Rohan Rambhia | PGP-10-155

She also served as Director of the National Economic Council. The Clinton era (1990s) worked as a bridge between the Wall Street and the government. 1 Lets us first look at the prelude (context) of this financial crisis: After The Great Depression of 1929. It is a comprehensive documentary which narrates the history of the collapse. but looks back to the rise of the financial industry. More and more Wall Street CEOs gained access to the government. consultant to hedge funds including D. This was the time when financial services resigned to a simple system of borrowers and lenders. insider trading and bad loans/investments that led to massive losses. Forgive me. 2|P a ge . Bankers and traders earned income that matched most working Americans. keynote speaker at annual Alpha Hedge Bermuda Global Hedge Fund Summit. effectively leading to multiple cases of fraud. not only going into great. The markets and financial services were deregulated. The deregulation of Wall Street and the savings and loan industry led to less oversight (control and regulation). taking up administrative positions like 2 y Robert Rubin On Wall Street: Chairman and COO of Goldman Sachs For the Government: Secretary of Treasury under Bill Clinton Laura Tyson On Wall Street: Board director of Stanley Morgan For the government: Chair of the US President's Council of Economic Advisers during the Clinton Administration. and the driving force for this liberalization was Alan Greenspan. I must start by pointing out that three years after our horrific financial crisis caused by massive fraud. there was strict regulation for about 40 years. The financial industry was regulated and hence well under control. not a single financial executive has gone to jail.the era of President Ronald Regean set the foundation for deregulation of various aspects of financial markets. The biggest question which the documentary arouses is that knowing what happened. informative depth about the risk-based strategies that put the global economy on the line. during the Clinton Administration.ADMAP REVIEW OF THE MOVIE INSIDE JOB Inside Job is an exemplary recount of how administrator s role when exploited to form risky administrative strategies by means of faulty processes lead to a crisis of the stature of the recession of 2008. y y On Wall Street: Paid keynote speaker at banks including Goldman and JP Morgan. himself stated while receiving the Oscar. and that's wrong. Charles Ferguson.E Shaw. In 1980s . why are the miscreants not being punished? As the director. Larry Summers For the government: Secretary of the Treasury from 1999 to 2001.

Bush Frederic Mishkin For the government: Mishkin was as a member of the Board of Governors of the Federal Reserve under George Bush. The derivatives industry got created. David McCormick On Wall Street: President and CEO at FreeMarkets and President of Ariba. The most prominent example was that related to Citi Corp s merger with Travelers. leading to the 2008 economic collapse. In the Bush era (2000s). An attempt was made to bring under regulation only to be opposed by the major investment banks supported by the Wall Street professionals turned administrators. This resulted in inflated speculation and unethical practices by the nation s leading finance. Complex systems of investment were created. Many specific laws were created to accommodate like financial biggies.ADMAP REVIEW OF THE MOVIE INSIDE JOB During this period most of the regulatory safeguards were revoked. there were more and more cases of heavy lobbying. With this increased inclusion of Wall Street into the Government. regulation was further relaxed and more and more Wall Street professionals became a part of the Government. The law prohibited a savings bank to merge with Investment bank. insurance and credit rating agencies. Some of the prominent Wall Street professionals/Academicians in the Bush Government and back to the Wall Street: 2 y Hank Paulson On Wall Street: Goldman Sachs CEO For the government: Secretary of Treasury under George W. inflated speculation and unethical practices. For the government: Under Secretary for International Affairs within the United States Department of the Treasury under George W. Bush y y 3|P a ge . allowing for huge Wall Street mergers and new laws favoring the financial services industry. consultant with McKinsey & Company. Instead of objecting this merger this deal was given an exemption from the law for a year and in the meantime GrammLeach-Bliley Act was passed which validated the merger giving rise to Citi Group. which tied everything from mortgages to credit up in the risky practices of the financial services industry. This era also saw Bankers and traders making huge commissions off junk deals that lead to the Dot-com bubble burst. which Wall Street government-administrators refused to regulate. fraud. Academia: Professor at the Columbia Business School and coauthored a report called "Financial Stability in Iceland .

further deregulation and relaxed enforcement Aministrative ProcessComplex systems of investment are created Result .Bridging Government and Wall Street.ADMAP REVIEW OF THE MOVIE INSIDE JOB The Obama era promised to bring in a change and also brought with it a ray of dauntless hope failed to keep the Wall Street executives out of his Government. into multiple financial crises over multiple decades of unethical practices still hold high ranks in Obama s cabinet. In fact most of the very same Wall Street execs-turned-government administrators who pitched the U.inflated speculation and unethical practices leading to the 2008 economic collapse 2010 The Obama era . Industry Result: Multiple Result: Junk financial crises deals leading to the Dot-com over the bubble burst. 20XX No one knows when the next financial tnsunami will hit and more importantly how badly? 4|P a ge . 1990s Clinton Era.S. decades.Business as usual. The very same Wall Street execs-turnedgovernment administrators responsible are multiple financial crises still hold administrative positions in the Government. 1980s Regean Era. Following chart gives a comprehensive account of the turn of event: Aministrative Process: Aministrative Unregulated Strategy: Laid the foundation Derivatives' of deregulation. 2000s The Bush Era.

whereby financial regulators could be hired within the financial sector upon leaving government. the Politician/Lobbyists-cum-Financial Executives-cum-Academicians led to the big bubble bursting to the entire world. Thus the financial sector looked as following: Wall Street Executives Academicians Financial Crisis Consultants Financial Regulators (Cabinet positions) ** signifies contributed to Due to the interchangeability of the positions there often arouse conflicts of interest. Let s look at how (roles and strategy) under the banner of innovation. Also. they started making and breaking the rules. These conflicts of interest affected credit rating agencies as well as academics that received funding as consultants but didn t disclose this information in their academic writing. and dignity. many of the former Wall Street execs took up posts in Academia along with working as consultants.ADMAP REVIEW OF THE MOVIE INSIDE JOB Inside Job breaks down the complexities that led to the rise of an out of control industry and the financial meltdown of 2008. These policies were bound to help them in making millions sometime in future due to the prevalence of the revolving door . 5|P a ge . homes. Once the Wall Street executives got a foothold in the government. plunging the world into crisis at a cost of $20 trillion and along with it millions of people s jobs.

