Welcome to the AP Economics Blog for Students of Boston College High School. It is in this forum that students will discuss issues in AP Economics class.
Sunday, September 4, 2011
Inside Job
This is a commercial film narrated by Matt Damon about the reasons why the U.S. economy collapsed in September 2008.
The investment banks are commonly looked at as the major culprit for the 2008 economic recession. However, the three rating agencies (Moody’s, Standard & Poors, and Fitch) ultimately held the power to put a stop to the insane amount of CDOs that were sold to investors, but instead, continually gave many CDOs triple-A ratings, when in-fact they deserved much lower. Due to this, the rating agencies are at the most fault for not putting a stop to the robbery that was the 2008 economic crisis. Henry Paulson, CEO of Goldman-Sachs, sold billions of dollars in CDOs in 2006. However, as he was selling the CDOs to the public, he was also betting against them. Now in no way am I justifying Paulson’s actions, as they were terrible and left many in debt. However, without the rating agencies giving these CDOs triple-A ratings, Paulson’s scheme would not have been possible. In-fact, the beginning of the documentary preludes the US economic crisis with that of the deregulation in Iceland. It is interesting that the three American Rating Agencies claimed that “there was nothing wrong with Iceland.” Nothing wrong? Iceland was free-falling from a regulated, model economy, to a deregulated example of failure, and the American Rating Agencies believed that nothing was wrong. In 2007, the rating agencies were so confident in their beliefs, that they increased the Iceland Banks to triple-A ratings. Iceland’s banks collapsed at the end of 2008, and unemployment skyrocketed. The argument could be made that because investment banks were the ones who paid the rating agencies, and their profit margin was driven up for the more triple-A ratings given out, the agencies should have the green-light to continue to give garbage CDOs ratings of triple-A. Yes, profit margins may have gone up. But so did debt and unemployment for many people not involved in this Ponzi-scheme. When is enough, enough? When does somebody involved with the rating agency reveal the truth for public benefit, and promote the common good, rather than corrupt the system even more? For such smart people, this business practice was not only unethical, but extremely dim-witted as well, as they should have known that the truth would eventually be revealed.
The investment banks are commonly looked at as the major culprit for the 2008 economic recession. However, the three rating agencies (Moody’s, Standard & Poors, and Fitch) ultimately held the power to put a stop to the insane amount of CDOs that were sold to investors, but instead, continually gave many CDOs triple-A ratings, when in-fact they deserved much lower. Due to this, the rating agencies are at the most fault for not putting a stop to the robbery that was the 2008 economic crisis. Henry Paulson, CEO of Goldman-Sachs, sold billions of dollars in CDOs in 2006. However, as he was selling the CDOs to the public, he was also betting against them. Now in no way am I justifying Paulson’s actions, as they were terrible and left many in debt. However, without the rating agencies giving these CDOs triple-A ratings, Paulson’s scheme would not have been possible. In-fact, the beginning of the documentary preludes the US economic crisis with that of the deregulation in Iceland. It is interesting that the three American Rating Agencies claimed that “there was nothing wrong with Iceland.” Nothing wrong? Iceland was free-falling from a regulated, model economy, to a deregulated example of failure, and the American Rating Agencies believed that nothing was wrong. In 2007, the rating agencies were so confident in their beliefs, that they increased the Iceland Banks to triple-A ratings. Iceland’s banks collapsed at the end of 2008, and unemployment skyrocketed. The argument could be made that because investment banks were the ones who paid the rating agencies, and their profit margin was driven up for the more triple-A ratings given out, the agencies should have the green-light to continue to give garbage CDOs ratings of triple-A. Yes, profit margins may have gone up. But so did debt and unemployment for many people not involved in this Ponzi-scheme. When is enough, enough? When does somebody involved with the rating agency reveal the truth for public benefit, and promote the common good, rather than corrupt the system even more? For such smart people, this business practice was not only unethical, but extremely dim-witted as well, as they should have known that the truth would eventually be revealed.
As with most negotiations in both Wall Street and in our nation’s capital, it is no surprise to discover yet another instance in which our sense of the nation’s economy was blurred by back room deals. By providing high ratings to risky derivatives and poor mortgages, S&P betrayed the nations trust in its rating practices. As a result, Americans created this massive bubble in which people took out loans that they really could not afford. While always leaping to great lengths in order to earn a few extra bucks, karma has taught American’s a lesson that no one will forget.
Inside Job Ferguson’s theory of how the market melted down starting in 2008 is fascinating and interesting to hear. Ferguson speculates that the Reagan Administration’s deregulation of the market allowed for more rule-breaking and recklessness in the market. He highlights that investment banks, which were once private firms, went public with the result of short term chances for high profit. Investment banking profits rose 150% over 20 years. Ferguson than says that starting in 2000 with a new mortgage system, causing absurdly high loans to be given out, which caused the home markets to rise incredibly over the years. Since everyone was making money at the time, everyone overlooked that none of these loans would be able to be paid off overtime, leading to the foreclosure crisis that has taken place over the last several years. This was called “the bubble”, as home prices kept rising. The bubble burst when it came when it was time to pay up on the loans people had taken out, to find that they simply did not have the money to do so. The government then decided to bail out the companies that had given out the loans in the first place, causing inflation and unemployment to rise. The tactics investors and creditors took to make a quick buck from the seventies until now have caused the market to rapidly decline as inflation and unemployment rise. The only way the market could be fixed and remain steady is if investors and banks use responsible loaning and crediting, not taking huge risks for huge rewards like in the early 2000s. Unfortunately, we are still dealing with the effects of their choices from before.
In the Film, The Inside Job, one practice that stood out to me was the corruption of the Rating companies. The problem I saw was that a rating company would make massive amounts of profit off of marking something as “AAA” rather than its actual value , thus, discrediting investments nearly entirely. The investment banks would then use that to their advantage and market an investment product that was already prospected to fail. They then could bet against the investment and be selling it at the same time, and maximize profits. While this seems great for the banks, it only benefits that top 1%. It would be taking millions of dollars from unaware, blinded people because the rating companies screwed them over. Also, in the film they mentioned that retirement investments must be “AAA” to guarantee that they don’t fail. This now meant that retirement funds would fail. As if this wasn’t bad enough, investment companies would bet against the stock to fail of something that was rated “AAA”. During the film, with the court hearing against Goldman Sachs, the judge questioned the executives asking why their highest selling stock was the same one they were betting the most against. This is highly unethical
Perhaps the strangest actions taken by any group discussed in this film are the ones done by Standard and Poor’s. This summer’s downgrading of the US credit rating, however, put the actions of S&P in a whole new light. With the new focus on the S&P the reasoning behind their actions, touched upon in the movie, is revealed. S&P appeared in the movie as unreliable, and incapable of truly understanding the markets, as they gave high ratings to high risk derivatives and bad mortgages. Additionally, they also gave some of the highest ratings to credit default swaps, a practice that would not seem sound to even the least informed investor. This practice led many to invest in a bubble that, in hindsight, clearly appeared to be ready to burst catastrophically. As the course of the current economic situation played out this summer, I learned why S&P acted as such. The S&P is not paid by the US government to grade its credit rating. This allows for an unbiased rating. Companies such as AIG and Goldman Sachs paid S&P to rate their commodities. The S&P charged thousands of dollars for these ratings. This created a major conflict of interest, as these companies would not being willing to pay upwards of $100,000 for ratings, should they reflect negatively upon the companies. After learning this, I have finally understood why Standard and Poor’s acted so irresponsibly in giving such high ratings to bad credit default swaps; actions that, as many economic analysts argue, were key to the financial meltdown.
This film narrated by Matt Damon, did not contain many business practices to agree with as it exposed many corporation's and government’s corruption and greed throughout the world especially in the United States. I agree with many points this film makes against these business practices. I can specifically resinate with the fact that the blame for the global financial crisis or as they call it bubble, goes to the top of government and these corporations. The government is to blame for much of this problem because of the lack of regulation of many banks and major investment firms. This was seen in Iceland where they had no economic crisis when they kept their economy small. Around 2000 the government allowed for multinational corporations to enter the Icelandic economy which led to economic crisis with small Icelandic businesses. The United States also lacks a good system for rating their investment firms which was and is a serious problem. Before their days of failure Goldman Sachs and Lehman Brothers had an A2 or AA rating. The poor ratings coupled with the lack of communication between the U.S. and other international powers are also reasons for this financial disaster. When the financial minister of France, now director of the IMF, Christine LaGarde, was asked on her reaction of the Lehman Brothers failing, not only was she surprised, her only reaction was, “Holy Cow”. On Wall St., the use of derivatives, small risky investments (bets) were allowed by the United States. Even after Brooksley Born attempted to get the United States government to regulate derivatives, she was opposed by legislation [Commodity Futures Modernization Act]. The major investment firms were the leaders of Born’s opposition. This leads to another reason why I disagree with the business practices shown in this film, Inside Job. The majority of the decisions shown in this film were executed with motive of greed. After 1980, investment banks went from small partnerships to larger scale investment firms that risked much more than they did before. By the mid 2000’s these investment banks took big risks hoping for big reward. The incentives for the high level executives were extremely high which led them to risk a lot of the consumer’s money in things such as derivatives. These executives also knew that if these risks failed that the loss for them personally would not be major. This was proven as executives such as Merill Lynch CEO Stan O’Neal walked away from the company with 161 million even after the company failed and was bailed out. The deregulation of banks and businesses by the government is a serious reason why these banks and businesses failed. However, the corruption and greed of the executives and CEO’s of these banks and investment firms are what started their decline and then subsequently ran them straight into the ground.
