David Denby of the New Yorker wrote a favorable review of “American Casino,” a documentary about the financial bubble by Andrew and Leslie Cockburn.
Andrew Cockburn is a long-time friend who has done a great job of reporting the financial crisis and the malfeasance that made it possible. He documents the process whereby a rating agency is paid to do a job of modeling a structured transaction, takes the fee but then merely uses the bank’s own model:
“The movies are still one of the best ways of giving body, flavor, and emotion to the abstractions and puzzlements of an enormous crisis. In the most fascinating scenes in “American Casino”—a terrific documentary chronicling the subprime-mortgage mess and the financial collapse of the past two years—a former banker for Bear Stearns sits in the dark, his face shadowed and his voice (I believe) slightly altered. We might be watching a retired criminal or spy, a man both proud of his dexterity and ashamed of the disaster that it led to. Out of the shadows, he explains how such bizarre instruments as collateralized debt obligations (C.D.O.s) quieted the normal skepticism of investors. Here’s the drill: when the bank assembled a group of mortgage-backed bonds as an investment product, it submitted them to a ratings agency. But the agency, rather than run its own computer models on the trustworthiness of such bonds, he says, merely handed the job back to the bank, which ran its models. Having received a fee of perhaps a hundred thousand dollars for not doing anything, the agency then signed off on the phony ratings,” writes Denby.
My friend Mark Pittman of Bloomberg News is featured in the film. Kudos to Andrew and Leslie on a fine project.