Hubbard was also affiliated with KKR and BlackRock Financial. or even favoring higher interest rate loans. Due to these false ratings the lenders were pushed to sign up mortgages without regard to risk. or speaking engagements. all of which was kept. Even as the banks that failed. The high risks that began with subprime lending were transferred from investors to other investors who. John Y. suggesting that the risk/benefit balance had been broken. government bonds. Another issue depicted by the film is that of the role of academia in the crisis. According to the film. but their actions spoke otherwise. the only answer which was given was that at that time they believed (or were made to believe) that those investments were good. Another issue highlighted is that of the high pay in the financial industry. And these rating were done by Academicians-Consultants who were given millions of dollars for these false ratings.ADMAP REVIEW OF THE MOVIE INSIDE JOB A startling example given by Charles Ferguson is that of the derivatives market. falsely believed that the investments were safe. In the documentary. For example. On being questioned by the law about the validity and basis for those ratings. the risk was disguised. Graph: Wall Street bonuses 3 before and after the crisis 6|P a ge . current dean of the Columbia Business School. denied the existence of any conflict of interest between academia and the banking sector. the resulting products would often have AAA ratings. Campbell. since. and its growth in recent decades out of proportion to the rest of the economy.S. Glenn Hubbard received a large percentage of his annual income from either acting as a consultant or through speaking engagements. the bank executives make hundreds of millions of dollars in the period immediately up to the crisis. equal to U. The products could then be used even by investors such as retirement funds which were required to limit themselves to the safest investments. due to questionable rating practices. Many of the leading professors and leading faculty members of the economics and business school establishments often derived large proportions of their incomes from either engaging as consultants. Hubbard as well as current chairman of Harvard's department of economics. once these mortgages were packaged together.

ADMAP REVIEW OF THE MOVIE INSIDE JOB It s clear by now that the main reason of the financial meltdown was the unregulated derivatives market but many different and innovative ideas led to the final breakdown. gave rise to an age of speculative investment banking and high-stakes trading. AIG promised to pay the investor for their losses. 7|P a ge . and therefore were awarded with huge bonuses. The facility of insurance is not unusual. the world's largest insurance company. AIG didn't have to put aside any money to cover potential losses Instead. That was a totally distorted system of compensation. People were essentially being rewarded for taking massive risks. Now let s look at these processes involved. Since credit default swaps were unregulated. sold huge quantities of derivatives. So. credit default swaps worked like an insurance policy. In this way the derivatives universe enabled anybody to insure without actual ownership. But the extended part of the insurance was shocking. AIG paid its employees huge cash bonuses as soon as contracts were signed. This led to predatory lending. CDOs. speculators could also buy credit default swaps from AIG in order to bet against CDOs they didn't own. called credit default swaps. For investors who owned Collateralized debt obligations (CDOs). ultimately leading Wall Street and its associated institutions to gamble with the fortunes of others. American investment policies of the past decades and their deregulation over time. They generated short-term revenues and profits. Figure 4: AIG and Credit default swaps. Unlike the regular insurance. the number of losses in the system became proportionately larger. derivatives and mortgage fraud. if the CDO defaulted and a number of credit default swaps were issued against it. AIG. An investor who purchased a credit default swap paid AIG a quarterly premium. If the CDO went bad.

Even now when many financial regulations are put back in place. In the end.ADMAP REVIEW OF THE MOVIE INSIDE JOB Going a step further some investments banks like Goldman Sachs didn't just sell toxic CDOs. while the industry itself earned from it. Conclusion: Thus the initial idea of President Reagan that it was unAmerican that in this capitalist society that oversight and restrictions should exist and that the companies would check themselves. is himself heading a "Wall Street government". Thus Investment banks started selling CDOs specifically designed so that the more money their customers lost. eventually led to a serial of disastrous crises. When everything seems to fail. the more money they made. Investment banks also bought swaps from AIG. and have retained their incentives. they even started actively betting against them at the same time. and got paid when the CDOs failed. Effectively they led the financial industry run the world into a huge economic crisis. it seems no one can be trusted. 8|P a ge . who represented change and hope. there is only one thing that can be done have law enforcement that is necessary to enforce the laws we have. bet against CDOs they didn't own (in fact the ones which they sold). rather the remaining banks have only become bigger. On one hand they were telling customers that these were high-quality investments and on the other hand they themselves were shorting them. Even Obama. the underlying system has not changed.

com/watch?v=mpz5DVwnbnk&feature=player_embedded 2. http://gulzar05.businessinsider.blogspot.blogspot. http://streetlightblog.ADMAP REVIEW OF THE MOVIE INSIDE JOB References: 1. 3. http://www.html 9|P a ge .youtube.

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