“Inside Job” Out of this entire film, I can say that no executives, CEO’s, or companies made any decisions towards money or a stable economy that could be labeled as “good.” Nearly all higher up executives and CEOs of large companies such as AIG or Lehman Brothers were making actions that would eventually devastate the entire country, yet leave them financially secure until the day they die. The only good actions taken by large companies were those that were made during the 40 years of economic prosperity after the Great Depression, which were mentioned very briefly. The root of all the economic troubles our country faces can be easily stemmed from the obvious and extreme greed that overcame some of the most economically powerful men in the country. If it had not been for the huge push for deregulation, which was won, our economy today would not be considered “volatile” and people worldwide would be more financially stable. It is a shame that our own Federal Government could not recognize the blatant fraud, money laundering, and bribery that took place at the hands of the companies that many Americans looked at for financial consultation. Even worse so, is that once the government had found all of those criminal activities, it handed them hundreds of billions of dollars so that they could “fix” what they themselves started. Another enormous issue that was created once deregulation were instituted was the derivatives. Allowing, or not knowing that companies were betting against the very products they were selling made those companies’ very unstable, thus making the United States economy very unstable as well, since those companies were the largest. Perhaps one of the most shocking parts of the film is the story of how Iceland as a whole just collapsed. The cause of Iceland’s major financial and natural crisis, similar to the United States, was the deregulation, which was put into place by their own government, which in turn caused a major deterioration of the general quality of life in Iceland.
The S&P 500 is supposed to be a reliable source for accurate rating of products; the fact that they were selling ratings to large banks hid the larger issue at hand. If proper action had been taken and an honest rating was given then the following crisis could have been foreseen. The housing bubble may have been a little more obvious if a steady decline had occurred, instead of the toxic subprime loans shattering companies one by one. The bailout and following recession were a combination of bad ideas and business practices, this protecting all of them from being seen.
As many students pointed out, this documentary is similar to Inside the Meltdown, as they both chronicle the economic collapse of 2008. Inside Job seemed to go more in depth with the banks and investment firms that were responsible for the collapse of the stock market after mortgages lost value following the real estate bubble bursting. The movie stresses how the greed of certain people led to an entire economic collapse, as many people irresponsibly bought and sold securities in search of easy money, not realizing the bubble had to burst and it all had to come crumbling down. The blind eye stance the U.S. Government took did not aid the oncoming crisis, as low regulation allowed irresponsible stock trading to continue.
A large problem that is covered in Inside Job is the problem of derivatives. Derivatives are contracts between two parties and their value is determined by the assests that are invloved in said derivative. The market of derivatives was thriving in the United States economy and was estimated to be worth fifteen trillion dollars. All of this money was originally introduced to the U.S. economy to help stabilize it, when in reality all that it did was prove to be an unstable market that could cause major harm to the U.S. economy. The main problem with derivatives was that they were unregulated, this in my opinion makes sense because there is no limit to the loans that are being given out and the loans are then given to investors so in my opinion if everything is done legally then there should be noo problem with derivatives. The woman that was put in charge of the Commodity Futures Trading Commission by President Bill Clinton was Brooksley Born. Athlough when born offered a solution to the derivatives wich was certain limitations to them she was overuled and the derivatives remained unregulated. I personally found this extremely interesting, for one reason it is providing, yet it may be unstable, a large amount of money to keep the economy functioning at a far greater level. This documentary was by far the most informative, it gave the most depth on the problems that the economy was facing and who was involved and why the country was going through what it was, and what had to be done to solve the problems.
“Inside Job” is an in depth look at the failure of the U.S. Stock Market, what caused it, and the widespread loss of jobs and money as a consequence of Wall Street’s failures. One of the largest issues revealed by the movie is the deregulation of the U.S. financial sector. Companies could then do what they wanted with money and often get away with lying because of how large and powerful they were. Because of deregulation, the companies could not and cannot be watched the way that they once were, and because of this they are more willing to partake in illegal deals, and lie to the stock and shareholders about where their money is going. Because these banks are so large and unregulated they hold the economic future of the country and the world in their hands. They cannot be apprehended by laws, because there are no laws that can stop them. They cannot be stopped because closing them down would close down the country. The only way to fix the system as the movie shows is through regulation, and watchdog agencies that will enforce it. Currently the government has barely even made steps to change the way that the market runs since the Crash. Of course these changes are not being made because there is no way to do so without upsetting financial backers of politicians. If these investment banks were left to their own devices the market would not change. It would continue to be their toy to manipulate rather than the financial tool that it is. By selling bad bonds and deals to the average stockholder the banks were able to artificially raise the markets and create more cash for themselves while dumping bad equity and loans onto unsuspecting people. Because of the risky tactics used by these investment banks the market crashed, and the world is still trying to recover. Sadly the fate of the economy is still stuck in their hands, and until that is changed the world markets will always be in danger.
This movie was extremely informative and just seemed to toss fact after fact at you like a documentary should. The business or businesses that I would like to go into depth talking about are all the corrupt investment banks. The investment banks to me seemed to be the root of the problem which created the bubble in the first place. These careless banks just sold loan after loan without have the finances to back up these loans. This kind of careless behavior seems typical of every single business or corrupt business man in this movie, which is that all they care about is making as much money as possible without any regard for the consequences. Even though these investment banks were given AAA ratings from S&P (which they paid off S&P for) does not mean that they can just give loans like they are giving away candy. Obviously this system of buying investments, SDO's, taking out loans with no financial backing was doomed to fail from the beginning and I am surprised it lasted as long as it did. A proper economy will not function correctly if it is based off of greed for more money, which I saw as a major motif throughout the entire movie. I am really shocked that the U.S. government did not even attempt to step in or regulate the careless ways of these investment banks. It is almost like they just sat back and waited for the collapse to happen. Or perhaps they were just so ignorant to it they did not realize what was going on. If that was the case then the economy deserved to collapse just to show the government that such corrupt procedures are unacceptable.
In the movie Inside Job, a great metaphor is presented to help understand why the stock market crashed in 2008. This metaphor compares business to an oil tanker. It states that an oil tanker has divisions so that if something were to happen to one of the compartments of oil, it would not affect the rest of the compartments. This particular economist claims that in the same way, certain business practices should be divided into compartments. Suddenly, banks were not only banks, but mortgage lenders, insurance companies, and investment advisors as well. Therefore, the combination of compartments of industries makes one huge compartment, which proves in 2008 to be the downfall of the stock market.
I really like this metaphor because I believe that it accurately states why this recession started. Banks were involving themselves in shady business such as when they advised people to invest in unprosperous CDO’s while these banks such as Wells-Fargo, Lehman Brothers, and Merrill-Lynch asked companies like AIG for insurance on these very same CDO’s. They were essentially betting against the customers that they were advising. As a result, many people lost their life savings because these CDO’s lost value and CEO’s of the very same banks were making money on the insurance policies. I believe that because the banks had so much power in so many different markets, then they became greedy. They figured that because one market effects the wellbeing of another, then they can use that relationship to make as much money as possible. If there had been certain ‘compartments’ to restrict the abilities of these banks, then this mess that has become our economy could have been avoided.
Another issue that has risen because of the lack of restraint on banks is one of both power and greed. These high corporate officials, board members, and CEO’s are using their customers’ money for their own benefit. While these customers have lost all the money they have worked for, certain banking leaders have walked away with hundreds of millions of dollars. This is a problem. Corporate greed has allowed banking to bet against their own customers to make money for themselves while leaving their customers on the short end of the stick. This is purely because of the fact that these banks can control the outcome of their business. This is because they can now make money regardless of whether business does well or even crashes. As a result of the money made, these people look economically smart and because of this may end up with jobs such as Secretary of the Treasury or an economical advisor to the President. Therefore, a vicious circle has taken over our economy where the same people that have destroyed it are likewise the same people who are trying to “fix it”. I believe that this is surely the wrong way to pursue fixing our country’s economy. What these banks can and cannot do should be regulated so that these banks don’t have the ability to make a fortune at the expense of their customers. Therefore, business truly should be like an oil tank in that it should be restricted to compartments of can and cannot do’s.
Your commentary on Inside Job (on the BC High website) makes it seem that the film was similar to the one I watched, Inside the Meltdown. The investment banks, such as Bear Stearns, were becoming very greedy and their actions led to the economic troubles in 2008. Some of those who caused the meltdown did end up effected, though, as shares of Bear sold for $2 each while the employees and CEOs believed that they were getting much more per share than they actually did. I agree with you though, that the average person was effected by the meltdown much more than the rich men and women that caused the meltdown.
“Can we shut that off?” remarks a business executive behind the economic crisis after being asked a difficult question. Nope bud, sorry the camera is still rolling and my generation is going to be scraping for jobs after college… Thanks! The “Inside Job” the title refers to is the meltdown of the economic crisis of the United States in 2009. The business practice that I would intend to focus on is the de-regulation of the financial district of our country.
Shout out to the Libertarians who claim no government regulation is the way to go, that worked out, huh? That was sarcasm by the way: the economy is in shambles. Knowledge is a powerful tool of discernment that has brought about, for me anyway, an understanding that there greed is a powerful motivator. Thus, without the view of a benevolent spectator one would act in a manner that brought himself or herself the greatest benefit. Why is it, then, that people continue to advocate de-regulation? Greed. Thus I found it incredibly apparent that de-regulation was foolish and did not like this business practice.
