Fed Insiders Bolster New Film Slamming Easy-Money Policies

"Money for Nothing: Inside the Federal Reserve," a new documentary screened in Washington, D.C., Tuesday night, puts the blame for the 2008 financial crisis squarely on the central bank.

Like any film, "Money for Nothing" can't cover every facet of the story, and a number people I spoke with afterwards faulted it for going too lightly on their favorite cause of the crisis.

But there is no denying that "Money for Nothing" makes a convincing, and entertaining, case that the Fed's easy-money policies gave everyone from homeowners to investors to financial institutions an incentive to inflate an enormous speculative bubble.

Peter Fisher, the former New York Fed official turned BlackRock executive, crystallizes the movie with an analogy of an exploding boiler.

"I'm not a subscriber to what I call the 'Great Coincidence Theory' — that every individual facet of our financial system seems to have fallen apart at the same time as part of a great coincidence. The accounting was all wrong. The bonuses were all wrong. The capital was all wrong. The risk management was all wrong. The regulation was all wrong. Each and every one of these things was all wrong.

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I think when a boiler explodes that's a little like blaming each individual rivet. Now something fundamental connected all these things. Monetary policy was just way too easy and the concepts underpinning financial regulation were flawed."

What makes the film so convincing is its cast. There is not a single nut in the 104-minute film. It's full of articulate economists and investors and, most importantly, Fed insiders.

Current officials like Janet Yellen, Jeff Lacker, Charles Plosser and Richard Fisher are joined by veterans like Paul Volcker, Alice Rivlin and Alan Blinder.

Narrated by the actor Liev Schreiber, the film juxtaposes the hard, unpopular choices Volcker had to make in the 1970s to stop inflation with the easy, popular path Alan Greenspan choose to build his reputation as the Maestro. When trouble came during Greenspan's tenure, which stretched from 1987 to 2006, the Fed responded by easing monetary policy and flooding markets with cash.

While the film acknowledges his successor Ben Bernanke had little choice but to continue those policies through the crisis, it questions his exit strategy, especially how the Fed will whittle its now-enormous balance sheet.

"I don't see an endgame strategy," the filmmaker, Jim Bruce, says in an interview Wednesday. "How are we going to get out of this?"

Bruce concedes the choices are not pretty. "It's not like there is an easy solution and the Fed just won't do it."

But no country — even the US — can continue to print money indefinitely.

Bruce notes that the subprime crisis started with small companies like IndyMac and spread to well-established giants like Merrill Lynch and then drew a parallel between what's happening in southern Europe and what could happen in the US.

"Greece is the IndyMac of what we are doing now," he says.

This is Bruce's directorial debut, having edited and produced other films.

He wouldn't let me print the total cost because he's negotiating television rights, but he said he financed the bulk of the production costs out of his own pocket and through websites like Kickstarter.

Bruce says he has no investors and purposely didn't team up with a broadcast partner to preserve editorial independence. In other words, this is not some project funded by an organization or individuals with an axe to grind.

Bruce, 38, got the idea for the film in late 2008 after doubling his money by shorting stocks like Ambac Financial. He's not a financier by any stretch. He says he wrote a financial newsletter for his family and friends and just felt as though "the Fed has kind of taken over the market… and that was a story that should be told."

Bruce is engaging and fluent in central banking. He doesn't take himself too seriously, and has an easy authenticity to him. He has a knack for expressing complicated ideas simply.

For instance, summing up a discussion of the housing boom, the stock market's rise, the Fed's balance sheet expansion and federal debt, he says: "We seem to have a system that works well as long as someone is expanding their balance sheet in a really sustainable way."

Bruce says he interviewed sources for more than a year and then spent nearly two more putting the movie together. It tells the history of central banking and the boom and busts that preceded our housing collapse.

The film's title comes from a scene featuring Peter Atwater, the former head of asset finance at JPMorgan Chase, who quotes the line from the 1985 Dire Straits hit, "money for nothing, chicks for free," to describe the impact of zero-interest-rate policies.

"It became an easy way of describing the policies of the early 2000s and the policy today with 0% interest rates but also bringing up this broader issue of the Fed operating a fiat currency without anything backing it," Bruce says. "The more abstract Fed policy gets — and to me that's part of the problem of what they are doing lately — they are really relying on people's confidence and trust and belief that there is something behind the dollar.

"I like that the title of the film speaks to that longer-run issue, 'How long can you continue to borrow and print as a country without anything backing your currency?' "

The film is light on prescriptions, a problem Bruce calls "the curse of filmmaking. We couldn't add one line more."

But in the interview Bruce says he thinks the Fed must wean the economy off easy money. And he hopes his film will help people understand how central banks work and lure them into the debate about how to move forward.

"If people have more of an opinion and pay more attention and there is more of an awareness of what the Fed is doing, that will create accountability and I think we will get better policies.

"To the extent that people are aware that today's boom is tomorrow's bust, we might get Fed policies that are less procyclical."

After opening in Dallas last week and playing theaters in DC and New York this week, "Money for Nothing" moves to Chicago, Boston, Los Angeles on Sept. 20 and then to Denver, Kansas City, Richmond, Houston and Minneapolis.

Bruce says the DVD will be out later this year.