As often happens in searching for interesting subjects, my attention was recently drawn to a documentary by Sony Classic Pictures titled Inside Job. Produced, written, and directed by Charles Ferguson, this riveting Academy Award winner documents events, players, and ultimately the greed which over-took Wall Street and influenced government policy to produce the worst financial crisis since the great depression. As depicted, the scenario leading up to the 2008 economic crash began in the 1980’s with the Reagan Administration, inherited and continued in the Clinton Administration, and exacerbated in the Bush Administration, all believing in a Laissez Faire economic model.
With lobbying from Wall Street each administration supported deregulation of the financial industry overturning and rewriting laws created after the great depression to protect our economy against abuses and fraud in financial institutions through sound regulations. Those laws lasted for 40 years and closely regulated salaries and trades within Wall Street, avoiding the financial debacles of 2008. As a result the SEC, our regulating authority, was gutted by these administrations and refused, or turned a blind-eye, to the warnings depicted by many professional economic authorities who predicted the crash. $Trillions have been lost by investors worldwide. Since economies are now tied together globally, the resulting recession has continued to proliferate through a global middle-class with extraordinary job losses, and mortgage defaults.
The status-quo seems to be continuing in the current administration with President Obama appointing some of the same key players of the 2008 crash to high-profile positions of responsibility to oversee our economic future, including Timothy Geithner. Since the crash investment banks have continued to dole-out exorbitant bonuses to top executives paid for with TARP (Trouble Asset Relief Program) funds, or taxpayer money, created to bail-out investment banks. No prosecutions were forthcoming as a result the miss-deeds created by Wall Street executives. All were allowed to keep huge profits in income related to deregulation and greed accumulated before 2008. Those bonuses continue today.
A key player depicted in the film is Alan Greenspan, former Chairman of the Federal Reserve, appointed by the Reagan administration, who vigorously supported deregulation of the financial industry while continuing today to believe in those policies after evidence clearly indicates the criminality which resulted. In collusion with government administrations and Wall Street were the Bond Credit Rating Agencies, including Moody’s, S & P and Fitch which rate securities based on meting their long-term payment obligations. Most of the junk being sold by Wall Street at the time were highly leveraged, but given a (AAA) rating by agencies, therefore helping to defraud the buyer into believing their investment was sound. See (Inside Job – Press Kit)
Acronyms associated with the crash and created by Wall Street in what some believe to be a giant Ponzi scheme:
- MBS (Mortgage backed Securities)
- RMBS (Residential Mortgage backed Securities)
- Sub-Prime (Borrowers will a tarnished or limited credit history)
- Synthetic CDO (Collateralized Debt Obligation)-invests in CDO’s
- CDO (Credit default swaps)
- Tranche (Slice of a deal or structured financing offering varying degrees of risk)
- Hedging (Making an investment to reduce risk to adverse price movements in an asset)
In association with the film comes The Official Teachers Guide developed by Professor Frank Partnoy, Professor of Law and Finance at The University of San Diego School of Law. It is an ideal film for teaching purposes and has been shown to the professor’s class. A non-partisan look at historic roots of the crash and how global financial regulatory systems failed, the documentary is a superb educational tool for students interested in pursuing financial degrees. A riveting film that leaves you in disbelief of criminality at this level could be perpetrated on a global scale with distinct roots in U.S. Government and Wall Street collusion.
As predicted by some economists the second-phase of the crash is now taking place which is the possible default of government entities highlighted by the recent debt debate of congress and the resulting extension of our debt ceiling. Stock Markets have reacted negatively in recent days sending tumbling stock prices felt across the world. It seems a double-dip recession is in order to penalize government officials for failing to significantly reduce its debt obligations both short and long-term. This is not good news for those already hurting from decisions made by a few in burdening many. If current economics does not correlate to voters ousting incumbents, satisfied with the status-quo, then they deserve existing representation. See (U.S Debt: Budget vets seek deal to ease crisis)