Critical Analysis of the Documentary Inside Job The Biggest Bank Heist

Ever! - Group 1
Thousands of factors are accused to cause the financial crisis of 2008, the documentary
Inside Job specified the deeper root that accounts for this. At the beginning of the
movie the comment of Andri Magnason (Writer and Filmmaker), Nothing comes
without consequence, really indicates a lot of substances.

In history, there were small investment groups. Banks were not speculating with
consumers savings. But the process of the unhealthy environment in the financial
sector started in the 90s. Financial Deregulation in the US under the administration of
President Reagan is the beginning of the new era of financial institutions. Passing of
Gramm Leach Bliley act made the market more vulnerable by permitting mergers of
banks of investment and consumer deposits which in easy words were risky
investments with consumer money. This deregulation continues to grow until US
investment banks have integrated and formed a few gigantic firms that have a gigantic
influence on overall financial systems. These mergers of investment banks gave
immense monopoly and lobbying power to the whole financial and political landscape.
Which created negative impact on banks attitudes towards unethical behavior. There
was an increasing number of banks committing fraudulent activities such as money
laundering and illegal investment, because of they had the expectation in the market
that the government will bail out.
When watching the documentary, it seems clear that the financial institutions felt
mighty and infallible. It was not just Wall Street where the shadowy games were
played. Also in Iceland, a crisis arises around 2008. Banks were borrowing almost
unlimited funds. While they did so in Iceland, rating agencies from the US were not
very critical on the way the Icelandic banks were working. There was no balance
anymore in organizations. Regulation was prevented by bankers, Greenspan, Summers.
So, loans could be cut up and put together in packages with other types of loans to make
CDOs. These CDOs would then be rated AAA, so retirement funds could buy them
as they were only allowed to buy AAA. These CDOs have been rated lower. Rating
agencies were paid by investment banks and had to keep their liability, on top of that
they were paid to give AAA ratings to subprime loans.
Mathematicians and investment bankers developed complicated derivatives. With
these derivatives speculating was possible on a high scale. Even the weather could be
included. Banks, investment bankers and rating agencies were playing under the same
roof while a more critical way of view from the boards or rating agencies might prevent
the catastrophic crisis. There were warnings from professionals, IMF, FBI; but
everything was ignored. A time bomb was ticking there. In 2001-2007 there was a huge
growth in money flow, because housing prices doubled. But this money was created by
the system and was in no sense real income. Meanwhile, traders and CEOs benefited
from large bonuses. And when the bomb was exploding, the whole world was affected.
Due to the globalized economy, a domino effect was caused. There was a huge asset
loss, people lost their jobs, their home.
Critical Analysis of the Documentary Inside Job The Biggest Bank Heist
Ever! - Group 1
So as analyzed, there are some core aspects which contributed to the crisis. At first, all
these crises started with deregulation. Like the example of oil tanker, where everything
can flip over if compartments are taken away. Second the bankers and financial
institutions such as AIG did not put any money aside for losses because they took it for
granted others are going to suffer the loss, they would not have to pay the bill. Thus,
creating an even greater risk on an already unstable bet. A third problem was due to
greed for creating individual profit. Personal interest was put first, leading to unethical
behavior of bankers. The banks would not feel the pain themselves if the homeowners
could not repay the loan and became homeless because if their increasing greed. And
finally, there was no segregation of duties and too much conflict of interests. For
example, financial services lobby for political parties. So even if there would be
regulation there would still be too much political influence. Also, board members of
banks and financial institutions were also involved in writing academic articles which
they got paid for. Finally, the board of directors was chosen by the CEO, the person
that had to be checked by that board.
From the very beginning, there were laws, regulations and restrictions over corporate
bodies and financial industries. If those laws, restrictions and regulations would have
been followed accordingly, the crises over times would not appear. The rules and
regulations that are already in place should be revised at first to find out the flaws and
leaks through which big fishes slip out. Goldman Sachs sold securities that they
thought themselves were crap, and even betted against that same security. Later to the
judge, they told that it was just their duty to inform their clients about prices and they
didnt blame themselves for making profit on their clients losses. Rating agencies did
not take their responsibilities also; their ratings were just opinions. So, there was no
sense of responsibility and honesty in these people. If there is no honesty among people,
no regulations can make them act appropriately. Therefore, after considering the facts
like what are the weaknesses of the existing regulations, why people are behaving
unnaturally; the existing system should be improved and tightened. Changes should be
starting from within the organization. the tone at the top should be changed and the
whole way of thinking from the employees too. They should be aware of their
responsibility to the society and not just be a profit maximizing firm. The possible
negative effects from their actions should be totally known and considered. Segregation
of duties can also possibly identify and prevent frauds and fraudulent intentions to
greater extent. Incentives should be really attached to value creating and long term
goals so that short-termism do not take the institutions to extinction. Moreover, there
should be clear boundary of undertaking risk (like issuing risky loans), penalties should
be imposed for crossing those boundaries. Clearly, a more responsible way of working
and behaving should start from the inside. If this will be better and right, then of course
also control from the outside is needed to force them to be transparent and keep the
stakeholders informed.