FINANCIAL CRIME FILMS/SERIES (SECOND PART): Inside Job (Movie, 2011)



The documentary Inside Job is about the 2008 financial crisis directed by Charles Fergunson. Presents research and interviews with financiers, politicians, journalists, and academics. From a narrative point of view, its structure has several parts, dedicating its introduction to the financial crisis in Iceland in 2008 and 2009, continuing with the exposition of the causes of the global crisis and ending with a diagnosis of the current situation, concluding that what has been done during the Barack Obama administration is insignificant.

Extract from my article:

Plot

The documentary begins by examining how Iceland was highly deregulated in 2000 and the privatization of its banks. When Lehman Brothers went bankrupt and AIG collapsed, Iceland and the rest of the world went into a global recession. At the Federal Reserve annual Jackson Hole conference in 2005, Raghuram Rajan, then the chief economist of IMF, warned about the growing risks in the financial system and proposed policies that would reduce such risks. Former U.S. Treasury Secretary Lawrence Summers called the warnings “misguided” and Rajan himself a “luddite”.

Part I: How We Got Here
The American financial industry was regulated from 1941 to 1981, followed by a long period of deregulation. At the end of the 1980s, a savings and loan crisis cost taxpayers about $124 billion. In the late 1990s, the financial sector had consolidated into a few giant firms. In March 2000, the Internet Stock Bubble burst because investment banks promoted Internet companies that they knew would fail, resulting in $5 trillion in investor losses. In the 1990s, derivatives became popular in the industry and added instability. Efforts to regulate derivatives were thwarted by the Commodity Futures Modernization Act of 2000, backed by several key officials. In the 2000s, the industry was dominated by five investment banks (Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch, and Bear Stearns), two financial conglomerates (Citigroup, JPMorgan Chase), three securitized insurance companies (AIG, MBIA, AMBAC) and the three rating agencies (Moody’s, Standard & Poor’s, Fitch). Investment banks bundled mortgages with other loans and debts into collateralized debt obligations (CDOs), which they sold to investors.

Part II: The Bubble (2001–2007)
During the housing boom, the ratio of money borrowed by an investment bank versus the bank’s own assets reached unprecedented levels. The credit default swap (CDS), was kin to an insurance policy. Numerous CDOs were backed by subprime mortgages. Goldman-Sachs sold more than $3 billion worth of CDOs in the first half of 2006. Goldman also bet against the low-value CDOs, telling investors they were high-quality.

Part III: The Crisis
The market for CDOs collapsed and investment banks were left with hundreds of billions of dollars in loans, CDOs, and real estate they could not unload. The Great Recession began in November 2007, and in March 2008, Bear Stearns ran out of cash. In September, the federal government took over Fannie Mae and Freddie Mac, which had been on the brink of collapse. Two days later, Lehman Brothers collapsed. These entities all had AA or AAA ratings within days of being bailed out. Merrill Lynch, on the edge of collapse, was acquired by Bank of America. Henry Paulson and Timothy Geithner decided that Lehman must go into bankruptcy, which resulted in a collapse of the commercial paper market. On September 17, the insolvent AIG was taken over by the government. The next day, Paulson and Fed chairman Ben Bernanke asked Congress for $700 billion to bail out the banks. The global financial system became paralyzed. On October 3, 2008, President George W. Bush signed the Troubled Asset Relief Program, but global stock markets continued to fall. Layoffs and foreclosures continued with unemployment rising to 10% in the U.S.A. and the European Union.

Part IV: Accountability
Top executives of the insolvent companies walked away with their personal fortunes intact. The executives had hand-picked their boards of directors, which handed out billions in bonuses after the government bailout. The major banks grew in power and doubled anti-reform efforts. Academic economists had for decades advocated for deregulation and helped shape U.S. policy. They still opposed reform after the 2008 crisis. Some of the consulting firms involved were the Analysis Group, Charles River Associates, Compass Lexecon, and the Law and Economics Consulting Group (LECG).

Part V: Where We Are Now
Tens of thousands of U.S. factory workers were laid off. The incoming Obama administration’s financial reforms were weak, and there was no significant proposed regulation of the practices of ratings agencies, lobbyists, and executive compensation. Geithner became Treasury Secretary. Martin Feldstein, Laura Tyson and Lawrence Summers were all top economic advisers to Obama. Bernanke was reappointed Fed Chair.

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