Inside Job

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Category: Societal Issues

Date Submitted: 03/14/2011 11:24 AM

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This movie tells us how the Global Economy collapsed in 2007, how it was made, who were responsible for this and what they did not do to fix it.

After the Great Depression, Banks were regulated by local business owners and small partnership, but by 1980 Investment banks went public and in that way getting a lot of investors money. That was the beginning of 30 years of Deregulation allowing banks to make risky investments during the Ronald Reagan, Bush and Clinton’s administration.

By the 1990 the largest financial company in the world was created ad this was dominated by 5 investments banks such as Goldman, Morgan and Stanley and Lehman and Brothers, 3 insurance companies (AIG,MBIA, AMBAC) and 3 grading companies. All three created their own loan chain for investment all over the world.

In the old system loan money went to local Lenders, but in the new system lenders sold their loans to investment banks creating Collaterized Debt Obligations (CDO), the investment banks then sold the CDO’s to investors to all over the world. Now went home owners pay their mortgages money goes to investors all over the world.

The purpose of the Grading companies was to grade how good these investments were, but at the same time they were pay by the investment banks, creating a ticking time bomb. Lenders did not care whether the loan can be paid or not, so they started to make risky loans, investment banks did not care either because while they more CDO’s were sold, more profit they will make. During 2000 and 2004 mortgages quadruple.

This risky loans known as subprime loans were preferred by banks because they carried higher interest, and their employees did not care of the well being of the institution. This led to a massive increase in predatory lending, borrowers were needlessly place in expensive subprime loans, and many loans were given to people who couldn’t repay them. AIG was buying CDO and promising to pay the investors, but as CDO’s went bad they...