Inside Job Transcript - Final Version - 9.30.10 - Sony Pictures Classics

Inside Job transcript – Sony Pictures – September 2010 31
NARRATOR: In 2005, Raghuram Rajan, then the chief economist of the International
Monetary Fund, delivered a paper at the annual Jackson Hole Symposium, the most
elite banking conference in the world.
CHARLES FERGUSON: Who was in the audience?
RAGHURAM RAJAN
CHIEF ECONOMIST (2003-2007)
INTERNATIONAL MONETARY FUND (IMF)}
RAGHURAM RAJAN: It was, uh, I guess, the central bankers of the world. Um, ranging
from Mr. Greenspan himself; Ben Bernanke; Larry Summers was there; Tim Geithner
was there.
The title of the paper was, essentially: Is Financial Development Making the World
Riskier? And the conclusion was, uh, it is.
01:40:55.15
NARRATOR: Rajan's paper focused on incentive structures that generated huge cash
bonuses based on short-term profits, but which imposed no penalties for later losses.
Rajan argued that these incentives encouraged bankers to take risks that might
eventually destroy their own firms, or even the entire financial system.
01:41:18.29
RAGHURAM RAJAN: It's very easy to generate performance by taking on more risk.
And so what you need to do is compensate for risk-adjusted performance. And that's
where all the bodies are buried.
01:41:30.12
{KENNETH ROGOFF
PROFESSOR OF ECONOMICS, HARVARD}
KENNETH ROGOFF: Rajan wa-, you know, hit the nail on the head. What he
particularly said was, you guys have claimed you have found a way to make more profits
with less risk. I say you've found a way to make more profits with more risk, and there's
a big difference.
01:41:45.26
RAGHURAM RAJAN: Summers was, was vocal. He basically thought that I was
criticizing the change in the financial world, and was worried about, uh, you know,
regulation which would reverse this whole change. So essentially, he accused me of