Extra Credit: Inside Job documentary

Katelyn Beard

Prof. Benton

10/08/11

                                              Inside Job

          I recently watched the documentary Inside Job about the economy crisis in the 2000’s. I wasn’t quite sure about what they were talking about because I was in elementary school when this stuff happened, so I had never heard anything about this before now. After I watched it I now understand about how ridiculous our banking system is. This documentary was split up into five sections; How we got here, The bubble, The crisis, Accountability, and Where we are now. It all started on September 5^th 2008.

They open with Iceland and how it was highly deregulated in 2000. Their banks were privatized. Then, when Lehman Brothers went bankrupt and AIG collapsed on September 15^th 2008, Iceland and the rest of the world went into a huge recession. The first part that talked about how we got here; he talked about how after a long time of deregulation, at the end of the 1980’s there was a savings and loan crisis which cost taxpayers about $124 billion dollars. 2001 there was an internet stock bubble because investment bankers decided to promote internet companies they knew would fail, this caused investors over $5 Trillion dollars. In the 1990’s derivatives became popular and added instability. Then investment banks started to roll mortgages and other debt into one called collateralized debt obligations (CDO’s). Also subprime loans became more popular and lead to predatory lending, this means that loans were given to people that they knew the people could never repay. I felt like my jaw was in my lap throughout this film, before now I never knew how bad our banks were and are.

The Bubble which happened from 2001-2007 was from how I understood, it was during the housing boom and the ratio of money that was borrowed by an investment bank versus the bank’s own assets reached major levels. Credit default swap (CDS) was akin to an insurance policy. Speculators could buy CDSs to bet against CDOs they didn’t own.  Goldman Sachs was the worst by far, they sold about $3Billion dollars worth of CDOs during 2006. They also bet against low value CDOs, and telling their investors they were actually high quality. This made them lots of money off of their investors, just a bunch of crooks if you ask me.

 Then finally came the crisis. This happened because the market for CDOs went under and investment banks were left with billions of dollars in loans. The Great recession started in 2007 and in March 2008, Bears and Stearns ran out of cash. In October of 2008, President Bush signed the Troubled Asset Relief Program, but global stocks continued to fall. Major layoffs and foreclosures happened and made unemployment rise to 10%. By December, GM and Chrysler had gone bankrupt.

But not to worry, because the top executives walked away with their fortunes intact; God forbid, the people who put us in this vary mess suffer like everyone else had to. And actually not only did they not suffer, but they even got bonuses after the government bailout took place. The major banks became powerful and doubted anti-reform efforts. The Academic economists who advocated deregulation and helped form the U.S policy still opposed the reform even after the crisis.

So where are we now? Not too much farther than we were, tens of thousands of factory workers were laid off and the new Obama administrations financial reforms are weak and there was no significant proposed regulation of the practices of rating agencies, lobbyists, and executive compensation. European nations have imposed strict regulations on bank compensation, but the U.S has resisted them; of course.