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Housing-crisis film strikes nerve in Arizona

by Catherine Reagor - Nov. 13, 2010 12:00 AM

The Arizona Republic

Metro Phoenix's housing meltdown has many people searching for accountability.

There are many homeowners angry with lenders who won't modify their loans or neighbors who walked away from their houses, leaving more foreclosures in an already troubled market.

The new documentary "Inside Job," which hit Phoenix theaters two weeks ago, tells the story of what led to the current economic crisis and who was to blame. The film describes regulatory weaknesses, federal policies and investment strategies that it says caused the housing boom and bust.

It also connects government actions to the Wall Street instruments - subprime loans, derivatives and credit-default swaps - that triggered the disruption of the financial and housing markets.

But director Charles Ferguson doesn't focus much on how all those high-level decisions played out in Phoenix and other parts of the country where home prices plummeted and foreclosures hit record highs.

"My first goal was to make it possible for people to understand clearly why the American economy and their lives are so difficult now," Ferguson told The Arizona Republic.

He said that while researching the film, he was "astonished by the level to which American banking and investment firms had sunk."

In one part of the film, a Goldman Sachs executive is being questioned at a U.S. Senate hearing. Sen. Carl Levin of Michigan is asking him about internal Goldman Sachs memos that called the mortgage investments his firm was then pitching to clients "crap" and worse. Levin asked the executive how he felt about selling something that the firm's own brokers called a bad investment.

"I think that's very unfortunate to have on e-mail," said the executive, and the group of other investment bankers behind him at the hearing laughed.

The movie appears to be slowly drawing more interest in metro Phoenix, one of the nation's epicenters for these bad loans and risky investments. It is now playing in two theaters, and viewers are starting to talk about their reactions.

Jim Zirbes of Chandler has been a licensed real-estate agent in Arizona for the past 20 years and said he was angry after seeing "Inside Job."

"It is so outrageous how these greedy, selfish, shortsighted fools brought the whole system to its knees, and that so little has changed since the collapse began," said Zirbes, who lost his job as a realty-firm manager this year. "It all stinks. There is plenty of blame to go around."

"Every angry homeowner in Phoenix should go see it," said Marana Tolverson, who said her Phoenix home is worth half of what she paid for it in 2006. "I can't believe how we have let the greed on Wall Street go on. Those loans have ruined peoples' lives. And how could our government let this happen?"

In Arizona, lax regulation in parts of the real-estate and mortgage industries allowed many subprime and fraudulent loans to be made during the boom. Loan officers weren't required to be licensed until July of this year. Now, state real-estate and lending regulators are facing budget cuts that mean they have less money for regulation.

Federal reform legislation was signed by President Barack Obama in July. The bill increases oversight of banks, insurance firms and derivative investments as well as creates a consumer-protection agency.

But critics say it doesn't go far enough in limiting Wall Street pay to try to prevent a repeat of the bonuses that drove that last cycle of bad housing investments. Ferguson lays blame on all the administrations since the Ronald Reagan area for the current lack of regulation that led to the housing and financial meltdowns.

In the film, the director questions whether the financial industry has corrupted academia because influential universities including Harvard and Columbia allow their faculty economists to be paid large consulting and management fees by Wall Street firms and lenders. Some have also been economic advisers to presidents.

"It's important for people to realize the role the political system and academia played in the financial crisis," he said. "I hope the film leads to political debate and actions."

One unintended effect may play out in Arizona, where the number of homeowners walking away from their mortgages continues to climb.

"If I was upside down with my mortgage and didn't have a job, I would walk away from a house after seeing 'Inside Job,' " said John Skelton of Scottsdale. "The lenders created the mess, and homeowners are the ones paying the price."

When asked about that potential impact of his film, Ferguson candidly said he hadn't considered it.

"People's reaction possibly could be 'screw my mortgage lender or banker.' It may have that effect, but I didn't intend for it to affect people's personal financial decisions," he said. "My intention was for the film to affect policy decisions and for people to demand change from legislators."