Wednesday, July 19, 2017

Housing: Part 243 - A Brilliant Argument for More Regulation

I finally got around to watching "Inside Job", the documentary that putatively is about the danger of financial deregulation.  The show was surprisingly effective.

Now, as you might expect, the surface content itself was not particularly moving.  The documentary format made it difficult to go into the details of various regulatory regimes, so this complex topic was diluted down to a simple binary ideal of "regulation" versus "deregulation" that is essentially devoid of meaning.  There was no mention of the importance of housing supply constraints, which is to be expected in such a production.  The focus on CDOs as the core trigger of the housing bubble is obviously problematic since almost all mortgage-based CDO activity happened after home prices had peaked.  And apart from the introductory focus on Iceland, no attempt is made to explain how these deregulatory trends could have happened simultaneously in Canada, the UK, Australia, etc. and would apparently continue to be important factors in those countries.  No mention is made of CDO markets in those countries, though one must assume that its explanatory power in the US is such that it would surely be paralleled in those markets.

But, that is what was brilliant about the documentary.  In spite of all of those weaknesses, the material was compelling and convincing.  The material about sex and drugs on Wall Street effectively packaged the villains of the production for an audience who would already be prone to accept them as villains.  This allowed the effective use of the visual medium to imply causation by mentioning activities of the villains over time alongside selected economic data.

As the viewer proceeds through the production, the subtle brilliance of the director's framing becomes more clear.  Documentary filmmaking is a nearly completely unregulated industry.  We don't even have a regulatory body charged with the review of the content in these sorts of productions.  Yet, clearly, this is a dangerous and powerful medium, capable of molding the consensus of an electorate that understandably will not be able to check the veracity of the information that has been presented.  Documentaries of this type clearly do need to be regulated.  In fact, considering the potential power of the imagery, and the difficulty of dealing with subtle or deep facets of the subject matter, it is probably advisable to simply ban the medium altogether.  Do I even need to mention the famous problem of the abuse of sex and drugs in the film industry?

The weaknesses of the film, then, becomes an ironic defense of regulation that is an even more powerful argument than the actual content of the film.  Brilliant.

I had to check imdb to see if Charlie Kaufman was involved.  It should not go unnoticed that Kaufman has little or no credited professional activity in 2010 when the film was released.  I suspect that he was intimately involved with the project in an uncredited capacity.

A classic signature of Kaufman's handiwork is that the near universal praise for the film among critics and viewers actually ends up serving the ironic point of the film.  This may be his best work, taking the meta-irony even deeper than "Synecdoche, New York" or "Adaptation".  It's enough to make you wonder if Kaufman found a secret portal into credited director, Charles Ferguson's, psyche on the 7½ floor of the Mertin-Flemmer Building.


  1. OT but interesting from CNN:

    "The National Association of Realtors released a report Tuesday that said foreign buyers and recent immigrants spent an estimated $153 billion on American properties in the year ending March 2017. That was a 49% increase over the previous year and the highest level since record-keeping began in 2009.

    The purchases accounted for 10% of the total value of existing home sales in the U.S. The report did not include new homes.
    The breakdown of sales between foreigners and recent immigrants was about 50:50.
    Blame Canada
    America's neighbors to the north were one big factor behind the surge.
    Canadian real estate investors nearly doubled their purchases of American homes over the period because of the relative affordability of properties in the States. Many Canadians have been squeezed out of property markets in cities like Toronto and Vancouver that have experienced rapid price gains.
    Canadians were the second biggest foreign purchasers of homes after the Chinese. Buyers from China shelled out nearly $32 billion over the period, while Canadians spent $19 billion."


    In my pen for hire business, I am exposed frequently to foreign buyers of US real estate but who operate through a JV with a local partner, or through US-based entities. I do not know if these foreign cash flows through US-based entities are counted as foreign buyers.

    1. If you essentially make it illegal for a large portion of your domestic households to own homes, then there will naturally be an increase in foreign owners.