Financial Mess We Are In

I watched a very interesting documentary, Inside Job, and I can't get it out of my mind. When the lack of jobs growth and the slow economy is causing my 401k stocks to decline, it reminds me how important this is to so many people. So even though you might consider it depressing, this documentary helps you understand how we got to this state of financial depression. It may also inspire you to call your Congressman and suggest they represent YOU. 

Inside Job (2010) is a thought provoking documentary film directed by Charles H. Ferguson that exposes the shocking truth behind the economic crisis of 2008. The global financial meltdown, at a cost of over $20 trillion, resulted in millions of people losing their homes and jobs. The film won the 2010 Academy Award for Best Documentary Feature. This film is a must see for all citizens.

 

Ferguson has described the film as being about "the systemic corruption of the United States by the financial services industry and the consequences of that systemic corruption.” Inside Job was praised by film critics for its pacing, research, and explanation of complex material. 

The documentary opens with a look at how Iceland was highly deregulated in 2000. Its banks were privatized. When Lehman Brothers went bankrupt and AIG collapsed on September 15, 2008, Iceland and the rest of the world went into a global recession. The film then shifts focus to the US and the events and key players leading to the 2008 crisis. In five parts, the film explores how changes in the policy environment and banking practices (loosening of bank regulation began with the Reagan administration) facilitated the financial crisis.


Part I is How We Got Here. The American financial industry was regulated from 1940 to 1980. At the beginning of a long period of deregulation in the late 1980s, a savings and loan crisis cost taxpayers about $124 billion. In the 1990s, derivatives became popular in the industry and added instability. In other words, packages of loans, especially very risky loans, were sold as commodities and brokers made more money the riskier the packages were. At that time a few economists and one woman, Brooksley E. Born, head of the Commodity Futures Trading Commission warned of the consequences of unregulated investment in derivatives, but they were over powered by the majority who wanted no financial regulation. Efforts to regulate derivatives were prevented by the passage of the Commodity Futures Modernization Act of 2000, backed by several key officials.

Part II is 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.


Part III is The Crisis. The market for collateralized debt obligations (CDO’s) 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. 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.


Part IV, titled Accountability,shows there was no accountability. Top executives of the insolvent companies walked away with their personal fortunes intact. The executives had hand-picked their boards of directors, which gave billions in bonuses after the government bailout. No one went to jail for misuse of funds entrusted to them by investors. 

Part V, titled Where We Are Now, is the most disturbing part of this film. The financial reforms have been weak, and there has been no significant proposed regulation of the practices of investment ratings agencies, lobbyists, and executive compensation. Geithner became Treasury Secretary. Feldstein, Tyson and Summers were all top economic advisors to Obama. Bernanke was reappointed Fed Chair. The conclusion raises questions about ethics, fraud, greed, power, corruption, and who our government really represents. One viewer commented that this documented the biggest PONZI SCHEME ever perpetrated. The producer said, “If 75 of these bankers were to go to jail for the rest of their lives, we would start to see some changes made.”

For more information:
Frontline documentaries: The Warning, Inside the Meltdown, and Breaking the Bank.
Books: 13 Bankers, All The Devils Are Here, The Great American Stick Up, The Big Short, and The Trillion Dollar Meltdown