The Economic Crisis of 2008 (US Housing Bubble) - Inside Job Movie
Movie Review: INSIDE JOB (Story of Global Recession - 2008)
MBA – NIT Warangal
Just finished it watching for the 2nd time. Wonderful Cinematography and awesome
breathtaking shots of Iceland....!! Worth watching it twice or thrice . On September 15, 2008
at 1.50 A.M, Lehman Brothers filed for bankruptcy. I still remember that, It was my first day
to the college for attending the B.E (ECE) orientation session with Vinod and Mythin Khan but
that time I didn't know the impact of the 2008 crisis on the world economy.
[Note: Lengthy Review Ahead]
Inside Job is a documentary written, produced & directed by Charles Ferguson. Sony
Pictures was the market distributor. The story unfolds in Iceland with the
Internationalization of 3 large banks of Iceland. The interesting thing about Iceland is that
with a population of 3,20,000 and a GDP of US $13 billion, they had a banking losses running
into US $100 billion dollars. This was the starting point of recession. The Global economic
crisis of 2008 costs tens of millions their savings, their jobs & their homes.
THEME: The story of economic crisis of 2008.
SHOOTING PLACES: Iceland, New York, London & France.
MUSIC: The opening theme music is wonderful to listen and was composed by Alex Heffes.
AWARD: It won the Academic Awards for the best documentary feature
RUNNING TIME: 1hr and 45 minutes
KEY CAUSE: Sub Prime Lending for buying houses. The term "subprime lending" means,
lending to borrowers who don't have the capacity to repay it. (i.e.) Poor credit worthiness of
the borrower. They do it to get higher interest rates which in turn will bring in more profits.
Budget: US$ 2million
Box Office: US$ 7million
IMDB Rating: 8.2/10
DRAWBACKS: Little bit of patience is needed to watch this film, It’s better to have your
headset plugged in so that you can hear better.
“If companies around the globe are unable to borrow, they'll begin to cut jobs, cease
investment, and default on their debt in larger numbers. “ - Peter Coy BW, 3rd October,
REASONS FOR THE CRISIS:
1) The housing bubble
2) Poor creditworthiness of borrowers
3)Home loan borrowers unable to pay the EMI's due to rising interest rates.
4) High leverage ratios of investment banks.
5)Speculation in the derivatives market
6) Collapse of major global banks in US & Iceland
7) Greediness & unethical practices of Investment Banks, Credit rating Agencies, Auditing
Firms, Financial services firms, CEOs, CFOs, stock market traders, brokers , subprime lenders
& Insurance Companies.
8) SEC (securities Exchange Commission failed in discharging its duty
9) Heavy speculation and betting in the derivatives market.
10) Complex financial products which were difficult to comprehend.
MAJOR AFFECTED COMPANIES:
5 investment banks: Goldman Sachs, Morgan Stanley, Lehman Brothers,
Merrill Lynch & Bears Stearn's
2 financial conglomerates: Citigroup & JP Morgan
3 Credit Rating Agencies: Moody's, Standard & Poor's and Fitch.
3 Securities Insurance: AIG, MBIA and AMBAC
AFTER CRISIS: The government bailed out the troubled firms by doling out a package of
around US $700 billion dollars. This was done through TRAP (Troubled Assets Relief
KEY SPEAKERS: Dominque Strauss Khan, George Soros, Eliot Spitzer, Lagarde, Paul Volcker,
Charles Morris, Nouriel Roubni, Ben Bernake, Satyajit Das & Robert Gnaizda
The film is divided into five parts:
PART I: HOW WE GOT HERE?
After the 1929 Great depression, banking industry was tightly regulated. The US Financial
sector was stable for the next 50 years. By late 1990's financial sector consolidated into a
few gigantic global firms, each of them so large that their failure could threaten the whole
economic system. During the late 90's deregulation and advancement of technology led to
the explosive growth of complex financial products called derivatives. In 1998, Citicorp and
travellers merged to form the world's largest financial services firm. In 1999 Gramm- Leach -
Bliley Act overturned the Glass Stegal Act which protected the investors’ money from risky
investments. SEC and CFTC were in charge of overseeing the investment banks and the
regulation of derivative markets.
Trillions of dollars of mortgages were sold by lenders to the investment banks which in turn
created CDO's (Collateralized Debt Obligation) and sold it to the investors. These mortgages
mostly composed of subprime loans, but CDO's were given the highest rating (AAA) by the
rating agencies such as S&P, Fitch & Moody's. It was rated on par with Govt. Securities.