In an ethical sense I was disappointed that people would give out the “AAA” rating to companies despite knowledge that they were not worthy of the tag. This business practice, one that focuses on the end goal (money) rather than the process (time), is despicable. The “quick buck” that everyone searches for seems to only be possible through manipulation, corruption and cheating. It’s a frustrating thought that, as a student of BC High with a foundation in ethics, I despise.
“Inside Job” The people and business practices that were presented in “The Inside Job” that I would like to explore are the investment banks and Standard & Poor’s creditor ratings. After watching “The Inside Job” my eyes were opened up to the blatantly irresponsible and dishonest work that investment banks were performing. Investment bankers, and banks as a whole, were issuing loans to people who were clearly unqualified for the loan, and could not possibly pay back the loan. Investment bankers, however, with the knowledge of associated risks, packaged these loans as sound investments and sold them to individuals who were looking for a safe investment. This dishonest practice caused the financial meltdown of 2008, explored in the film, and should have been stopped through honest and ethical business practices. It is unethical and illegal to falsely sell a product, knowing that it will fail, which is precisely what was happening. S&P acted unethically as well by accepting bribes in order to issue higher credit ratings that would benefit only themselves. The root of this evil comes simply from greed. S&P should have been looking out for the welfare of the American people as a whole, however S&P executives solely focused on increasing their personal incomes and benefits, and focused on making money rather than successfully helping The United States to progress forward as a society. These unlawful practices should have been punished more severely in order to attempt to prevent these instances from reoccurring in the future.
Inside Job The documentary Inside Job gives a look at the causes of the financial meltdown of 2008. While at the beginning, the title of the film seemed to be an exaggeration of sorts to grab viewers attention, as it progressed the title seemed more and more fitting. While it is simple to site the companies whose practices caused problems, it was also the government organizations whose jobs it were to make sure the companies did not run such high risks fault through their lack of action. Through their lack of regulation, a giant financial bubble was created whose eventual repercussions could be catastrophic.
A significant business practice that was essential to the creation and bursting of the bubble was the securitization food chain. While in the old system of loans, it was a simple deal between borrower and lender, where the lender took caution on where there loans went because they wanted to be paid back, and the borrower’s payments went directly to the lender, this new system included the borrowers, the lenders, investment banks, and investors. In this system, the lender had little to no fear of being paid back, because they sold the loans to investment banks who combined them with tons of other loans and mortgages to create derivatives called Collateralized Debt Obligations (CDO). Subsequently, the large investment banks would sell these derivatives to investors, so when the borrowers made payments they went to investors. The CDO would go to rating agencies to be rated, who would usually give them the highest ratings possible, as the investment banks paid them. However, due to lack of inhibition on the part of the lenders, who no longer needed to care whether they got paid back by the borrowers, many of these loans were beyond risky and impossible for people to pay. As many could not pay their loans, this system would eventually fall like a building when its foundation collapses.
In the end, the system did collapse in the 2008 recession, after which reform was essential. Needless to say, reform was and still is no where in sight, as the banks and investment agencies are bigger than ever.
Your review of Inside Job appears rather harsh, and perhaps rightly so, yet it is important to consider one economic principle that remains unnoticed in your review. Whenever customers obtain a good or service, in this case a sub-prime mortgage, they vote. Their hard-earned money is saying which businesses they wish to see standing by investing in that business. Competing businesses try to appeal to the market at large. In Goldman Sach's case, they successfully appealed to a vast market that remained blind to their wrongdoings. After the business' fraudulent activity become clear, however, many become dissuaded to buy a sub-prime mortgage from them again, and Goldman reported heavy losses. Provided a reliable media remains in place, and investors remain aware of their investments, the system will “clean” itself of businesses that “abandon any modicum of valor.”
I thought that this was the best documentary out of all of them. I really did think that it was rather one-sided, however. The documentary is strongly against economic deregulation, and I feel that deregulation of the economy is something that is not completely bad, and can be good in some situations, and I feel that the economy should not be heavily regulated in some areas. For example, I thought that it was really wrong for the documentary to publicize the salaries and spending habits of business executives. I really think that it is wrong that executives spent corporate money on drugs and prostitutes, as the documentary states, but at the same time, why should we care if we are not directly involved with the company that is doing that. In other words, I agree that it is both wrong and strange to spend corporate money on such things, but I think that the documentary tries to make the case that these types of things should be tracked and regulated. I disagree with this, because I feel that if a company wants to spend its money on stuff like that, than it can go ahead and do it, because the executives of that company can choose to spend their money as they choose, and if they waste money on bad things like that, than they will lose money as a company, and this will give other companies the opportunity to be more successful than the one that is paying for drugs and prostitutes.
I do believe that regulation of the economy is good in some cases, especially when the documentary talks about how many of the big banks did not act in the best interest of their clients, which is something that is just wrong. If a company is signing agreements with clients, they ought to be serving them to the best of their ability. An example from the documentary where investment banks were not acting in the best interest of their clients is when they were combining loans into collaterized debt obligations, and selling them to investors. These obligations included credit debt combined with other debt, and they were falsely rated by insurance agencies like AIG, and were sold to investors, many of whom lost a lot of money. To me, something like this ought to be regulated. I really don’t know who did the worse thing here; the investment banks or the insurance agencies. I feel like the investment banks have the right to combine credit debt with other types of money and sell them as derivatives to investors, but it was definitely unethical for the insurance agencies to falsely rate these derivatives, because investors used these ratings to determine how profitable their potential investments could be, before they bought them. Since the insurance agencies gave relatively high ratings for almost all of the derivatives, investors bought them, under the impression that they would be profitable, only to find themselves losing money. I really think that the ratings of insurance agencies with regard to the derivatives which were being bought and sold ought to have been more closely regulated, so that investors could have had more fair opportunities.
I really enjoyed this movie, and it made me really eager to learn about economic regulation from both points of view (pro and anti), as well as about the collaterized debt obligations that were mentioned in the documentary.
Inside job is a documentary that chronicles the events and policies that lead to the 2008 financial crisis on Wall Street. Today, in our global economy, the collapse of the world’s largest banks has long-reaching effects across the world. The film begins by exploring the bankruptcy of one of the most stable economies in the world, Iceland, and how the fate of Lehman Brothers Holding Inc. and American International Group brought the country to its knees. Initially a regulated industry, the deregulation of banks in 1980 caused unprecedented costs in American tax dollars. In the 1990’s the concept of derivatives made the industry even less stable and efforts to regulate this was refused in the Commodity Futures Modernization Act of 2000. Collateralized debt obligations or CDOs were debts and loans, often bad, packaged together, given AAA ratings and sold to investors. This system was abused and often people were given subprime loans on purpose, showing further corruption. The ratio of borrowed money to the banks actually money skyrocketed in the early 2000’s and companies like Goldman-Sachs lied about the quality of their CDO’s. Ratings agencies administered ridiculous levels of AAA ratings, tricking investors and feeding money to the wealthy corporate big-wigs. Once the value of CDOs diminished, investment banks still had hundreds of billions of dollars in loans. The government took a bold initiative and took control of Fannie Mae and Freddie Mac at the verge of their collapse. After a 700 billion dollar bailout by President Bush global economies remain in crisis, and today President Obama has passed few reforms that move towards a regulated financial industry.
The documentary, Inside Job, took an in depth look at the economic crisis that began in 2008, and some major reasons why this happened. Although there were many actions that were done in greed and selfishness, I was most shocked with the system in which loans were rated. I watched the film and was first dumfounded by the way that rating companies operated, giving out rankings of AAA to companies and loans in which were about to fall apart. As the film continued I realized that these rating companies simply did not care if the investment fell through, as long as they were making the quick money. In my opinion the rating companies played a huge part in the crisis because they could have easily given others better warnings by simply rating loans fairly and honestly rather than how the big corporations wanted them to. The analogy that was used in the documentary, I think was perfect, when they compared the rating agencies to a journalist in the way that if the writer wrote a positive, article she/he would be paid to get it published, rather than a honest, negative article were the journalist would not be paid for the article. So many people trusted, and relied on these rating agencies opinions, but when they were caught in their lies they simply said that what they were giving out was just that, their opinions. The rating agencies played a huge part in the economic meltdown, and simply got away with it.
I agree with your analysis of Inside Job. I understand why you said, “A truly international economy combined with the Wall Street ideology of financial power being consolidated into a handful of powerful banks, rating agencies, and insurance companies ensured that once one shoe fell, others would closely follow.” This is exactly what I encountered in the movie Inside the Meltdown. It was called systemic risk. Also, the “the systematic appointing of financial sector leaders to positions within the federal political system that are directly responsible for creating and regulating monetary and fiscal policy” are parallel to what I encountered in Maxed Out and Food Inc. I believe this is no way to regulate. It is evident there is a bias when it comes to appointment of governmental positions and to legislation. As is it, the Average Joe is trumped by large companies who pay for campaigns and hire lobbyists. Well done!
