Inside Job

Inside Job

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Inside Job documentary:

Being a person who always loved languages and has pursuit this passion on my student career, I had having little knowledge about the whole economics and business history. However this documentary has shown me in a very interesting way, what happened in what seem to be one of the most important events or crisis in the whole world of economics history.

The part one of this documentary starts by explain how everything has started. It explains that the main reason of the whole crisis was the deregulation, in 1980s, of Financial Institutions. This meant that these institutions were on their own, they were left alone to perform the way they thought it was in their best interests. Being the human kind so selfish and greedy this is where everything “went down the drain”.

In 1982 it was allowed the banking industry to make risky investments with the savings deposits of the public and by the end of the decade several loan companies failed at their jobs. In the late 1990s, the financial sector had been created into few giant firms, and this industry was dominated by five investment banks (Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch and Bear Stearns). The lenders started to make mortgage loan to home buyers and they sold those mortgage loans to investment banks and the investment banks make a new product called CDO (Collateralized Debt Obligation). After this the investment banks paid Rating Agencies for rating this CDOs, and with this corrupt system the CDOs received AAA rating, which is the highest possible rating.

The Part II explains that since anyone could get a mortgage, home sales and housing prices blasted, generating the largest financial bubble in history. AIG, the company that provided insurance on CDOs, promised to cover all the costs if there was a default on the insured CDOs, although it did not have the money to do so. If I understood well the Goldman Sachs knew those risky CDOs were primed for default and figured it could profit from trading the CDO and then profit when there was a default on that same CDO. I don’t know if this was what actually happened but was the conclusion that I had after seeing this part of the documentary, if that’s so, although Goldman Sachs saw it reasonable to bet against the CDOs, they continued to trade the CDOs as if they were safe.

The Part III, The Crisis, for me was the most enlightening part of the documentary. It starts by saying that various warnings were given by economist, journalist through their articles in the bubble period. In 2008, mortgage loan holders failed to payback their loan to lenders, as a result the Securitization Food Chain collapsed. From the middle of 2008, major financial institutions started to collapsed and bankrupt. The maor bankruptcy was of Lehman Brothers. This