Inside Job: How the Financial Collapse was Engineered

Steve KinsmanStarred Page By Steve Kinsman, 22nd Jul 2011 | Follow this author | RSS Feed | Short URL http://nut.bz/3mazdvoz/
Posted in Wikinut>Reviews>Film & TV>Documentary

This article reviews the movie Inside Job, a documentary about how the financial collapse of 2008 was deliberately engineered.

Inside Job

I would urge the reader to run, not walk, to the nearest video store to rent the Academy Award winning documentary, Inside Job, directed by Charles Ferguson, which lays out exactly how the financial meltdown of 2008 was allowed to happen.

The movie begins with the story of the small island nation of Iceland, whose government was convinced in 2002 to privatize its three government owned banks. Iceland was a progressive and prosperous country with a population of 340,000. Its standard of living was high, with free health care, a clean environment and very little crime. Just before the deregulation of their banking system occured, in the year 2000, the government of Iceland allowed Alcoa Aluminum to come in and build giant aluminum smelters on some of its most pristine land, which resulted in massive environmental damage and destruction. With that action, the real damage was just beginning. In a country which had a gross national product of 13 billion dollars, the banks quickly issued bank loans totaling 120 billion dollars, almost ten times Iceland's GNP. It was one of the poorest experiments in financial deregulation ever conducted. The bankers proceeded to shower money on themselves, each other and their friends. The result was a massive bubble. House prices more than doubled. The banks advised their customers to withdraw money and invest in money market funds. Although the banks were on very shaky ground, they were given triple A ratings by the rating agencies. When all three banks suddenly collapsed in late 2008 unemployment in Iceland tripled, thousands lost their savings, and thousands more lost their homes. While all this was going on, one-third of Iceland's bank regulators left and went to work for the banks.

Deregulation

Inside Job points out that the financial crisis was not an accident, but was caused by an out-of-control industry. Since the 1980's, lack of control over the financial sector has resulted in ever increasing cases of economic crisis. Before the 1980's, banks were limited in their activity by the Glass-Steagall Act, which prevented commercial banks from making risky investments. Investment banks handled things like stocks and commodities, and they were small partnership arrangements. When Don Regan became Ronald Reagan's Secretary of the Treasury, he lobbied for and secured for the banks deregulation, and commercial banks started to make riskier and riskier loans. Savings and Loans were deregulated and the result was the S&L meltdown of the late nineties, when hundreds of Savings and Loans folded and the taxpayers were dunned to the tune 0f 124 billion dollars. The scandal ended up taking the life savings of thousands, and hundreds of S&L bankers were sent to jail.

Wall Street

George H. W. Bush appointed Alan Greenspan, a champion of wholesale deregulation, to head the Federal Reserve, and he was kept on under the Clinton administration. Robert Rubin, CEO of Goldman Sachs, was appointed Treasury Secretary by Clinton, so by 1993 Wall Street was effectively in charge in Washington. By the late nineties, the financial sector had consolidated into a very few mega-firms, and the Clinton administration, through the efforts of Rubin and Senator Phil Gramm, helped them get even larger. In 1998, Citicorp and Travelers merged, creating Citigroup, the world's largest financial services company. The merger, under current law at the time, was patently illegal, but regulators at the Security and Exchange Commission allowed it to go forward. Congress then passed the Gramm-Leach-Blitey Relief Act, which critics labeled The Citigroup Relief Act. This legislation opened the door for still more mega-mergers.

Investment banks forced the massive bubble in internet stock in the late nineties, which was followed by an inevitable, massive crash in 2001, resulting in a loss of five trillion dollars in investment dollars. The SEC had done nothing to prevent this.

Robert Rubin returned to Goldman Sachs after his tenure and was promptly rewarded for his efforts with a 124 million dollar bonus. Phil Gramm left the senate to become vice-chairman of UBS.

The housing bubble, derivatives and sub-prime mortgages

By the middle of the century's first decade the housing bubble was in full swing, fueled by the sub-prime mortgage market. Regulations had changed so that banks could now create a wide variety of sophisticated and complicated financial products, such as CDO's and Credit Default Swaps. Virtually anybody could get a house loan, and whereas previously the bank the homeowners borrowed from would hold their loans, now they could bundle the mortgages and sell them to other investors. What firms like Goldman Sachs did was to sell investments in CDO's, which they knew were risky, to their clients, and then bet against these investments in the financial markets. They would tell their customers the products had the highest rating, knowing all the while the products would end up worthless. It was a global ponzi scheme of immense proportions. Goldman Sachs was caught laundering money, defrauding customers and cooking their books and was fined several hundred million dollars. J. P. Morgan Chase bribed government officials in Mississippi. Riggs Bank laundered money for Chilean dictator Augusto Pinochet, and Citibank funneled 100 million dollars of drug money out of Mexico. Freddie Mac and Fanny Mae were convicted of fraud between 1998 and 2003 and were fined collectively 525 million dollars, but CEO of Freddie Mac, Franklin Raines, Clinton's former budget director, took home bonuses amounting to 52 million dollars during those years.