Inside Job Inside job is about the 2008 economic crisis. The movie explores what practices led to it, who was responsible and what has happened to those responsible by conducting interviews with people on both sides of the ‘line’ and providing background information in layman’s terms. Inside Job describes the economic practices that the financial sector used before that crisis many of which I dislike strongly. The securitized money chain is a perfect example of such. It had loaners sell their loans to investment banks, which them created CDOs out of them and sold them to the people. This gave them the money instantly and put the people at risk if the loan failed rather than the banks. With the loans combined into CDOs the average person could no longer tell how good the loans were, so they had to rely on the rating agencies who were bribed to give the CDOs AAA ratings. Now the banks couldn’t care less about the risks of a loan because they would already have the money in their hand and the CDOs would always sell because the AAA ratings. Adding credit default swaps to the mix was like strapping bombs onto a runaway train. Credit default sways allowed people to bet against CDOs, including the banks who created them, so soon enough the CDOs were made to fail. I know this entire process makes sense to maximize profit, but eventually people will figure out what is happening and then you’ll end up with loans you cannot sell and lose a lot of money. Soon enough this happened and thanks to them taking immense loans to buy more loans the banks went bankrupt and brought the rest of the economy with them. Securitization let the banks mess up everyone else’s life and profit from it which is why I dislike it so much. There were (surprisingly) a few things I actually liked about securitization chain. When rated accurately CDOs would help concentrate the loans wanted by the people investing. For example all the loans in an AAA CDO would be at or near AAA rating. People would be able to choose the CDOs and loans they wanted to bet on directly from the banks. They could make it easier to invest larger amounts of money you want. And after the 2008 bubble burst the banks would hopefully only make loans and/or CDOs they wanted that wouldn’t fail in case they weren’t bought again. Unfortunately in my opinion, the system is too easy to abuse without regulation. Inside Job showed me the economic disciplines that I largely disagree with.
Frantz Balan The banks are out of control the control. The idea of laissez faire runs deep in every democratic government. The deregulation of Iceland caused an economic downturn. The government let three banks make their own decision on what they thought would benefit the country but instead it caused Iceland to be in a huge debt. The greed in the bankers who worked at the bank caused people to think about government role with government. The government job is to protect the peoples interest as a whole when they give power to other people they must realize that people focus on self interest. We let business run amok in our society which causes hardship for all who under these companies. We learn that less government intervention causes decline in economic growth in the country
This film thoroughly examines the 2008 recession: analyzing the activities which led to the crisis, the recession itself, and the aftermath. Among the causes, deregulation was the primary factor which led to the catastrophe. Through the myriad interviews and extensive research presented in the film, deregulation is clearly pinned as a malevolent business practice. In the very opening scene of the documentary, Iceland’s financial crisis was explained in great detail. The nation had possessed a strong infrastructure comprised of a sound economy, abundant resources, and happy citizens. However, the Icelandic government’s move toward deregulation quickly became an invitation to multi-national corporations, allowing them to enter Iceland and begin exploiting the natural resources. This first destroys the environment and then harms the economy. But then the move to privatize the banks fueled the economic deterioration. As the banks borrowed billions of dollars, greed and corruption took over while a major bubble formed. When the bubble burst in 2008, the economy tanked and unemployment skyrocketed. This story begins the analysis of the US economy. In the years leading up to 2008, the government had also made shifts toward deregulation. Firstly, restrictions on savings and loans were relaxed. This paved the road for speculation with the people’s money which became increasingly risky. Such risky investments inevitably led to major failures which consequently caused catastrophic losses of money, plunging the economy in crisis. Additionally, the banning of the regulation of derivatives only furthered instability in the market by allowing risky business practices to continue unchecked. Although it is important to maintain freedom and private interests in any economy, that is not to say that all regulation must be shunned entirely. A system must be devised in which the government does not control the market but rather checks it for stability and steps in only when necessary.
I enjoyed reading the account you described in regard to the film Inside Job. I feel as though the sarcasm you invoked in your writing really shed light onto the fact that the lack of government intervention in the economy basically led to its destruction. I also agree with this view. The greed of people significantly involved in the United States economy is the sole reason why the stock market is in such bad shape, and the regulation of the economy could lead to its improvement. As you put it, de-regulation has proved to negatively affect the economy, so why not institute a more regulatory system in our financial market?
The film “Inside Job” reveals the truth about how scandalous Wall Street is. The Wall Street traders use the public to make money for themselves when they should be working to make their clients money. One way they do this is by lying to people by telling them to buy shares of a new and rising internet site that will become huge. However, this “incredible” site is really a weak site with no chance for success. The traders make their money by buying shares in this internet stock when it is at its lowest price and when people begin to invest this stock price will rise. Finally, after the share price has been raised the Wall Street traders will sell their shares and eventually everyone else will realize that the site is pointless and they will lose their investments. “Inside Man” also shows the selfish and criminal behavior of people in Wall Street. These people are very greedy and they have an insatiable desire for more wealth even though most have already a very large amount. The way money is spent on Wall Street is even more bizarre. Money is spent on mansions, sports cars, toys, drugs, and casinos. Reporters are amazed that Wall Street workers are able to still come to work after how much cocaine they did the night before. Many will also lose all of their money by gambling and end up going into debt. The government needs to stop supporting these men’s desire for wealth and instead help the public avoid losing money through scams.
Inside Job is a documentary on the financial crisis of 2008. The film begins with the example of Iceland. Iceland had a historically solid financial foundation. The government employed regulations on national banks to avoid risks. When these regulations were lifted, however, the newly privatized banks took risks with investor’s money in order to make more money. Eventually the risk taking would catch up as the banks borrowed money, burying the nation of Iceland in a debt ten times the nations GDP. The example of Iceland is further expanded onto the crisis that took place in the U.S. during 2008. The major assertion made by the documentary is that Wall Street made the financial crisis of 2008 possible through the corruption of the U.S. government. The documentary elucidates the fact that almost all of the government’s top-tier financial advisors of the past twenty years have been CEOs of major fortune 500 businesses. The worry is, essentially, that these former CEOs are biased and therefore make decisions that help business, but that do not necessarily help the American people. The documentary shows how these advisors were able to lead America towards deregulation of the banks; a decision that allowed for the housing bubble and financial collapse of 2008. The documentary weaves a web of corruption pointing out characters and major players in the government network that voiced approval of deregulation. The film even goes so far as to suggest that the nations top financial minds (professors at top colleges) are in on the game. The government is accused of more or less paying them off to support deregulation of the banks and financial markets. I personally do not understand the financial climate well enough to make an assessment of the decisions made. I do, however, believe the documentary made a good point (as any documentary should).
The documentary, Inside Job, is a tour-de-force account that chronicles the successive failed practices and policies that ultimately led to one of the most prolific financial disasters and crises in world history. A truly international economy combined with the Wall Street ideology of financial power being consolidated into a handful of powerful banks, rating agencies, and insurance companies ensured that once one shoe fell, others would closely follow. Although the maligned actions in this film are plentiful, there is one that strikes at the core of political corruption and speaks to the illicit and intimate relationship between Wall Street and U.S. government. This action is the systematic appointing of financial sector leaders to positions within the federal political system that are directly responsible for creating and regulating monetary and fiscal policy. The legislative and executive branches of our American government are intended to represent the interests and visions of each citizen. Each member of those branches is held to the Constitutional obligation to uphold the values of our society and country. Parts of those principles are justice and equality. As can easily be seen, every person does not enjoy justice and equality when the very people who orchestrated the collapse are put in a position to further hinder the actual growth of our economy. One example of such heinous appointing is that of Hank Paulson as secretary of the Treasury on May 30, 2006. He was the former chairman of Goldman Sachs, one of the five most powerful investment banks on Wall Street, and, by virtue of his former office, he was well aware of the speculative and high risk nature of collateralized debt obligations (CDOs) in a deregulated market and the eventual mass failures that they would create. Yet, he was still appointed to a position where he could further deregulate the markets and continue an inefficient, ineffective process that would cost America billions. The conflicts of interest do not end there though. People, such as Larry Summers, Fred Mishkin, Timothy Geitner, and Glenn Hubbard, all occupied or occupy federal fiscal positions and, instantaneously, advise large companies in investing and other business matters. The unethical qualities of these acts are self-evident. Wall Street and government are seemingly inseparable. The only silver lining to this catastrophe is Eliot Spitzer, the former New York Attorney General and Governor. He wanted these corrupt businesses to face criminal charges and he had a plan to systematically dismantle them. He was a beacon of hope, in a world as dark and grey as Wall Street.
In Inside Job, one subject that is strongly focused on is government deregulation. This is something that has done tremendous damage to both the national and global economy. As the film says, after the great depression there were strict regulations, which strengthened the United States economy for forty years. Then, starting in the 1980’s the government began to deregulate. They began giving big companies, specifically banks increasingly large amounts of power. Although it seems like the people that can run banks are smart and could handle the power wisely, they became greedy and essentially began stealing from their customers. The banks began making risky investments with their customers’ money. No one was there to regulate that so they were able to do whatever they wanted and able to invest the money however they pleased. This is a terrible mistake by the government. The banks lost an extreme amount of money and still maintained their power. Another issue, which led to the downfall, was that the banks gave poor advice. They encouraged people to invest in companies that were unstable and poor ideas to risk in. They got people to lose large amounts of money to these companies that were unfit to invest in. As a result they were fined. They said that they would not continue these actions, but they were not being regulated as strictly as they should have been so no one could stop them, The government deregulations were very detrimental to the economy. They gave big companies far to much power and these big companies lost an extra ordinate amount of money.
The investment banks are commonly looked at as the major culprit for the 2008 economic recession. However, the three rating agencies (Moody’s, Standard & Poors, and Fitch) ultimately held the power to put a stop to the insane amount of CDOs that were sold to investors, but instead, continually gave many CDOs triple-A ratings, when in-fact they deserved much lower. Due to this, the rating agencies are at the most fault for not putting a stop to the robbery that was the 2008 economic crisis.
