gall of Wall Street and its subsidiary Washington, I got off the plane and one of the first local news articles I read was, “Lost: Our $30M Fee” (Weekend AFR Feb 12-13). The subtitle to the article was, “JPMorgan sued a client and lost. Why did it take the risk of biting the hand that feeds it and drawing attention to bankers’ fees?”
If you missed it I encourage you to read the article about their loss in a court battle with Consolidated Minerals over a take-over defence fee. There are some priceless insights into the mind of investment bankers who rally to defend the bank’s approach and lament their loss. The saddest comment was attributed to an anonymous banker who said of the decision, “If you are a lowly paid judge that sort of money is mind-boggling”.
And there you have it again, the answer to the seeds of the whole GFC and sadly its salve. The notion that only highly paid investment bankers and corporate CEOs have the capacity to understand complex issues; indeed it seems the quality of thought is believed in some circles to be directly correlated to the salary and bonus of the thinker.
You don’t have to be well paid to form a view on this issue and I actually don’t think the AFR answered its own question – why take the risk? I will leave the legalities to the judge and stick to very simple business principles.
Were the shareholders of JPMorgan ever going to be well served by pursuing this action?
$AUD30 million is a rounding error in the global business that is JPMorgan. Its net income for the third quarter of 2010 was $US4.4 billion, up 23% year-on-year. JP Morgan makes $US48.2 million a day every day of the year. The shareholders wouldn’t notice this result one way or another.
There is a saying that all publicity is good publicity. The ARL, ARU and AFL would all beg to differ and I think so would the shareholders of JPMorgan as this is just the story in the post GFC world that will get coverage and spark more anti-banker discussion globally. In a world where banks are investing billions in trying to improve/redefine their images, the negative value of these column inches is a big offset. As for the possible cost if just one client somewhere in the world decides to employ Goldman or UBS because they don’t like the idea of an advisor who wants to pursue disagreements on fees in court it could be many multiples of this loss. In their Masters of the Universe world this deal was small beer but the precedent now stands for all potential future clients.
It is hard not to come to the conclusion that the decision to pursue a client who had already paid a $20 million fee for an additional $30 million, and pursue it in such a public manner, was wholly driven by the remuneration policies of the bank where a significant whack of the outstanding would have gone directly into the pockets of a few employees of the bank. Heads they win, tails every one of their international colleagues and the shareholders lose. One wonders yet again where the non-executive directors representing broader stakeholder interests were in all this.
Ironically the people who made the decision do look a bit silly and they did earn less than they had hoped so maybe there is something in that theory about income and intelligence being directly linked.
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