FIN300 FINANCIAL INSTITUTIONS AND MARKETS
Quiz 3
Topic:
“Summary on Documentary “Inside Job”
Submitted by:
Muhammad
Zain Ali Yousaf Khan
(SP23-BAF-105)
(SP23-BAF-108)
Section:
BAF-4B
Submitted to:
Sir Ali Raza
FIN300 FINANCIAL INSTITUTIONS AND MARKETS
Dated: 5th Dec,2024.
Question:
Provide a comprehensive summary of the documentary “inside job”? The summary
should be structured in a way that it follows the stages / steps provided in the documentary and
explanation of the mechanisms outlined in each part.
Answer:
Inside Job, a 2010 documentary directed by Charles Ferguson and is directed by Matt
Damon. It talks about the causes and implications of the 2008 global financial crisis. The narrator
showcases a systemic misconduct in the financial services industry. The movie also investigates
how deregulation and greed among financial companies, rating agencies, and regulators
contributed one of the major collapse in economic disasters. The documentary is divided into five
sections, each addressing a different stage of the crisis. It depicts interviews with academics,
financial insiders, politicians, and journalists to explain how the crisis happened and its impact
on economies around the world.
Following is the breakdown of summary into five stages:
1. How we got here:
From 1941 to 1981, the U.S. financial system was carefully regulated. But
after that, many of these rules were removed, leading to risky financial practices. In the
late 1980s, a crisis in the savings and loan industry cost taxpayers about $124
billion. This section explains how laws were changed in the 1980s, weakening the
divide between regular banks and investment banks. The removal of the Glass-
Steagall Act allowed banks to take more risks. Rating agencies gave high ratings to
risky investments like CDOs, and subprime loans led to unfair lending practices that
FIN300 FINANCIAL INSTITUTIONS AND MARKETS
hurt many people.
2. The Bubble (2001-2007):
During the housing boom, investment banks borrowed huge amounts of money
compared to the value of their own assets, reaching record levels. To protect themselves
against risky investments, some speculators bought credit default swaps (CDSs), which
worked like insurance. Interestingly, they often used CDSs to protect against investments
they didn’t even own. The documentary takes a close look at how the housing bubble
formed, largely due to subprime loans (loans given to people who couldn’t afford them.)
Banks bundled these risky mortgages into complex financial products called securities
and sold them to investors. They kept lending to borrowers who didn’t meet the usual
standards, making the situation even worse. Because of conflicts of interest, rating
agencies gave these risky investments very high ratings, misleading investors. The
documentary also explains how financial tools like collateralized debt obligations
(CDOs), mortgage-backed securities (MBS), and credit default swaps (CDSs) were used
to manage risks. However, these tools often underestimated how risky the situation really
was, making the financial system even more unstable.
3. The Crisis:
When the market for CDOs (Collateralized Debt Obligations) collapsed,
investment banks were stuck with hundreds of billions of dollars in loans, CDOs, and real
estate they couldn’t sell. This marked the start of the Great Recession in November 2007.
By March 2008, Bear Stearns, a major investment bank, ran out of money. As the
housing bubble burst, the entire banking system was on the brink of collapse.
Some banks were rescued by large government bailouts, while others, like Lehman
Brothers, went bankrupt. This part of the documentary shows how toxic assets, too much
borrowing (leverage), and the connections between big banks created serious dangers.
FIN300 FINANCIAL INSTITUTIONS AND MARKETS
Poor risk management by banks and the need for government action to prevent a complete
economic meltdown were key factors in this financial crisis.
4. Accountability:
The top executives of the bankrupt corporations escaped punishment and kept their
personal wealth intact. Following the government rescue, the bosses' hand-picked boards
of directors distributed billions in bonuses. This section criticizes the absence of
repercussions for the people and organizations who caused the crisis. Few executives who
had supervised dangerous activities were charged with crimes, and several earned
significant bonuses. Regulatory capture, lobbying influence, and conflicts of interest
among scholars and decision-makers who favored deregulation are some of the
mechanisms mentioned.
5. Where We Are Now:
Tens of thousands of workers in American factories lost their jobs. The financial
changes implemented by the incoming Obama administration were inadequate. The
documentary concludes by evaluating the crisis's lingering impact and the little measures
that have been put in place. It explores the long-lasting impact of Wall Street on politics
and poses questions about whether the fundamental issues have been sufficiently addressed.
The factors at play here are inadequate regulation, persistent lobbying, and the inability
to reduce the residual systemic risks. European nations imposed strict regulations on bank
compensation, but the U.S. resisted them.
Hence, offering a harsh condemnation of the banking sector, the documentary
emphasizes how crucial responsibility and transparency are to averting future catastrophes.
To rebuild faith in the system, it ends by calling for improvements.
FIN300 FINANCIAL INSTITUTIONS AND MARKETS