Pension Funds were also invested in the CDO's. Investors bought CDS (Credit Default Swaps)
to insure themselves against the failure of CDO's. Even speculators could buy CDS to insure
CDO's which they didn't own. This system was ticking time bomb in the financial system.
Rating agencies had no liabilities, if their highly rated investments went burst.
PART II: THE BUBBLE (2001 - 2007)
US $100 billion dollars were lended as subprime loans. So anybody could easily get credit for
buying a new house. 99.3% of the house price were given as loans to the borrowers. So
when the borrowers could not pay their EMI's, they walked away resulting in foreclosures.
Country Wide Financial Corp was the largest subprime lender in the US and lended close to
US $100 billion dollars. During 2003 - 2008, traders and CEO's became enormously wealthy.
Investment banks preferred subprime loans because they carried higher interest rates. This
led to massive increase in predatory lending. During bubble, investment banks borrowed
heavily to buy more loans & create more CDOs. On April 28, 2004 SEC lifted leverage limits
on the investment banks. In Raghuram . G . Rajan, former Chief Economist (IMF) published
the paper titled “Has financial improvements made the world riskier.
Goldman Sachs sold more than US $3 billion dollars of toxic assets to the investors. They
also bet on these toxic assets by buying CDS from AIG, by this way they were actually piling
risks onto the AIG's books. Predicting the collapse of AIG itself, they spent US $150 million
dollars in protecting their CDS against the potential collapse of AIG. The logic was that if
their investors lost more money, Goldman Sachs would gain more profits. Morgan Stanley
was betting that their entire investments would fail.
PART III: THE CRISIS
The securitization of food chain happened. The link was connected as follows: Borrowers --
>Lenders-->Investment Banks -->Investors (Retail, Corporates, Institutions, Pension Funds,
As the links passed on from one stage to another, the magnitude of risk in the chain grew
exponentially. In September 2008, Lehman Brothers was taken over by Bank of America. On
September 16(2008) 5000 people belonging to the London office of Lehman Brothers lost
their jobs. Also the Commercial Paper Markets collapsed. They are used by companies for
operating expenses such as payroll. Foreclosures rose to 6 million by the year 2010. People
in US started living in tents.
PART IV: ACCOUNTABILITY
Most of the people and institutions involved in the crisis went Scot free. SEC, CFTC & Federal
Reserve Board which were in charge of regulating the investment banks and other
associated institutions failed in their duties. Top executives of the insolvent companies
walked away with their private properties intact. For most of the period from 1990 - 2010,
Academicians played a key role in shaping the financial regulatory policies and banking
practices. Some people had conflict of interest due to their presence as consultant in
PART V: WHERE ARE WE NOW? (note: year 2010)
Tens of thousands of US workers lost their jobs. European Union imposed stricter banking
regulations. Most of the investment banks had to pay penalties running into millions of
dollars. Merrill Lynch and Countrywide Financial Corp gets eventually taken over by Bank of
Financial Institutions – Write-Downs
Citigroup (USA) - $24.1 bln
Merrill Lynch (USA) - $22.5 bln
UBS AG (Switzerland) - $16.7 bln
Morgan Stanley (USA) - $10.3
Credit Agricole (France) - $4.8 bln
HSBC (United Kingdom) - $3.4 bln
Bank of America (USA) - $5.28 bln
CIBC (Canada) – $3.2 bln
Deutsche Bank (Germany) - $3.1 bln
Total Write downs and losses were around $300 - $350 billion US dollars.
Global Impacts of the Crisis:
1)Investors lost confidence in the stock market.
2) Consumer spending slowed down due to lack of cash/ unwillingness.
3) U.S.A’s economic condition affected the global economy.
4) World economy slipped into recession.
5) Exports from China, Korea, Taiwan and India decreased.
Impact on India:
1) FIIs pulled out of money from the Indian stock market
2) Public Sector Banks, viz State Bank Of India, Bank Of Baroda, Canara Bank, Punjab
National Bank etc did not have major exposure to credit derivatives market due to their
limited overseas operations.
3) Stock market Crashed and BSE sensex crashed from 24000 level to 8000 level.
4) ICICI Bank incurred a loss of close to Rs.1000 Crores because of exposure to international
CLIMAX: There is a sufficiency in the world for man's need but not for man's greed.
BOTTOM LINE: The story of economic crisis of 2008 has been explained in an elegant
manner with no glitches. Charles Ferguson has once again proved his mettle with the
representational skills. A movie worth watching and I would personally rate it as 9/10.
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