The “flaw” that this documentary is named after draws from the now-famous statement made before Congress by Alan Greenspan in October 2008. The Reagan-appointed chairman of the Federal Reserve Bank had his hands on the levers of US economic power throughout the 1990s and early 2000s. His interest rate policies were widely implicated in the asset price bubble leading up to the credit crunch of 2008.
Greenspan was a disciple of the objectivist philosopher and novelist Ayn Rand, and during his time as a young man in her inner circle he absorbed the notion that the decisions of individuals should not be swayed by consideration of the interests of others. Much later, when he took control of the US economy, Greenspan was able to put this philosophy into practice. Markets, Greenspan thought, should be left to get on with it. Asset prices, when they rise too high, are automatically brought lower by individuals cashing in by selling. Conversely when asset prices go too low, investors spot a bargain, buy, and prices head back up again.
Government interference in this process, Greenspan’s philosophy said, could only warp prices and hence create distortions that would cloud the efficient operation of markets, damage economic progress and depress wealth creation. The events of 2008 shattered this view. In a striking scene in which Greenspan addresses a congressional panel, the film shows the moment when he admitted that he was wrong after all. Markets do not always work—no matter what Eugene Fama’s Efficient Markets Hypothesis had apparently shown. “I have found a flaw in the model that defines how the world works,” Greenspan announced; “I was shocked.”
The US housing market is at the centre of the film’s narrative. It was here that the bubble which led to the crash grew. A host of talking heads is drafted in to narrate the story: economists such as Joseph Stiglitz and Robert Shiller crop us, as does Jim O’Neill, the former chief economist at Goldman Sachs and now the chairman of Goldman Sachs Asset Management. Mortgage salesmen, a former bond trader and indebted mortgage borrowers also appear, and together they provide a broad collection of perspectives.
The film’s conclusion is perhaps not the one that…