ReplyDeleteHenry Paulson, CEO of Goldman-Sachs, sold billions of dollars in CDOs in 2006. However, as he was selling the CDOs to the public, he was also betting against them. Now in no way am I justifying Paulson’s actions, as they were terrible and left many in debt. However, without the rating agencies giving these CDOs triple-A ratings, Paulson’s scheme would not have been possible.
In-fact, the beginning of the documentary preludes the US economic crisis with that of the deregulation in Iceland. It is interesting that the three American Rating Agencies claimed that “there was nothing wrong with Iceland.” Nothing wrong? Iceland was free-falling from a regulated, model economy, to a deregulated example of failure, and the American Rating Agencies believed that nothing was wrong. In 2007, the rating agencies were so confident in their beliefs, that they increased the Iceland Banks to triple-A ratings. Iceland’s banks collapsed at the end of 2008, and unemployment skyrocketed.
The argument could be made that because investment banks were the ones who paid the rating agencies, and their profit margin was driven up for the more triple-A ratings given out, the agencies should have the green-light to continue to give garbage CDOs ratings of triple-A. Yes, profit margins may have gone up. But so did debt and unemployment for many people not involved in this Ponzi-scheme. When is enough, enough? When does somebody involved with the rating agency reveal the truth for public benefit, and promote the common good, rather than corrupt the system even more? For such smart people, this business practice was not only unethical, but extremely dim-witted as well, as they should have known that the truth would eventually be revealed.
The investment banks are commonly looked at as the major culprit for the 2008 economic recession. However, the three rating agencies (Moody’s, Standard & Poors, and Fitch) ultimately held the power to put a stop to the insane amount of CDOs that were sold to investors, but instead, continually gave many CDOs triple-A ratings, when in-fact they deserved much lower. Due to this, the rating agencies are at the most fault for not putting a stop to the robbery that was the 2008 economic crisis.
ReplyDeleteHenry Paulson, CEO of Goldman-Sachs, sold billions of dollars in CDOs in 2006. However, as he was selling the CDOs to the public, he was also betting against them. Now in no way am I justifying Paulson’s actions, as they were terrible and left many in debt. However, without the rating agencies giving these CDOs triple-A ratings, Paulson’s scheme would not have been possible.
In-fact, the beginning of the documentary preludes the US economic crisis with that of the deregulation in Iceland. It is interesting that the three American Rating Agencies claimed that “there was nothing wrong with Iceland.” Nothing wrong? Iceland was free-falling from a regulated, model economy, to a deregulated example of failure, and the American Rating Agencies believed that nothing was wrong. In 2007, the rating agencies were so confident in their beliefs, that they increased the Iceland Banks to triple-A ratings. Iceland’s banks collapsed at the end of 2008, and unemployment skyrocketed.
The argument could be made that because investment banks were the ones who paid the rating agencies, and their profit margin was driven up for the more triple-A ratings given out, the agencies should have the green-light to continue to give garbage CDOs ratings of triple-A. Yes, profit margins may have gone up. But so did debt and unemployment for many people not involved in this Ponzi-scheme. When is enough, enough? When does somebody involved with the rating agency reveal the truth for public benefit, and promote the common good, rather than corrupt the system even more? For such smart people, this business practice was not only unethical, but extremely dim-witted as well, as they should have known that the truth would eventually be revealed.
Response to a film I did not view.
ReplyDeleteAs with most negotiations in both Wall Street and in our nation’s capital, it is no surprise to discover yet another instance in which our sense of the nation’s economy was blurred by back room deals. By providing high ratings to risky derivatives and poor mortgages, S&P betrayed the nations trust in its rating practices. As a result, Americans created this massive bubble in which people took out loans that they really could not afford. While always leaping to great lengths in order to earn a few extra bucks, karma has taught American’s a lesson that no one will forget.
Inside Job
ReplyDeleteFerguson’s theory of how the market melted down starting in 2008 is fascinating and interesting to hear. Ferguson speculates that the Reagan Administration’s deregulation of the market allowed for more rule-breaking and recklessness in the market. He highlights that investment banks, which were once private firms, went public with the result of short term chances for high profit. Investment banking profits rose 150% over 20 years.
Ferguson than says that starting in 2000 with a new mortgage system, causing absurdly high loans to be given out, which caused the home markets to rise incredibly over the years. Since everyone was making money at the time, everyone overlooked that none of these loans would be able to be paid off overtime, leading to the foreclosure crisis that has taken place over the last several years. This was called “the bubble”, as home prices kept rising. The bubble burst when it came when it was time to pay up on the loans people had taken out, to find that they simply did not have the money to do so. The government then decided to bail out the companies that had given out the loans in the first place, causing inflation and unemployment to rise.
The tactics investors and creditors took to make a quick buck from the seventies until now have caused the market to rapidly decline as inflation and unemployment rise. The only way the market could be fixed and remain steady is if investors and banks use responsible loaning and crediting, not taking huge risks for huge rewards like in the early 2000s. Unfortunately, we are still dealing with the effects of their choices from before.
In the Film, The Inside Job, one practice that stood out to me was the corruption of the Rating companies. The problem I saw was that a rating company would make massive amounts of profit off of marking something as “AAA” rather than its actual value , thus, discrediting investments nearly entirely. The investment banks would then use that to their advantage and market an investment product that was already prospected to fail. They then could bet against the investment and be selling it at the same time, and maximize profits. While this seems great for the banks, it only benefits that top 1%. It would be taking millions of dollars from unaware, blinded people because the rating companies screwed them over. Also, in the film they mentioned that retirement investments must be “AAA” to guarantee that they don’t fail. This now meant that retirement funds would fail.
ReplyDeleteAs if this wasn’t bad enough, investment companies would bet against the stock to fail of something that was rated “AAA”. During the film, with the court hearing against Goldman Sachs, the judge questioned the executives asking why their highest selling stock was the same one they were betting the most against. This is highly unethical
Perhaps the strangest actions taken by any group discussed in this film are the ones done by Standard and Poor’s. This summer’s downgrading of the US credit rating, however, put the actions of S&P in a whole new light. With the new focus on the S&P the reasoning behind their actions, touched upon in the movie, is revealed.
ReplyDeleteS&P appeared in the movie as unreliable, and incapable of truly understanding the markets, as they gave high ratings to high risk derivatives and bad mortgages. Additionally, they also gave some of the highest ratings to credit default swaps, a practice that would not seem sound to even the least informed investor. This practice led many to invest in a bubble that, in hindsight, clearly appeared to be ready to burst catastrophically. As the course of the current economic situation played out this summer, I learned why S&P acted as such.
The S&P is not paid by the US government to grade its credit rating. This allows for an unbiased rating. Companies such as AIG and Goldman Sachs paid S&P to rate their commodities. The S&P charged thousands of dollars for these ratings. This created a major conflict of interest, as these companies would not being willing to pay upwards of $100,000 for ratings, should they reflect negatively upon the companies. After learning this, I have finally understood why Standard and Poor’s acted so irresponsibly in giving such high ratings to bad credit default swaps; actions that, as many economic analysts argue, were key to the financial meltdown.
This film narrated by Matt Damon, did not contain many business practices to agree with as it exposed many corporation's and government’s corruption and greed throughout the world especially in the United States. I agree with many points this film makes against these business practices. I can specifically resinate with the fact that the blame for the global financial crisis or as they call it bubble, goes to the top of government and these corporations. The government is to blame for much of this problem because of the lack of regulation of many banks and major investment firms. This was seen in Iceland where they had no economic crisis when they kept their economy small. Around 2000 the government allowed for multinational corporations to enter the Icelandic economy which led to economic crisis with small Icelandic businesses. The United States also lacks a good system for rating their investment firms which was and is a serious problem. Before their days of failure Goldman Sachs and Lehman Brothers had an A2 or AA rating. The poor ratings coupled with the lack of communication between the U.S. and other international powers are also reasons for this financial disaster. When the financial minister of France, now director of the IMF, Christine LaGarde, was asked on her reaction of the Lehman Brothers failing, not only was she surprised, her only reaction was, “Holy Cow”. On Wall St., the use of derivatives, small risky investments (bets) were allowed by the United States. Even after Brooksley Born attempted to get the United States government to regulate derivatives, she was opposed by legislation [Commodity Futures Modernization Act]. The major investment firms were the leaders of Born’s opposition. This leads to another reason why I disagree with the business practices shown in this film, Inside Job. The majority of the decisions shown in this film were executed with motive of greed. After 1980, investment banks went from small partnerships to larger scale investment firms that risked much more than they did before. By the mid 2000’s these investment banks took big risks hoping for big reward. The incentives for the high level executives were extremely high which led them to risk a lot of the consumer’s money in things such as derivatives. These executives also knew that if these risks failed that the loss for them personally would not be major. This was proven as executives such as Merill Lynch CEO Stan O’Neal walked away from the company with 161 million even after the company failed and was bailed out. The deregulation of banks and businesses by the government is a serious reason why these banks and businesses failed. However, the corruption and greed of the executives and CEO’s of these banks and investment firms are what started their decline and then subsequently ran them straight into the ground.
