You want a villain, a bad guy you can blame for the financial crisis that’s torn a hole in the American economy? The gripping new documentary American Casino—just released on DVD like to nominate Phil Gramm.
The opening credits have just stopped rolling when Gramm, the former Texas senator who chaired the Senate Banking Committee for five years, makes his brief appearance in the film. “This is a mental recession,” Gramm says, in footage taken from his 2008 video interview with the Washington Times. And then, a moment or two later, comes the now infamous kicker: “We’ve sort of become a nation of whiners.”
The comment, from July ’08, was quickly turned into campaign fodder. It was an election year, after all, and Gramm was advising John McCain’s team on fiscal matters. The remark elicited one of then-Senator Barack Obama’s snappier lines of the contest: “America already has one Doctor Phil. When it comes to the economy, we don’t need another.”
But if the remark was quickly forgotten in the blizzard of campaign rhetoric, it stands out as a show of hypocrisy that, even in Washington, was remarkable. Gramm, as American Casino director Leslie Cockburn reminds the viewer, bears more than a little responsibility for creating the problems that have turned his fellow citizens into “whiners.”
It was Gramm who in late 2000 sponsored a Senate bill “which excluded from regulation the financial instruments that are probably most at the heart of the present meltdown,” Michael Greenberger, a former top official at the Commodity Futures Trading Commission, tells Cockburn.
The bill, Greenberger explains, freed lenders from dozens of federal and state regulatory statutes, creating a gambling hall mentality “where,” he says, “you’re betting on whether people will or will not pay off their loans.”
“It never fails to astonish how mad it was,” says Andrew Cockburn, who co-wrote the film with his wife Leslie.
Gramm’s legislation is one of the many fiscal follies delineated in American Casino. The film is methodical in its efforts to explain the roots of—as well as the current and potential forthcoming fallout from—the nation’s economic implosion.
Cockburn turns her lens on bankers, homeowners, financial journalists, mortgage brokers, bond raters, market analysts, displaced homeowners, elected officials, securities brokers—and one very famous former Fed chief, which yields one of the most stunning bits of dialogue in any film released this year. Pressed by Rep. Henry Waxman of California during his fall 2008 testimony before Congress, Alan Greenspan said that as result of the financial crisis, he discovered “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.”
Things got so out of whack so quickly that the man who oversaw American banks under four presidents—he took over the Federal Reserve chairmanship under Ronald Reagan and stayed until George W. Bush’s second term began to rethink his understanding of economics.
The Greenspan testimony was widely reported, as was much of the material in American Casino. But the film yokes together a dissertation’s worth of detail, and relates it all clearly. The filmmaking process, Leslie Cockburn said, was a matter of stripping away the money-speak that left so many observers feeling clueless.
“What we found was that a lot of the language tends to obscure meaning rather than clarify it,” said Cockburn, who has produced and directed pieces for 60 Minutes and PBS’s Frontline. “It was a matter of simplifying language to reveal what was actually going on.”
American Casino derives some of its power through the sheer force of numbers. A financial reporter notes that in 2005-06, the total value of subprime loans reached $800 billion. More than $12 trillion in federal funds will go to banks and other financial institutions that helped create the mess.
But she also helps explain the specifics by breaking it down into more earthly sums. For example, one scene finds a financial reporter taking a glance at the mortgages drawn from a 2006 Lehman Brothers bond and finds that one in every three borrowers was already behind at least three months on their payments. The reporter finds similarly dire figures when he looked at loans extended by Deutsche Bank and Wells Fargo.
This, of course, didn’t matter to banks, as they were getting paid on the loans they extended—not on the loans that were actually paid off. African-American families were particularly vulnerable; a civil rights lawyer explains to Cockburn how black families were the subject of “reverse redlining,” in which cynical banks and other loaning agencies sought out people who they believed to be risky but eager borrowers. “According to the Federal Reserve,” the film notes in one of its sober but shocking title cards, “African-American borrowers have been 3.8 times more likely than whites to be given subprime loans.” (Baltimore, Md. officials have filed a lawsuit against Well Fargo, alleging that the bank went out of its way to engage in such practices. As the film notes, Wells Fargo was awarded $25 million in bailout funds.) Loans, meanwhile, became evermore complicated and punishing to those who missed a payment or two.
At the same time, Greenberger explains, banks were more aggressive in selling root-for-your-neighbor-to-fail investment opportunities—credit default swaps— that effectively worked as follows: “For a very little amount of money, you can bet that the person who received the loan won’t pay the loan off,” he says. “So, if you give [a bank] a little premium—even if you have no relationship to the financial transactions that are taking place—it was like the lottery. You could win the lottery! Somebody’ll get thrown out of their house and you’ll get a lot of money.”
The problems are a chore to fix, the Cockburns note, because the big banks wield so much power that presidents increasingly have little choice but to pick Wall Street insiders to head the nation’s most powerful economic oversight agencies.
There are heroes in the drive to reform the financial industry—Leslie Cockburn nominates Greenberger as one, and Shelia Bair, the FDIC chief who has long been outspoken about predatory subprime lending, as two figures to keep an eye one. But, she added, aside from Bair, “It’s a question of whether the heroes are being put in a position” to make lasting changes.
But pessimists might leave American Casino agreeing with one of Cockburn’s subjects, a mortgage securities broker who lost his Wall Street job as the result of the financial collapse.
“Nothing’s permanent anymore,” he tells Cockburn. “The stock market goes south, you have banks going out of business—it’s just the way people in America live.”