Image not found or type unknown

Inside Job Movie Review

“Earth provides enough to satisfy every man's needs, but not every man's greed,” said Mahatma
Gandhi and this is somewhat the crux of this movie. Inside Job is directed by Charles Ferguson, and
it highlights the reasons and the consequences of the global financial crisis of 2008. This movie is
basically related to recession that was caused by the inefficiency of the industry and the unfavourable
banking practices. The director has conducted several interviews and has exposed some hidden
realities.

The movie clearly shows that this crisis was not accidental, and that there were many people,
including regulators, politicians, businessmen, who were actively involved in this destruction. These
people and large financial institutions knew what they were doing was not right, but everyone’s focus
was on self-interests as, at the end of the day, it’s all about making money. This documentary is
divided into five parts. These include how we got here, the bubble, the crisis, accountability, and
where we are now.

Being a student, I would focus on the first three parts in my review. According to this movie, a few
financial institutions have a direct link with the crisis. These include investment banks, insurance
companies, rating agencies, etc. Main investment banks were Goldman Sachs, Morgan Stanley,
Lehman Brothers, Merrill Lynch, and Bear Stearns. The important insurance companies included AIG,
MBIA, and AMBAC. Moody’s, Standards & Poor’s, and Fitch were the rating agencies. Other financial
institutions that played an important role were Citigroup, and JP Morgan.

The main problem started when the deregulation period began which lead to saving & loan crisis,
ultimately resulting in a few ‘big firms’ who all together disturbed the whole financial system. The
housing industry was at its peak when this all started. The standard of living, environment, the overall
economy and everything else in well-established and developed countries was running smooth but
this financial crisis destabilized even these nations. Deregulation began and many banks were
privatized and given freehand, which affected the economy.

As a result, in countries like Iceland, small banks operating locally borrowed excessive amounts of
money, that were even more than Iceland’s entire economy. First deregulation was related to savings
& loans, allowing risky investments that ultimately failed and cost people their savings. This
deregulation continued with changing administrations and the large firms kept on growing. A few
mergers took place that promoted the concept of investing consumers’ savings in risky investments.
Next, there was a massive increase in internet stocks creating a huge bubble.

Along with this, corruption in Wall Street was increasing and money laundering was becoming
common. Money laundering is basically hiding the illegal means of earning money. With new
technology and hi-tech businesses, use of derivatives was increasing which made markets unstable.
These were traded in unregulated markets that are in OTC (Over the Counter) markets. The
regulators and other concerned parties did not take the threats of these financial innovations
seriously. A new concept of Securitization Food Chain had emerged which linked loans and investors
all over the world.

The old phenomenon only involved mortgages between the home buyers and the lenders. But in new
system lenders further sell the mortgages to investment banks. These banks combine different
mortgages to create derivatives and then these derivatives are converted into Collateralized Debt
Obligations and sold to investors. These CDOs are bought as they have high interest rates and they
are just a piece of paper. So if the home buyer defaults, the bank that currently holds CDO will face a
loss. Another problem was Sub-prime mortgages. Everyone was given a loan without considering its
repayment that whether the person is capable of repaying or not.

The focus was on commission and profits. The more CDOs they sell the more profit or bonus they
receive. As there was no regulatory intermediary so no one cared that this practice was wrong and
can be dangerous. Every person asking for loan was treated equally and was given the loan. So
basically these were the riskiest loans and investments made. Along with this the rating agencies
were paid heavy amounts by investment banks in order to get the CDOs highly rated and this was the
main problem actually. Everyone was satisfied that it is highly rated so it is safe.

Other banks kept on purchasing these CDOs due to this reason. All this lead to huge mortgages all
around and therefore housing prices increased dramatically creating a bubble. According to experts
this was not real money it was just being created by the system. Leverage ratios were increasing. It is
the ratio of bank’s borrowed money and its own money. As borrowings were far more than their own
money that is why leverage ratios were high and asset base was decreasing dramatically. AIG, an
insurance company was selling huge amounts of derivatives for CDO owners.

It was an insurance policy that if CDO goes wrong AIG will pay the loss to the investors. AIG did this
because it was so sure that nothing can go wrong as almost all CDOs are rated AAA and along with
this it will get premium from the investors. But AIG’s anticipation was wrong, when all CDOs went bad
it faced losses. AIG also involved speculators which resulted in even large losses. People were
unable to pay back their loans and therefore the whole system collapsed and so did AIG. Many banks
went bankrupted and the entire financial system failed.

The main reason was that more and more profits were being earned, at first, with very less risk. All
this could never have happened if the rating agencies were honest and transparent. Several warnings
were given but no actions were taken. Securitization food chain had imploded and lenders could no
longer sell their loans to investment banks. Markets for CDOs collapsed leaving banks with huge
loans. Banks and many other large firms were facing bankruptcy and investment industry was sinking
fast. Some banks were acquired by other large and stable banks.

As there was a financial crisis so taxes were increased. On the other hand, unemployment increased
dramatically as recession accelerated globally. Chinese manufacturers saw huge decrease in sales
and over ten million people lose their jobs in China. The poorer had to pay the most. Companies went
for downsizing, standards of living decreased and poverty increased. This is how the problems arose
and lead to a global financial crisis of 2000s. A group of companies that should have been working in
peoples’ interest filled their own pockets instead and consequently lead the world to disasters.
Don't know where to start with your assignment?
HIRE VERIFIED EXPERT
Let our experts help you