ReplyDelete“Inside Job”
ReplyDeleteOut of this entire film, I can say that no executives, CEO’s, or companies made any decisions towards money or a stable economy that could be labeled as “good.” Nearly all higher up executives and CEOs of large companies such as AIG or Lehman Brothers were making actions that would eventually devastate the entire country, yet leave them financially secure until the day they die. The only good actions taken by large companies were those that were made during the 40 years of economic prosperity after the Great Depression, which were mentioned very briefly. The root of all the economic troubles our country faces can be easily stemmed from the obvious and extreme greed that overcame some of the most economically powerful men in the country. If it had not been for the huge push for deregulation, which was won, our economy today would not be considered “volatile” and people worldwide would be more financially stable. It is a shame that our own Federal Government could not recognize the blatant fraud, money laundering, and bribery that took place at the hands of the companies that many Americans looked at for financial consultation. Even worse so, is that once the government had found all of those criminal activities, it handed them hundreds of billions of dollars so that they could “fix” what they themselves started. Another enormous issue that was created once deregulation were instituted was the derivatives. Allowing, or not knowing that companies were betting against the very products they were selling made those companies’ very unstable, thus making the United States economy very unstable as well, since those companies were the largest. Perhaps one of the most shocking parts of the film is the story of how Iceland as a whole just collapsed. The cause of Iceland’s major financial and natural crisis, similar to the United States, was the deregulation, which was put into place by their own government, which in turn caused a major deterioration of the general quality of life in Iceland.
student response:
ReplyDeleteThe S&P 500 is supposed to be a reliable source for accurate rating of products; the fact that they were selling ratings to large banks hid the larger issue at hand. If proper action had been taken and an honest rating was given then the following crisis could have been foreseen. The housing bubble may have been a little more obvious if a steady decline had occurred, instead of the toxic subprime loans shattering companies one by one. The bailout and following recession were a combination of bad ideas and business practices, this protecting all of them from being seen.
Student Response
ReplyDeleteAs many students pointed out, this documentary is similar to Inside the Meltdown, as they both chronicle the economic collapse of 2008. Inside Job seemed to go more in depth with the banks and investment firms that were responsible for the collapse of the stock market after mortgages lost value following the real estate bubble bursting. The movie stresses how the greed of certain people led to an entire economic collapse, as many people irresponsibly bought and sold securities in search of easy money, not realizing the bubble had to burst and it all had to come crumbling down. The blind eye stance the U.S. Government took did not aid the oncoming crisis, as low regulation allowed irresponsible stock trading to continue.
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ReplyDeleteA large problem that is covered in Inside Job is the problem of derivatives. Derivatives are contracts between two parties and their value is determined by the assests that are invloved in said derivative. The market of derivatives was thriving in the United States economy and was estimated to be worth fifteen trillion dollars. All of this money was originally introduced to the U.S. economy to help stabilize it, when in reality all that it did was prove to be an unstable market that could cause major harm to the U.S. economy. The main problem with derivatives was that they were unregulated, this in my opinion makes sense because there is no limit to the loans that are being given out and the loans are then given to investors so in my opinion if everything is done legally then there should be noo problem with derivatives. The woman that was put in charge of the Commodity Futures Trading Commission by President Bill Clinton was Brooksley Born. Athlough when born offered a solution to the derivatives wich was certain limitations to them she was overuled and the derivatives remained unregulated. I personally found this extremely interesting, for one reason it is providing, yet it may be unstable, a large amount of money to keep the economy functioning at a far greater level.
ReplyDeleteThis documentary was by far the most informative, it gave the most depth on the problems that the economy was facing and who was involved and why the country was going through what it was, and what had to be done to solve the problems.
“Inside Job” is an in depth look at the failure of the U.S. Stock Market, what caused it, and the widespread loss of jobs and money as a consequence of Wall Street’s failures. One of the largest issues revealed by the movie is the deregulation of the U.S. financial sector. Companies could then do what they wanted with money and often get away with lying because of how large and powerful they were. Because of deregulation, the companies could not and cannot be watched the way that they once were, and because of this they are more willing to partake in illegal deals, and lie to the stock and shareholders about where their money is going. Because these banks are so large and unregulated they hold the economic future of the country and the world in their hands. They cannot be apprehended by laws, because there are no laws that can stop them. They cannot be stopped because closing them down would close down the country. The only way to fix the system as the movie shows is through regulation, and watchdog agencies that will enforce it. Currently the government has barely even made steps to change the way that the market runs since the Crash. Of course these changes are not being made because there is no way to do so without upsetting financial backers of politicians.
ReplyDeleteIf these investment banks were left to their own devices the market would not change. It would continue to be their toy to manipulate rather than the financial tool that it is. By selling bad bonds and deals to the average stockholder the banks were able to artificially raise the markets and create more cash for themselves while dumping bad equity and loans onto unsuspecting people. Because of the risky tactics used by these investment banks the market crashed, and the world is still trying to recover. Sadly the fate of the economy is still stuck in their hands, and until that is changed the world markets will always be in danger.
This movie was extremely informative and just seemed to toss fact after fact at you like a documentary should. The business or businesses that I would like to go into depth talking about are all the corrupt investment banks. The investment banks to me seemed to be the root of the problem which created the bubble in the first place. These careless banks just sold loan after loan without have the finances to back up these loans. This kind of careless behavior seems typical of every single business or corrupt business man in this movie, which is that all they care about is making as much money as possible without any regard for the consequences.
ReplyDeleteEven though these investment banks were given AAA ratings from S&P (which they paid off S&P for) does not mean that they can just give loans like they are giving away candy. Obviously this system of buying investments, SDO's, taking out loans with no financial backing was doomed to fail from the beginning and I am surprised it lasted as long as it did. A proper economy will not function correctly if it is based off of greed for more money, which I saw as a major motif throughout the entire movie.
I am really shocked that the U.S. government did not even attempt to step in or regulate the careless ways of these investment banks. It is almost like they just sat back and waited for the collapse to happen. Or perhaps they were just so ignorant to it they did not realize what was going on. If that was the case then the economy deserved to collapse just to show the government that such corrupt procedures are unacceptable.
In the movie Inside Job, a great metaphor is presented to help understand why the stock market crashed in 2008. This metaphor compares business to an oil tanker. It states that an oil tanker has divisions so that if something were to happen to one of the compartments of oil, it would not affect the rest of the compartments. This particular economist claims that in the same way, certain business practices should be divided into compartments. Suddenly, banks were not only banks, but mortgage lenders, insurance companies, and investment advisors as well. Therefore, the combination of compartments of industries makes one huge compartment, which proves in 2008 to be the downfall of the stock market.
ReplyDeleteI really like this metaphor because I believe that it accurately states why this recession started. Banks were involving themselves in shady business such as when they advised people to invest in unprosperous CDO’s while these banks such as Wells-Fargo, Lehman Brothers, and Merrill-Lynch asked companies like AIG for insurance on these very same CDO’s. They were essentially betting against the customers that they were advising. As a result, many people lost their life savings because these CDO’s lost value and CEO’s of the very same banks were making money on the insurance policies. I believe that because the banks had so much power in so many different markets, then they became greedy. They figured that because one market effects the wellbeing of another, then they can use that relationship to make as much money as possible. If there had been certain ‘compartments’ to restrict the abilities of these banks, then this mess that has become our economy could have been avoided.
Another issue that has risen because of the lack of restraint on banks is one of both power and greed. These high corporate officials, board members, and CEO’s are using their customers’ money for their own benefit. While these customers have lost all the money they have worked for, certain banking leaders have walked away with hundreds of millions of dollars. This is a problem. Corporate greed has allowed banking to bet against their own customers to make money for themselves while leaving their customers on the short end of the stick. This is purely because of the fact that these banks can control the outcome of their business. This is because they can now make money regardless of whether business does well or even crashes. As a result of the money made, these people look economically smart and because of this may end up with jobs such as Secretary of the Treasury or an economical advisor to the President. Therefore, a vicious circle has taken over our economy where the same people that have destroyed it are likewise the same people who are trying to “fix it”. I believe that this is surely the wrong way to pursue fixing our country’s economy. What these banks can and cannot do should be regulated so that these banks don’t have the ability to make a fortune at the expense of their customers. Therefore, business truly should be like an oil tank in that it should be restricted to compartments of can and cannot do’s.
John Maffeo,
ReplyDeleteYour commentary on Inside Job (on the BC High website) makes it seem that the film was similar to the one I watched, Inside the Meltdown. The investment banks, such as Bear Stearns, were becoming very greedy and their actions led to the economic troubles in 2008. Some of those who caused the meltdown did end up effected, though, as shares of Bear sold for $2 each while the employees and CEOs believed that they were getting much more per share than they actually did. I agree with you though, that the average person was effected by the meltdown much more than the rich men and women that caused the meltdown.
“Can we shut that off?” remarks a business executive behind the economic crisis after being asked a difficult question. Nope bud, sorry the camera is still rolling and my generation is going to be scraping for jobs after college… Thanks! The “Inside Job” the title refers to is the meltdown of the economic crisis of the United States in 2009. The business practice that I would intend to focus on is the de-regulation of the financial district of our country.
ReplyDeleteShout out to the Libertarians who claim no government regulation is the way to go, that worked out, huh? That was sarcasm by the way: the economy is in shambles. Knowledge is a powerful tool of discernment that has brought about, for me anyway, an understanding that there greed is a powerful motivator. Thus, without the view of a benevolent spectator one would act in a manner that brought himself or herself the greatest benefit. Why is it, then, that people continue to advocate de-regulation? Greed. Thus I found it incredibly apparent that de-regulation was foolish and did not like this business practice.
