Inside Job Introduction and Summary

Inside Job is a documentary about the financial crisis of 2008 and how there are major conflicts of interest between the areas of politics, universities, and investment banks. The documentary provides a detailed look at the genesis of the financial crisis of 2008 and what effects it had on the worldwide economy. The financial crisis started with the bankruptcy of Lehman Brothers, an investment bank, and AIG, a massive insurance firm. This caused the world’s economy to take a massive hit because these closures affected the offices of these firms in other countries as well. Though these events caused a major downturn in the economy, the reasons behind their bankruptcies are complicated.

The main reason has to do with the new securitization system. In the old system, homebuyers would give mortgage payments to the lenders over a long period. In the new system, lenders still give loans to homebuyers, but lenders sell the mortgages to investment banks. These banks combine these mortgage loans with thousands of other loans including car loans, student loans, and credit card debt to create complex derivates called collateralized debt obligations. The investment banks then sell the CDOs to investors. Now, when homeowners pay their mortgages the money goes to investors all over the world. Investment banks then pay rating agencies to evaluate the CDOs. As detailed in the documentary, most CDOs were given AAA ratings, which are highly popular with retirement funds because these funds only invest in things that are deemed extremely safe. This system was a ticking time bomb because lenders didn’t care anymore about if homeowners could pay so they started making riskier loans. Investment banks started selling more CDOs and rating agencies had no liability for giving bad ratings because they argued the rating they give an investment was merely an opinion. Between 2000 and 2003 the number of mortgage loans nearly quadrupled. Investment banks actually preferred subprime loans (the...