Inside Job (12A): The IoS review

Culprits nailed for a financial crisis that shook the world (if not the bankers)

Almost two hours sitting in front of a bunch of economists talking about credit derivatives doesn't sound like a great night out, but, somehow, Charles Ferguson's documentary indictment of the financial-economic-political complex manages to carry you though it.

Put it this way, as an economist might: if you are prepared to invest just two hours of your precious time that might otherwise be spent clipping your toenails or getting wasted, then you will see a substantial yield in terms of your understanding of what the hell happened to the world over the past couple of years. And that, surely, is a question we have all been asking.

Inside Job is, if you wish, a more coolly analytical version of Michael Moore's work along the same theme, Capitalism: A Love Story, released in 2009, or any number of sexier heist movies. So I'm afraid you will have to settle for Gillian Tett, financial journalism's answer to Reese Witherspoon, and the elderly ex-boss of the Fed, Paul Volcker, rather than Brad Pitt. Matt Damon's narration is the nearest you get to glamour in this non-fiction treatment.

That said, the film does start in photogenic Iceland, where the modern marauding Vikings made a bigger mess than anyone in a longboat and a silly helmet ever managed. Iceland's dozy state-run little banks got privatised; they invaded the world's wholesale money and borrowed as much as they could, and then lent the money on into the riskiest investments they could find. To take a small point on "leverage"; if a bank borrows huge amounts to lend to people on sub-prime mortgages (the ones which the homeowners couldn't pay back), and those mortgages default by only a tiny amount, then the bank's entire capital gets wiped out, simply because it has borrowed so much and has no buffer against bad times. This is more or less what happened to our banks too.

But the film's principal focus is the peccadilloes and evils of Wall Street, and Ferguson really does a number on these. Ethically challenged as the bankers were, they were doing what comes naturally, so Ferguson is right to castigate the collective national stupidity that allowed Manhattan's finest to ignore, cajole, bully and generally buy their way into making the federal government in Washington protect their interests. The famous moment when Larry Summers – then President Clinton's Treasury Secretary and later to be an economic adviser to President Obama – ordered a regulator to drop the idea of trying to impose some sort of sanity into the derivatives market is thrillingly told. Summers told the regulator, Brooksley Born: "I have 13 bankers in my office, and they say if you go forward with this you will cause the worst financial crisis since the Second World War." Born, understandably, caved in. Had Summers taken a different view we might not be where we are now.

Inside Job puts the cost of the financial crisis to the world economy at $20trn – $20,000,000,000,000, surely a massive underestimate. Given that the productive capacity of the global economy that was destroyed in the crash will never be recovered, the true figure approaches infinity. Even a Wall Street "Madam", a lady who specialised in supplying girls for the, ahem, bulge bracket investment banks, who then billed her for them as "research", found herself in jail at the end of it all. Still, Kristin Davis has seen the naked truth about Wall Street more often than most of us, so her testimony is as good as any former head of the Federal Reserve. And former boss Alan Greenspan, by the way, gets much of the blame.

Anyone who took an interest knew already that Greenspan went from hero to zero soon after everything went wrong in 2008, his market orthodoxies exposed as no more than theoretical constructs unable to cope with the venal weight the banker placed upon them.

Yet the most pathetic and fascinating individuals in this film are the economists, whose uncomfortable links with private enterprise and the banks are excruciatingly dragged out of them. Fingering them is a novelty, and they come off badly. Especially enjoyable is a tetchy exchange with Glenn Hubbard, former economic adviser to George W Bush, and current dean of Columbia University Business School. No, he won't tell us his outside earnings.

Equally relishable is the spectacle of Frederic Mishkin, a professor at Columbia and former member of the US Federal Reserve, looking mortified about the $124,000 he was paid by the Icelandic chamber of commerce to write a paper extolling the stability of their financial system. But best of all is John Campbell, honorary fellow of Oxford University's Corpus Christi College and chair of the Harvard Department of Economics, who ends up more flummoxed than any mere academic has a right to be.

Inside Job reminded me of the 1973 Robert Redford/Paul Newman classic The Sting. It elicited in me the same admiration, sneaking envy and regret that I didn't get in on the act and find a way to play the system so that I too could have paid myself, say, $500m a year, as many of these bankers did in the months before they went bust. The difference is that, on this occasion, it was us lot that got stung.

Sean O'Grady is the economics editor of The Independent

Film Choice

The Coen brothers saddle up to revitalise the Western with True Grit, starring Jeff Bridges in the eyepatch made famous by John Wayne, and tremendous newcomer Hailee Steinfeld. François Truffaut's re-released Day For Night, with New Wave mainstay Jean-Pierre Léaud, remains one of the best films-about-films ever.