In an ethical sense I was disappointed that people would give out the “AAA” rating to companies despite knowledge that they were not worthy of the tag. This business practice, one that focuses on the end goal (money) rather than the process (time), is despicable. The “quick buck” that everyone searches for seems to only be possible through manipulation, corruption and cheating. It’s a frustrating thought that, as a student of BC High with a foundation in ethics, I despise.
“Inside Job”
ReplyDeleteThe people and business practices that were presented in “The Inside Job” that I would like to explore are the investment banks and Standard & Poor’s creditor ratings. After watching “The Inside Job” my eyes were opened up to the blatantly irresponsible and dishonest work that investment banks were performing. Investment bankers, and banks as a whole, were issuing loans to people who were clearly unqualified for the loan, and could not possibly pay back the loan. Investment bankers, however, with the knowledge of associated risks, packaged these loans as sound investments and sold them to individuals who were looking for a safe investment. This dishonest practice caused the financial meltdown of 2008, explored in the film, and should have been stopped through honest and ethical business practices. It is unethical and illegal to falsely sell a product, knowing that it will fail, which is precisely what was happening.
S&P acted unethically as well by accepting bribes in order to issue higher credit ratings that would benefit only themselves. The root of this evil comes simply from greed. S&P should have been looking out for the welfare of the American people as a whole, however S&P executives solely focused on increasing their personal incomes and benefits, and focused on making money rather than successfully helping The United States to progress forward as a society. These unlawful practices should have been punished more severely in order to attempt to prevent these instances from reoccurring in the future.
Inside Job
ReplyDeleteThe documentary Inside Job gives a look at the causes of the financial meltdown of 2008. While at the beginning, the title of the film seemed to be an exaggeration of sorts to grab viewers attention, as it progressed the title seemed more and more fitting. While it is simple to site the companies whose practices caused problems, it was also the government organizations whose jobs it were to make sure the companies did not run such high risks fault through their lack of action. Through their lack of regulation, a giant financial bubble was created whose eventual repercussions could be catastrophic.
A significant business practice that was essential to the creation and bursting of the bubble was the securitization food chain. While in the old system of loans, it was a simple deal between borrower and lender, where the lender took caution on where there loans went because they wanted to be paid back, and the borrower’s payments went directly to the lender, this new system included the borrowers, the lenders, investment banks, and investors. In this system, the lender had little to no fear of being paid back, because they sold the loans to investment banks who combined them with tons of other loans and mortgages to create derivatives called Collateralized Debt Obligations (CDO). Subsequently, the large investment banks would sell these derivatives to investors, so when the borrowers made payments they went to investors. The CDO would go to rating agencies to be rated, who would usually give them the highest ratings possible, as the investment banks paid them. However, due to lack of inhibition on the part of the lenders, who no longer needed to care whether they got paid back by the borrowers, many of these loans were beyond risky and impossible for people to pay. As many could not pay their loans, this system would eventually fall like a building when its foundation collapses.
In the end, the system did collapse in the 2008 recession, after which reform was essential. Needless to say, reform was and still is no where in sight, as the banks and investment agencies are bigger than ever.
Frankie,
ReplyDeleteYour review of Inside Job appears rather harsh, and perhaps rightly so, yet it is important to consider one economic principle that remains unnoticed in your review. Whenever customers obtain a good or service, in this case a sub-prime mortgage, they vote. Their hard-earned money is saying which businesses they wish to see standing by investing in that business. Competing businesses try to appeal to the market at large. In Goldman Sach's case, they successfully appealed to a vast market that remained blind to their wrongdoings. After the business' fraudulent activity become clear, however, many become dissuaded to buy a sub-prime mortgage from them again, and Goldman reported heavy losses. Provided a reliable media remains in place, and investors remain aware of their investments, the system will “clean” itself of businesses that “abandon any modicum of valor.”
I thought that this was the best documentary out of all of them. I really did think that it was rather one-sided, however. The documentary is strongly against economic deregulation, and I feel that deregulation of the economy is something that is not completely bad, and can be good in some situations, and I feel that the economy should not be heavily regulated in some areas. For example, I thought that it was really wrong for the documentary to publicize the salaries and spending habits of business executives. I really think that it is wrong that executives spent corporate money on drugs and prostitutes, as the documentary states, but at the same time, why should we care if we are not directly involved with the company that is doing that. In other words, I agree that it is both wrong and strange to spend corporate money on such things, but I think that the documentary tries to make the case that these types of things should be tracked and regulated. I disagree with this, because I feel that if a company wants to spend its money on stuff like that, than it can go ahead and do it, because the executives of that company can choose to spend their money as they choose, and if they waste money on bad things like that, than they will lose money as a company, and this will give other companies the opportunity to be more successful than the one that is paying for drugs and prostitutes.
ReplyDeleteI do believe that regulation of the economy is good in some cases, especially when the documentary talks about how many of the big banks did not act in the best interest of their clients, which is something that is just wrong. If a company is signing agreements with clients, they ought to be serving them to the best of their ability. An example from the documentary where investment banks were not acting in the best interest of their clients is when they were combining loans into collaterized debt obligations, and selling them to investors. These obligations included credit debt combined with other debt, and they were falsely rated by insurance agencies like AIG, and were sold to investors, many of whom lost a lot of money. To me, something like this ought to be regulated. I really don’t know who did the worse thing here; the investment banks or the insurance agencies. I feel like the investment banks have the right to combine credit debt with other types of money and sell them as derivatives to investors, but it was definitely unethical for the insurance agencies to falsely rate these derivatives, because investors used these ratings to determine how profitable their potential investments could be, before they bought them. Since the insurance agencies gave relatively high ratings for almost all of the derivatives, investors bought them, under the impression that they would be profitable, only to find themselves losing money. I really think that the ratings of insurance agencies with regard to the derivatives which were being bought and sold ought to have been more closely regulated, so that investors could have had more fair opportunities.
I really enjoyed this movie, and it made me really eager to learn about economic regulation from both points of view (pro and anti), as well as about the collaterized debt obligations that were mentioned in the documentary.
Inside job is a documentary that chronicles the events and policies that lead to the 2008 financial crisis on Wall Street. Today, in our global economy, the collapse of the world’s largest banks has long-reaching effects across the world.
ReplyDeleteThe film begins by exploring the bankruptcy of one of the most stable economies in the world, Iceland, and how the fate of Lehman Brothers Holding Inc. and American International Group brought the country to its knees. Initially a regulated industry, the deregulation of banks in 1980 caused unprecedented costs in American tax dollars. In the 1990’s the concept of derivatives made the industry even less stable and efforts to regulate this was refused in the Commodity Futures Modernization Act of 2000.
Collateralized debt obligations or CDOs were debts and loans, often bad, packaged together, given AAA ratings and sold to investors. This system was abused and often people were given subprime loans on purpose, showing further corruption. The ratio of borrowed money to the banks actually money skyrocketed in the early 2000’s and companies like Goldman-Sachs lied about the quality of their CDO’s. Ratings agencies administered ridiculous levels of AAA ratings, tricking investors and feeding money to the wealthy corporate big-wigs. Once the value of CDOs diminished, investment banks still had hundreds of billions of dollars in loans. The government took a bold initiative and took control of Fannie Mae and Freddie Mac at the verge of their collapse. After a 700 billion dollar bailout by President Bush global economies remain in crisis, and today President Obama has passed few reforms that move towards a regulated financial industry.
The documentary, Inside Job, took an in depth look at the economic crisis that began in 2008, and some major reasons why this happened. Although there were many actions that were done in greed and selfishness, I was most shocked with the system in which loans were rated.
ReplyDeleteI watched the film and was first dumfounded by the way that rating companies operated, giving out rankings of AAA to companies and loans in which were about to fall apart. As the film continued I realized that these rating companies simply did not care if the investment fell through, as long as they were making the quick money. In my opinion the rating companies played a huge part in the crisis because they could have easily given others better warnings by simply rating loans fairly and honestly rather than how the big corporations wanted them to. The analogy that was used in the documentary, I think was perfect, when they compared the rating agencies to a journalist in the way that if the writer wrote a positive, article she/he would be paid to get it published, rather than a honest, negative article were the journalist would not be paid for the article. So many people trusted, and relied on these rating agencies opinions, but when they were caught in their lies they simply said that what they were giving out was just that, their opinions. The rating agencies played a huge part in the economic meltdown, and simply got away with it.
Kevin,
ReplyDeleteI agree with your analysis of Inside Job. I understand why you said, “A truly international economy combined with the Wall Street ideology of financial power being consolidated into a handful of powerful banks, rating agencies, and insurance companies ensured that once one shoe fell, others would closely follow.” This is exactly what I encountered in the movie Inside the Meltdown. It was called systemic risk. Also, the “the systematic appointing of financial sector leaders to positions within the federal political system that are directly responsible for creating and regulating monetary and fiscal policy” are parallel to what I encountered in Maxed Out and Food Inc. I believe this is no way to regulate. It is evident there is a bias when it comes to appointment of governmental positions and to legislation. As is it, the Average Joe is trumped by large companies who pay for campaigns and hire lobbyists. Well done!
Inside Job
ReplyDeleteInside job is about the 2008 economic crisis. The movie explores what practices led to it, who was responsible and what has happened to those responsible by conducting interviews with people on both sides of the ‘line’ and providing background information in layman’s terms.
