Checks for free
The press literature for “Money for Nothing,” a new documentary about the Federal Reserve, says director Jim Bruce partly funded the movie by betting against financial stocks during the crisis of 2008. That’s clever marketing. Judging by the film’s astute analysis of the past century of U.S. monetary policy, it’s also believable.
Bruce has pulled together what may be the most reasoned, constructive and accessible documentary of the post-crisis genre. By taking a longer view of the modern capital markets, “Money for Nothing” avoids the blame game that has plagued other attempts to explain how the financial system was brought to the brink five years ago.
Best of all, “Money for Nothing” avoids many of the ideological traps that ensnare the important debate over the Fed’s role in the modern economy. Though critical of willy-nilly money printing, the film doesn’t leave the audience yearning for a return to the days before 1971, when the value of the greenback was underpinned by the Fed’s supply of physical gold.
The documentary’s premise is that the boom and bust cycles of the past few decades, culminating in the housing bubble that burst in 2007, were sown by more than just miscreant Wall Street bankers and sleazy mortgage brokers. A monetary policy guided by the two oft-conflicting ambitions of restraining inflation and reducing unemployment is eminently more culpable. Americans from both sides of the aisle have been complicit in this for decades.
As a consequence, the film offers a high-level antidote to more polemical studies of the recent crisis. For example, “Inside Job,” which in 2011 won the Oscar for best documentary feature, put the blame squarely on morally insolvent bankers, even going so far as to interview the anonymous madam of a bordello allegedly catering to Wall Street fat-cats. “Money for Nothing” chooses worthier voices: Fed officials, including former Chairman Paul Volcker and current Vice Chairman Janet Yellen.
The film, narrated with matter-of-fact gravitas by Liev Schreiber, begins with the panic of 1907, which spurred the creation of the Federal Reserve System. It explains the Bretton Woods Conference of 1944 and President Richard Nixon’s decision to abandon the gold standard. Throughout this historical arc, “Money for Nothing” outlines the ways in which markets and asset prices regularly rose as a result of central bank stimulus, only to plunge whenever the Fed took away the punch bowl of easy money.
One key takeaway of current relevance given President Barack Obama’s imminent naming of a new Fed chairman: who runs the central bank matters. Among the predecessors to current Chairman Ben Bernanke, William McChesney Martin comes across as ineffectual in safeguarding the independence of monetary policy against meddle-prone presidents like Lyndon Johnson. His successor Arthur Burns is chided for not having raised official interest rates when he should have.
The film lionizes Volcker for his resolve in reducing inflation by raising interest rates and resisting the public adulation that accompanies easy money. While Volcker’s success as Fed chairman is now conventional wisdom, “Money for Nothing” does a public policy solid by emphasizing the need for the Fed to function independently, rather than simply arguing for higher official interest rates.
The many errors committed by Volcker’s successor, Alan Greenspan, are painted as exceptionally weighty given their violation of his own Ayn Randian beliefs that markets should remain free from government intrusion. The film suggests Greenspan’s policies led to market distortions in the first decade of this century that spawned the greatest inflation of asset prices in history.
Bernanke, in Bruce’s telling, acted as necessary in the financial crisis to avoid the missteps of Depression-era Fed leaders, but with the added monetary tools of quantitative easing may have continued the distortions of his predecessor. Rather than spurring a stock market, consumer debt or housing bubble, “Money for Nothing” posits that these policies may have created a government debt bubble.
The Fed that emerges from “Money for Nothing” is run by hard-working, intelligent and devoted public servants who get it right as often as they get it wrong. Add to the mix a balance sheet of more than $3 trillion, and that is reason enough for Americans to educate themselves on what this institution is all about.