Inside Job

  ATS FORUM post by mekhanics

Outstanding documentary – A truely eye-opener film i’m here to share Inside JobInside Job is a documentary that encompasses everything we would need to know about what exactly happened in the Financial Crisis, which we are still facing today. This film which is directed by Charles H. Ferguson describes the corruption and greed by many of the most famous Financial companies we know of. There are five parts to the film which talk about “How we got here”, “The Bubble”, “The Crisis”, “Accountability” and “Where we are now.”

Part I was called “How we got Here”. This essentially talked about what events led up to this massive financial crisis. The American financial sector was regulated from 1940 to about 1980. There were two major crisis right after deregulation started. First was the Savings and Loan crisis which affected taxpayers, because they were the ones paying for the crisis. Then the invention of derivatives became quite popular. Causing Investors to make money, but also making the market very unreliable and unstable. Also, in 2001, there was a crisis better known as the “Internet Stock Bubble.” This occurred due to the fact that Investment banks purposely invested and promoted Internet companies which they knew that would fail. At the end of it all there were giant firms that had formed, instead of having smaller more personalized Investment banks. The main names that were included in this were Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch and Bear Stearns. AIG was also a big name in securitized insurance companies and there were three main credit rating agencies, better known as Moody’s, Standard & Poor and Fitch. There was even more instability with the creating of CDO’s (Collateralized Debt Obligations). Investors were lending out to people who they knew couldn’t afford to buy a certain home or pay the mortgage.

I believe that anyone watching just part I of this documentary can make the assumption that we were going downhill with all these unstable inventions that were supposed to bring in more.

New York Times

Video : Summary

1) Inside Job is a documentary by Charles Ferguson, about the causes of the global financial crisis of 2008.

2) The basic premise of Inside Job is that the global financial crisis of 2008 was the effect of a series of causes beginning in the 1970s.

These causes most prominently include – (1) deregulation that allowed excessive and reckless actions in finance, (2) fraud, (3) conflicts of interest, and (4) sabotage.

The result of these actions was a massive decline of financial stability for the global masses and a correspondingly massive incline of financial gain for a minority of heads in high finance and government – a trend that continues today.

3) Inside Job is divided into five parts. We are looking into each part through this Inside Job summary.

Inside Job – Summary – Part I: How We Got Here –

4) The Reagan Administration of the United States began a thirty-year-period of deregulation by the legislators in the financial system.

5) Deregulation allowed the financial sector more freedom and less discipline, which provided more opportunity for profit and risk. Reflecting the profit growth resulting from deregulation, investment banks went from small, private firms to public companies.

To illustrate the growth of the financial sector beginning in the 1970s and continuing into the early 2000s, consider this – from 1978-2008 the average salary in the United States in every profession other than investment banking rose by 25% and the average salary in investment banking rose by 150%.

Inside Job – Summary – Part II: The Bubble (2001-2007) –

6) In early 2000, further reflecting deregulation, a new method of mortgage lending was developed in the financial system that allowed for excessive betting without immediate risk and incentives to sabotage the system for personal profit.

7) The system developed is named the Securitization Food Chain.

Simply stated, the Securitization Chain is a system whereby borrowers receive home loans from lenders and the lenders pass these loans across a chain of investment banks, investors, and the insurance company AIG.

With each trade, one party earns a profit and the other party earns the loan.

8) The loans were mixed with other types of debt, such as car loans and credit card debt, given a rating, and investors would include these mixes in their funds depending to their rating.

Since each party was removed from risk by selling the debt, lenders could extend absurd loans that were highly unlikely to be repaid, rating agencies could grade the absurd debts highly without consequence, and investors could sell the debts with confidence and bet on the debts with insurance from AIG.

9) The result was the opportunity for virtually anyone in the US to receive a home loan and purchase a home, which sent home prices incredibly high (the bubble), and since the financial sector was profiting from this procedure through the Securitization Food Chain, they were becoming vastly wealthy and developing a thirst for making extremely unwise bets and trades because of the immediate profit potential.

Inside Job – Summary – Part III: The Crisis –

10) The bubble bursts. As previously mentioned, the new mortgage lending system allowed the financial sector to extend, trade, and bet on extravagant loans and pass on the risk of such action to another party in exchange for a hefty commission.

The system incentivized destructive financial behavior.

11) A significant percentage of the debts being traded could not be repaid, neither by the borrowers in the public sector or the lenders and traders in the financial sector.

Everyone was trading immediate profits for promises to pay debts with money they simply did not have, and the crisis occurred when it came time for everyone to pay – and no one could.

12) The result? An incredible, sweeping wildfire of foreclosures and bankruptcies.

The people lost their illusory homes and their previously tangible jobs. The financial sector lost their businesses.

A financial base had been removed and the contagious crisis was spreading around the globe.

The US government claimed that if these major financial institutions – that caused the crisis – were allowed to fail, the effect on the global financial system would be catastrophic.

The US government said these firms were ‘too big to fail’ and paid out several hundred billions of taxpayer money to save these firms.

The unemployment and inflation from these rescues is still accumulating today.

Inside Job – Summary – Part IV: Accountability –

13) In a nutshell, many of the leaders in the financial sector were brought before the United States Congress to testify – to explain their behavior and account for the global financial crisis that resulted.

Most of these individuals either did not explicitly accept responsibility or did not show much concern for their actions.

14) In addition to relieving themselves of responsibility for their lead roles in the global financial crisis, many of these top-level executives were anointed with massive severance packages and corporate bonuses.

Inside Job – Summary – V: Where We Are Now –

15) In a word, the pattern of financial dominion that began in the 1970s is continuing today, is characterized by a widening wealth gap between the top one percent and everyone else, as well as a deepening degree of global financial instability – systemic, corporate, and personal.

The top financial heads are rising from the top of the pyramid into the lofty airs above the pyramid, while the majority is sinking into the ground. What’s more, the financial and government players that combined to lead the global financial crisis – are still in power.

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