The Main Points of the Documentary Inside Job
The Documentary, Inside Job, is narrated by movie star actor, Matt Damon. The documentary, released in 2010, tell us about the Great Recession and how it all happened: what events beforehand lead to one of the worst financial crises since the Great Depression. The documentary is broken into five parts:
- Part 1- How We Got Here,
- Part 2- The Bubble (2001-2007),
- Part 3- The Crisis,
- Part 4- Accountability,
- Part 5- Where We Are Now.
The Documentary, Inside Job, provides an insightful examination of mistakes made by Americans that lead to the Great Recession in 2008 and provides many lessons on how the American housing industry frauded the ordinary American investors in some risky investments that was very catastrophic and has had unwanted consequences still. Part 1 begins in explaining how in 1941, the American Financial industry was heavily regulated for about four decades. After 1981, a period of deregulation followed right after of Financial Institutions which include Banks, Insurance Companies, Credit Rating Agencies and more. After this, Financial Institutions started to take more gambles and risks on investments to earn more profits for their respective organizations and themselves. By the 1990s, a few gigantic firms were consolidated through this and were ruling over the financial industry. These companies became involved with derivatives and collateralized debt obligations (CDOs) that were sold to investors. Many Rating agencies gave these CDOs great ratings without really realizing the risks since the agencies were colluding with the firms.
How it works
In Part 2, it discusses the bubble and how these financial firms were allowing people, who normally couldn’t afford a second home, take out multiple mortgages to buy another home with the risk that they may not may it back. Thus, housing prices increased tremendously. At this time, the SEC didn’t monitor the situation going on and took a back seat to what was happening. Another big issue was the firms who were selling CDOs were also betting against that some of these would fail because they knew the borrowers could not pay it back. Part 3 discusses the Crisis and how the market for CDOs collapsed. Many of the borrowers started to default on their mortgages from lenders: investment banks were left with hundreds of billions of dollars in loans, CDOs, and real estate properties that essentially became a big burden. From here, in Mid 2008, the Great Recession started when the Lehman Brothers announced bankruptcy which caused a ripple effect to the entire world economy. Many firms were bailed out as well and President Bush had to push a huge bailout plan to help these firms. However, the market continued to crash. Nothing was working and the situation became worse. Part 4 discusses how people needed to be held accountable for what happened. The top executives of these bankrupt countries walked away without taking a hit on their personal fortunes. Instead of being punished, they were still kept around in some kind of capacity and were still paid millions for their involvement still. Thus, they pushed heavily against regulations and any kind of form of it. Part 5 discusses the aftermath and where the United States was at the time. The United State lost thousands of job and unemployment remained high.
Inflation started to increase. President Obama historic 2008 election promised to bring in reforms and prevent such crisis from every recurring again. Obama passed the Dodd Frank Act but these reforms and regulations were weak. Some of the people responsible for the crisis became part of Obamas Administration and held some important offices that would affect the United States. After watching the documentary, many of the things we learned in class showed up. To name a few, Fannie and Freddie Mac, how a market bubble was created in Iceland, and it mentions money market funds set up by banks. Many of these terms we learned in lecture slides. The documentary also mentioned Audits, the American Credit agencies (the 3 Agencies of Moodys, Standard & Poors, Fitch) and how it gave high ratings of AAA when the investment was actually risky, another term we learnt as well. It also mentioned Credit Default Swaps (CDs), primary markets and secondary markets (stocks, derivates, etc), the SEC (Security and Exchange Committee), Collateralized Debt Obligations or CDOs (investment bankers were leaning heavily on these selling these to investors), named dropped securitization, mortgages, different types of funds, etc. It also talked about Subprime Loans, AIG, how Derivates work, foreclosures of houses, and The Federal Reserve (dealing with the recession and the companies, bail outs, etc.).
The movie also mentioned the government taking over Fannie & Freddie Mac (in the slides referred them as mortgage lenders), how the secondary market and investment banker’s investment decisions really affected the housing market (these terms were talked about during the slides) in a really horrendous way. Leverage limits, estate tax, and a few other terms were also mentioned by the movie. The documentary had many references from the lecture slides. The documentary had a clear message on what it wanted to convey: how the Great Recession was a disaster waiting to happen because of foolish decisions made over couple of decades. It showed how regulations were need to protect Americans and other industries, yet, there a lack of such reforms and regulations. The government is still colluding with wall street and with President Trump: things will continue to get worse as cares more about the one percent than the average American Citizen.