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The Inside Job Analysis

Autor:   •  March 6, 2016  •  Term Paper  •  1,615 Words (7 Pages)  •  980 Views

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The global financial crisis of 2008 forced millions of people out of their jobs and homes and had an estimated cost of more than $20 trillion. Given its profound impact, the financial crisis has not only been widely discussed in the media and analysed in academia, but it has also been examined in a film. The widely acclaimed 2010 documentary Inside Job, which was written, directed, and produced by filmmaker Charles Ferguson, investigates the events leading up to, during, and after the financial crisis. The film focuses on the complex ethical issues related to the financial services industry and the industry’s relation to the crisis.

The introductory segment of the film provides an overview of the financial crisis through a synopsis of its impact on Iceland. In particular, it discusses the effects of the deregulation and privatization of the country‘s banking system that allowed Iceland‘s three national banks to borrow an amount equal to 10 times the country‘s gross domestic product over five years through 2008. The financial downturn led to the collapse of the three banks. And, within six months, the downturn led to a tripling of the country‘s unemployment rate.

Part I of the film suggests that in recent years a series of increasingly severe financial crises occurred in the United States largely due to deregulation and the establishment of large integrated and interdependent investment, insurance, and banking firms. In particular, in the late 1980s, deregulation ultimately led to the collapse of hundreds of savings and loans companies. During the 1990s, the subsequent growth of the derivatives securities markets, the political influence of the financial industry, and the belief in the concept of market efficiency all helped to continue this policy of deregulation. The role of the deregulated investment banking industry in the dot-com investment bubble and its subsequent collapse in 2001 is reviewed, along with numerous cases of illegal and fraudulent activities since deregulation. This section also explores the question of why incidences of unethical and criminal activities appear to be more frequent in the financial sector of the economy. At the close of Part I, the film provides a succinct summary of the process that led to the crisis. It calls this process the “securitization food chain.” By 2001, banking profits had greatly increased. This increase was in part fuelled by debt contracts created when retail financial institutions sold mortgage contracts to investment firms that then bundled them, along with other forms of personal debt, into investments known as collateralized debt obligations (CDOs). The 7 investment banks then sold the CDOs, ultimately transferring the risk of repayment from the originating financial institutions and themselves to the investors who purchased them. As a result, the original lenders no longer had any invested interest in the credit worthiness of the borrowers.

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