The derivatives market became a completely unregulated 50 trillion dollar market, as bankers were claiming that derivatives were making the market more stable when they in fact knew that they made them more unstable. Brooks Lee Bourne had in 1998 been appointed to head the Commodity Futures Trading Commission, and she warned Clinton that the markets were out of control and needed to be regulated. Larry Summers, Clinton's Treasury Secretary, called her when he got wind of what she was advocating and told her he had thirteen bankers in his office at that moment, and ordered her in a very 'gruff manner', according to her, to stop. She stopped. Then Greenspan, Rubin and Arthur Levitt, SEC chairman, issued a joint statement condemning Bourne and recommending legislation to keep derivatives unregulated. Once that was done, according to Inside Job, it was off to the races. Larry Summers, after leaving government, made 20 million dollars consulting to a hedge fund that relied heavily on derivatives.

Where we are now

Nothing has changed. The large banks are engaging in the same practices which led to the financial debacle in the first place. Barack Obama, when he took office, appointed Larry Summers as his chief financial advisor. The 700 billion dollar bailout of the banks and the 700 billion dollars in stimulus money has kept the economy from complete collapse, but it is certain to collapse in a short time, a very short time.

This article has barely scratched the surface of the bankers' criminality which is exposed in the movie Inside Job.

Watch the trailer below:

Wall Street photo from photobucket.com
All others from wikimedia commons

Tags

Aig, Bankers, Banks, Documentaries, Film, Financial Collapse, Financial Meltdown, Goldman Sachs, Investment Banks, J P Morgan Stanley, Movies, Steve Kinsman, Wall Street

Meet the author

author avatar Steve Kinsman
I live in California with my wife Carol, where I have been practicing professional astrology for 35 years. I write articles on astrology, but I enjoy writing on a variety of other subjects as well..

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Comments

author avatar Retired
23rd Jul 2011 (#)

Congrats on a well-deserved star page, Steve. I recently saw this movie, and you are right--it really portrays this situation clearly, as do you. Well done!

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author avatar bronnamdi
23rd Jul 2011 (#)

Very nice and informative article. Congrats on the star page award. Apostles of wholesale deregulation of the banking sector should read and take note of the fallout.

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author avatar Delicia Powers
23rd Jul 2011 (#)

Great Steve I will have to check this out, a Star review, thank you!

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author avatar Neha Dwivedi
23rd Jul 2011 (#)

thanks a lot for sharing a review of the movie...i am hoping to watch it in the coming weekend...

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author avatar Steve Kinsman
28th Jul 2011 (#)

Thank you rama devi, bronnamdi, Delicia and geeta for your wonderful comments. I appreciate every one.

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author avatar kaylar
23rd Jul 2011 (#)

being dysnumerate I have difficulty in grasping what happened. But it doesn't seem to be correctable without a total change.

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author avatar Steve Kinsman
23rd Jul 2011 (#)

Total change is what we need - yes, kaylar. Thanks for your comment.

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author avatar john48
23rd Jul 2011 (#)

nice review...

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author avatar Steve Kinsman
23rd Jul 2011 (#)

Thank you, john48

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author avatar Denise O
23rd Jul 2011 (#)

Steve, this article is spot on my friend. Well done! I have not seen the movie as of yet but, I am going to now! Congrats on the star page, it is well deserved. As always, thank you for sharing.:)

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author avatar Steve Kinsman
23rd Jul 2011 (#)

Thank you for your nice comment, Denise.

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author avatar David Reinstein,LCSW
23rd Jul 2011 (#)

Greed and hubris by any other names ... Mankind's built-in self-destruct mechanism.

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author avatar Steve Kinsman
23rd Jul 2011 (#)

Yes, indeed, David. Thank you.

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author avatar Carol Kinsman
23rd Jul 2011 (#)

What a great review of this movie, Steve. I think everyone should see it. Thank you, my love. xoxo

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author avatar Steve Kinsman
23rd Jul 2011 (#)

Thank YOU, my love. xoxo

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author avatar Songbird B
23rd Jul 2011 (#)

What a great review, and what a mess they have made of the banking profession. Once it was an upstanding career, now it has become little more than a bad joke that leaves a nasty taste..Greed has so much to answer for... Congrats on a really well deserved Star page my friend. I will look out for this film..

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author avatar Steve Kinsman
24th Jul 2011 (#)

Thank you Songbird. You may be able to find it at your local video outlet in the documentary section.

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author avatar Buzz
24th Jul 2011 (#)

Very intriguing, Steve. The plot thickens. Thanks for sharing.

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author avatar Steve Kinsman
24th Jul 2011 (#)

Yes it does, Buzz. Thanks for commenting.

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author avatar Rathnashikamani
26th Jul 2011 (#)

Wow.
Steve, you rock!
Amazing review..

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author avatar Steve Kinsman
26th Jul 2011 (#)

Thank you, Rathnashikamani. You rock too!

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author avatar David Reinstein,LCSW
19th Oct 2011 (#)

What ?! You mean we cannot trust our leaders?! Sounds like sacrilege to me... Shame. :-}

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