Movie Review: Inside Job (2010)

Posted: November 27, 2011 in Drama
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inside job

Here’s an interesting fact.  The financial tsunami that laid waste to the world and hit America in 2008 started in Iceland.  The banks in Iceland were deregulated in 2001, by 2008, the major Icelandic banks were leveraged to the hilt, the rating agencies said nothing, the banks tried to offer more debt, no one was buying and the banks and most of Iceland went belly up.  Financial deregulation started in 1982, when President Reagan deregulated savings and loan institutions.  In the early 90’s, Charles Keating  owner of Lincoln S&L was convicted of state and federal fraud charges and by 1995 nearly half of all savings and loan banks had gone under.  Undaunted, financial regulation marched on.  Since 1933, the Glass Steagell  Act walled of banks from investment houses, but in 1999 Bill Clinton signed the Financial Modernization Act, which dissolved the separation between banks investment houses and insurance companies, soon after, Citigroup and Travelers merged.  In the 1990’s derivatives were invented. By the late 1990’s derivatives were a 50 triillion dollar unregulated business.  In 1998 Brooksley Born, of the Commodities Futures Trading Commission within the Clinton administration wanted to regulate derivative training.  She was overruled by the likes of Alan Greenspan, Robert Rubin, Larry Summers, and SEC Chairman Arthur Leavitt.  The stage was set for the 2008 financial collapse.

In the 2000’s, the securitization food chain was born.  It linked homeowners, banks, investment banks, and investors.  Investment banks bundled all kinds of loans and sold them to investors. These combined loans were called Collateral Debt Obligations, or CDO’s.  Since banks and investment banks were making lots of money through the securitization process, they made riskier and riskier loans, including subprime mortgages.  These subprime mortgages were bundled into CDO’s and sold to investors.  Companies like Countrywide were making billions of dollars on subprime lending, as were investment banks.  Banks borrowed more and more money to make more and more loans. The SEC agreed to ease the amount of leveraging that the banks could do Banks were leveraged up to 33 to 1.  33 times as much borrowed money to actual cash on hand.  AIG invented another ticking time bomb, called Credit Default Swaps.  Credit Default Swaps were supposed to be an insurance policy for CDO’s.  But other investors bought Credit Default swaps to bet against CDO’s they didn’t own.  Every time a CDO failed AIG had to pay an investor money. With the large number of subprime mortgages in these CDO’s, it was no surprise that AIG was set to go belly up.  Lehman Brothers underwrote many of the subprime loans.  The housing bubble popped in 2008, Lehman Brothers went bankrupt, AIG was bailed out, and the watered down Dodd Frank bill was passed, but nothing has really changed, no one who was in charge of the banks or investment houses were put in jail.

This is an excellent movie.  The documentary that gained favor in recent years are ones like the ones that Michael Moore makes, documentaries that take a certain political point of view, and say that only one party or another is at fault.  Inside Job does not do that, it names names from both parties and does not hold back any criticism, and that’s what a documentary should do.  Get the facts out there and let people make informed decisions.  The movie goes after the Reagan administration for deregulating Savings & Loans, it goes after the Clinton Administration for abolishing the Glass Steagall act and for not regulating derivatives, and it takes on Federal Reserve chairman Alan Greenspan for speaking out against regulating derivatives, and it criticizes the Obama administration for not going far enough to regulate derivatives in the Dodd Frank bill.  The problem is the revolving door between politics and these financial firms.  The politicians from both parties resign from these cushy political jobs , and go straight to their cushy financial firm jobs and immediately start exerting pressure on the  government to loosen financial regulations, and the same people come in and out of government, no matter who the president is.  Larry Summers is a perfect example, he vetoed the regulation of derivatives in the Clinton administration, made 20 million from hedge funds using derivatives, and re-appeared in the Obama administration.  Does anyone think that Larry Summers is serious about financial regulation?  There are heroes in this film, Brooksley Born, who was summarily ignored by Greenspan and the Clinton economic team.  Raghuram Rajan, chief economist of the IMF, who was called a luddite by Greenspan, and ignored by current Fed Chairman Ben Bernanke.  Sometimes there are canaries in the coalmine and they deserve to be listened to.

Inside Job.  How America got jobbed by the financial industry.

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