Inside Job

Inside Job  

Inside jobs is a documentary that talks about the financial crisis of 2008.

The documentary shows the corrupcy from banking systems mostly in the US. It shows also the effects what this corrupted system has on society.

The basic idea of the documentary 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:

• Deregulation that allowed excessive and reckless actions in finance,
• Fraud,
• Conflicts of interest, and (4) sabotage.

The documentary is organized in five different chapters. It all starts in Iceland, where banks got privatized. The change in politic systems (deregulation) was partly responsible for the collapse of the banks.

During the course, we were able to see 3 chapters which I will summarize below.

Chapter  1: How we got here

In this part, Inside Job explains that there was a change about to happen in the economic system.

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

Deregulation gave the financial sector more freedom and less discipline, which provided more opportunity for profit and risk.Due to huge profit resulting from deregulation, investment banks went from small, private firms to public companies.
The banking system changed, where mortages fused with other loans. Together they are called CDO’s (collateralized debt obligation). Because of the small connection between the rating companies( paid by investement banks), the investment banks and the insurance companies, the rating compagnies were given out ratings to loans wich weren’t true. This means that some people could take a loan (high risk) but were never able to pay the loan back.

Chapter 2: The Bubble

The Securitization Food Chain: In early 2000, a new method of mortgage lending was developed in the financial system that encourage for excessive betting without immediate risk and incentives to sabotage the system for personal profit.[pic 1]

The Securitization Chain is a system allows borrowers receive home loans from lenders and the lenders give these loans across a chain of investment banks, investors, and the insurance company (AIG)

These loans were mixed with other types of debt, such as car loans, commercial loans and credit card debt, given a rating by rating agencies such S&P, and backers 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 ridiculous loans that were risky, rating agencies could grade the silly debts highly without consequence, and investors could sell the debts with confidence and bet on the debts with insurance from AIG.

The result was the opportunity for anyone in the US to obtain a home loan and buy a home, which increase incredibly home prices (the bubble).

Chapter 3: The crisis

The bubble explode.

The new mortgage lending system allowed the financial sector to extend, trade, and bet on overgenerous loans and pass on the risk of such action to another party in exchange for a large commission.

The system encourage destructive financial behavior.

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. 

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