The crux of economic foundation lies in the fact “that the human wants are unlimited and the resources, to satisfy those needs, are limited”.
“Inside Job” is the story of a crime without punishment, of an outrage that has so far, largely escaped legal sanction and societal stigma. An Oscar winner, the documentary talks about the global financial recession of 2008. The crisis was not a result of financial manipulations in the economy but rather the insatiable greed of the human mind. An articulate narration by Matt Damon and Charles’s astute direction beautifully brings out the entire cob-web of activities that happened in the economy, repealing them layer by layer, that led the economy to the pitfall. It is in form a documentary, consisting of interviews and clips of people, in power back then, of those affected and of entities involved. Ferguson makes it evident throughout the movie, how almost everyone did foresee the crisis and yet somewhere fueled the carrier.
The movie starts begins with a discourse on the Iceland economy. Three of the major Iceland banks were allowed to go private by the government. The banks went on to borrow money worth 10 times the amount of Iceland’s economy. This was just the tip of the iceberg. This expansion was driven by ready access to credit in international financial markets, in particular short-term financing. The movie then goes on to talk about the background of the crisis.
After the 1929 Great depression, banking industry was tightly overseen. A Glass-Steagall Act was introduced, which separated retail banking activities from investment banking activities. Prior to this Act, banks were indulging in high-risk market in form of investments, with the customer deposits, which also led to collapse of economy during great depression. The Financial sector was stable for the next 40 years. But again by the late 1990’s, few mergers and acquisitions were put into action in the financial sector. One such merger was in 1998 where Citicorp and Travelers merged to form a company called City Group. This was possible because they had managed to turn down the Glass-Stegall Act. After this was the 2001 Internet bubble crisis. Here the investment banks were pushing for Internet Company stocks which they knew would fail eventually. Despite this, the rating agencies gave a very good report to the banks and upgraded them to the highest possible rate – triple A. In 2002, 10 investment banks settled the case for a total of $1.4 billion, and promised to change their ways. But ever since Glass-Stegall deregulation, financial bodies were again caught up into the web of human greed, and just wanted to multiply their profits. By now, banks and loan companies were freer to gamble with their depositors’ money; they were themselves freer to borrow more; they were free to offer investors complex financial instruments, including high-interest home loans offered to high-risk borrowers –the so-called “sub-prime” market that offered tempting high returns.
The Crisis :
The alarming rise of sub-prime loans being given out to high-risk people by banks and bonds by investment banks started the evil spell. Banks started selling these bonds to insurance companies. They started giving out more loans with the notion that there is no harm in doing so. Even if borrowers did default, they could always take back homes and sell it. Loan was being given to anyone and everyone. Eventually, banks and investment firms started realizing that they had given out loans to people who did not deserve it. Way too many subprime loans were given out. It then became a cause of concern.
To come around this problem, the investment banks started to club the high-risk default loans together and called it the Collateralized Debt Obligation (CDOs). The CDOs were basically the junk loans, which had a sure-shot chance at defaulting payment. And yet they were sold by investment banks, to pass on the risk to investors. They paid the credit rating agencies to rate CDO as a safe, secure bond, with a Triple A rating. They started promoting the CDOs better than any other financial instrument. This increased their greed, and they started generating fresh CDOs by giving out fresh loans. Banks further gave out loans deliberately to people who were least likely repay to increase CDOs.
But since they were also aware of the impending danger of the house market collapse, they wanted to secure themselves first. The time to give back home loans was near, and the fact that most people were going to default was known. Hence, even during the process when new CDOs were still being created, the investment banks wanted to be risk free. It was like passing-the- parcel – the person who holds the ball when the music stops has to be a third party, and not the investment firms.
What happens next is for you to figure out. The buck passing game unfolds mind-boggling series of events, and therefore this documentary is a must watch. While the initial incoherence may sway your attention for a while, the story eventually enraptures you. The movie may not seem gripping enough to the masses, but it will connect to a segment of the audience inclined towards the genre of documentaries.
Picture Credits : offscreen.com