Inside Job describes the economic practices that the financial sector used before that crisis many of which I dislike strongly. The securitized money chain is a perfect example of such. It had loaners sell their loans to investment banks, which them created CDOs out of them and sold them to the people. This gave them the money instantly and put the people at risk if the loan failed rather than the banks. With the loans combined into CDOs the average person could no longer tell how good the loans were, so they had to rely on the rating agencies who were bribed to give the CDOs AAA ratings. Now the banks couldn’t care less about the risks of a loan because they would already have the money in their hand and the CDOs would always sell because the AAA ratings. Adding credit default swaps to the mix was like strapping bombs onto a runaway train. Credit default sways allowed people to bet against CDOs, including the banks who created them, so soon enough the CDOs were made to fail. I know this entire process makes sense to maximize profit, but eventually people will figure out what is happening and then you’ll end up with loans you cannot sell and lose a lot of money. Soon enough this happened and thanks to them taking immense loans to buy more loans the banks went bankrupt and brought the rest of the economy with them. Securitization let the banks mess up everyone else’s life and profit from it which is why I dislike it so much.
There were (surprisingly) a few things I actually liked about securitization chain. When rated accurately CDOs would help concentrate the loans wanted by the people investing. For example all the loans in an AAA CDO would be at or near AAA rating. People would be able to choose the CDOs and loans they wanted to bet on directly from the banks. They could make it easier to invest larger amounts of money you want. And after the 2008 bubble burst the banks would hopefully only make loans and/or CDOs they wanted that wouldn’t fail in case they weren’t bought again. Unfortunately in my opinion, the system is too easy to abuse without regulation.
Inside Job showed me the economic disciplines that I largely disagree with.
Frantz Balan
ReplyDeleteThe banks are out of control the control. The idea of laissez faire runs deep in every democratic government. The deregulation of Iceland caused an economic downturn. The government let three banks make their own decision on what they thought would benefit the country but instead it caused Iceland to be in a huge debt. The greed in the bankers who worked at the bank caused people to think about government role with government. The government job is to protect the peoples interest as a whole when they give power to other people they must realize that people focus on self interest. We let business run amok in our society which causes hardship for all who under these companies. We learn that less government intervention causes decline in economic growth in the country
This film thoroughly examines the 2008 recession: analyzing the activities which led to the crisis, the recession itself, and the aftermath. Among the causes, deregulation was the primary factor which led to the catastrophe. Through the myriad interviews and extensive research presented in the film, deregulation is clearly pinned as a malevolent business practice.
ReplyDeleteIn the very opening scene of the documentary, Iceland’s financial crisis was explained in great detail. The nation had possessed a strong infrastructure comprised of a sound economy, abundant resources, and happy citizens. However, the Icelandic government’s move toward deregulation quickly became an invitation to multi-national corporations, allowing them to enter Iceland and begin exploiting the natural resources. This first destroys the environment and then harms the economy. But then the move to privatize the banks fueled the economic deterioration. As the banks borrowed billions of dollars, greed and corruption took over while a major bubble formed. When the bubble burst in 2008, the economy tanked and unemployment skyrocketed.
This story begins the analysis of the US economy. In the years leading up to 2008, the government had also made shifts toward deregulation. Firstly, restrictions on savings and loans were relaxed. This paved the road for speculation with the people’s money which became increasingly risky. Such risky investments inevitably led to major failures which consequently caused catastrophic losses of money, plunging the economy in crisis. Additionally, the banning of the regulation of derivatives only furthered instability in the market by allowing risky business practices to continue unchecked.
Although it is important to maintain freedom and private interests in any economy, that is not to say that all regulation must be shunned entirely. A system must be devised in which the government does not control the market but rather checks it for stability and steps in only when necessary.
Ryan Blake,
ReplyDeleteI enjoyed reading the account you described in regard to the film Inside Job. I feel as though the sarcasm you invoked in your writing really shed light onto the fact that the lack of government intervention in the economy basically led to its destruction. I also agree with this view. The greed of people significantly involved in the United States economy is the sole reason why the stock market is in such bad shape, and the regulation of the economy could lead to its improvement. As you put it, de-regulation has proved to negatively affect the economy, so why not institute a more regulatory system in our financial market?
This is a test, Inside Job was great.
ReplyDeleteThe film “Inside Job” reveals the truth about how scandalous Wall Street is. The Wall Street traders use the public to make money for themselves when they should be working to make their clients money. One way they do this is by lying to people by telling them to buy shares of a new and rising internet site that will become huge. However, this “incredible” site is really a weak site with no chance for success. The traders make their money by buying shares in this internet stock when it is at its lowest price and when people begin to invest this stock price will rise. Finally, after the share price has been raised the Wall Street traders will sell their shares and eventually everyone else will realize that the site is pointless and they will lose their investments.
ReplyDelete“Inside Man” also shows the selfish and criminal behavior of people in Wall Street. These people are very greedy and they have an insatiable desire for more wealth even though most have already a very large amount. The way money is spent on Wall Street is even more bizarre. Money is spent on mansions, sports cars, toys, drugs, and casinos. Reporters are amazed that Wall Street workers are able to still come to work after how much cocaine they did the night before. Many will also lose all of their money by gambling and end up going into debt. The government needs to stop supporting these men’s desire for wealth and instead help the public avoid losing money through scams.
Inside Job is a documentary on the financial crisis of 2008. The film begins with the example of Iceland. Iceland had a historically solid financial foundation. The government employed regulations on national banks to avoid risks. When these regulations were lifted, however, the newly privatized banks took risks with investor’s money in order to make more money. Eventually the risk taking would catch up as the banks borrowed money, burying the nation of Iceland in a debt ten times the nations GDP.
ReplyDeleteThe example of Iceland is further expanded onto the crisis that took place in the U.S. during 2008. The major assertion made by the documentary is that Wall Street made the financial crisis of 2008 possible through the corruption of the U.S. government. The documentary elucidates the fact that almost all of the government’s top-tier financial advisors of the past twenty years have been CEOs of major fortune 500 businesses. The worry is, essentially, that these former CEOs are biased and therefore make decisions that help business, but that do not necessarily help the American people. The documentary shows how these advisors were able to lead America towards deregulation of the banks; a decision that allowed for the housing bubble and financial collapse of 2008. The documentary weaves a web of corruption pointing out characters and major players in the government network that voiced approval of deregulation. The film even goes so far as to suggest that the nations top financial minds (professors at top colleges) are in on the game. The government is accused of more or less paying them off to support deregulation of the banks and financial markets.
I personally do not understand the financial climate well enough to make an assessment of the decisions made. I do, however, believe the documentary made a good point (as any documentary should).
The documentary, Inside Job, is a tour-de-force account that chronicles the successive failed practices and policies that ultimately led to one of the most prolific financial disasters and crises in world history. A truly international economy combined with the Wall Street ideology of financial power being consolidated into a handful of powerful banks, rating agencies, and insurance companies ensured that once one shoe fell, others would closely follow. Although the maligned actions in this film are plentiful, there is one that strikes at the core of political corruption and speaks to the illicit and intimate relationship between Wall Street and U.S. government. This action is the systematic appointing of financial sector leaders to positions within the federal political system that are directly responsible for creating and regulating monetary and fiscal policy.
ReplyDeleteThe legislative and executive branches of our American government are intended to represent the interests and visions of each citizen. Each member of those branches is held to the Constitutional obligation to uphold the values of our society and country. Parts of those principles are justice and equality. As can easily be seen, every person does not enjoy justice and equality when the very people who orchestrated the collapse are put in a position to further hinder the actual growth of our economy. One example of such heinous appointing is that of Hank Paulson as secretary of the Treasury on May 30, 2006. He was the former chairman of Goldman Sachs, one of the five most powerful investment banks on Wall Street, and, by virtue of his former office, he was well aware of the speculative and high risk nature of collateralized debt obligations (CDOs) in a deregulated market and the eventual mass failures that they would create. Yet, he was still appointed to a position where he could further deregulate the markets and continue an inefficient, ineffective process that would cost America billions. The conflicts of interest do not end there though. People, such as Larry Summers, Fred Mishkin, Timothy Geitner, and Glenn Hubbard, all occupied or occupy federal fiscal positions and, instantaneously, advise large companies in investing and other business matters. The unethical qualities of these acts are self-evident. Wall Street and government are seemingly inseparable.
The only silver lining to this catastrophe is Eliot Spitzer, the former New York Attorney General and Governor. He wanted these corrupt businesses to face criminal charges and he had a plan to systematically dismantle them. He was a beacon of hope, in a world as dark and grey as Wall Street.
In Inside Job, one subject that is strongly focused on is government deregulation. This is something that has done tremendous damage to both the national and global economy. As the film says, after the great depression there were strict regulations, which strengthened the United States economy for forty years. Then, starting in the 1980’s the government began to deregulate. They began giving big companies, specifically banks increasingly large amounts of power. Although it seems like the people that can run banks are smart and could handle the power wisely, they became greedy and essentially began stealing from their customers.
ReplyDeleteThe banks began making risky investments with their customers’ money. No one was there to regulate that so they were able to do whatever they wanted and able to invest the money however they pleased. This is a terrible mistake by the government. The banks lost an extreme amount of money and still maintained their power.
Another issue, which led to the downfall, was that the banks gave poor advice. They encouraged people to invest in companies that were unstable and poor ideas to risk in. They got people to lose large amounts of money to these companies that were unfit to invest in. As a result they were fined. They said that they would not continue these actions, but they were not being regulated as strictly as they should have been so no one could stop them,
The government deregulations were very detrimental to the economy. They gave big companies far to much power and these big companies lost an extra ordinate amount of money.