Shubhankar Shukla Inside Job Study

Subject – Financial Institutions and Markets
Report writing – ANALYSIS OF THE DOCUMENTARY MOVIE

“INSIDE JOB”
Name –Shubhankar Santosh Shukla

PRN – 12122100082
Class – FYMSc
Basic information about the documentary –
Directed by Charles Ferguson
Audrey Marrs
Produced by
Charles Ferguson
Narrated by Matt Damon
Music by Alex Heffes
Svetlana Cvetko
Cinematography
Kalyanee Mam
Chad Beck
Editing by
Adam Bolt
Distributed by Sony Pictures Classics
May 16, 2010 (Cannes)
Release date(s)
October 8, 2010 (United States)
Abstract –
The 2008 financial crisis in the US was greatest after the great depression. Many people lost
their jobs, business, homes in this 2008 crisis. It is estimated that this 2008 cost over $20
Trillion. Those who had suffered the most—the millions of families who lost their homes,
businesses, or savings; the millions of workers who lost their jobs and faced long-term
unemployment; the millions of people who fell into poverty—continued to struggle years
after the worst of the turmoil had passed.
‘Inside Job’ documentary is divided into five parts –

Part-I : How We Got There
Part-II : The Bubble (2001-2007)
Part-III : The Crisis
Part-IV : Accountability
Part-V : Where Are We Now
Part-I: How We Got There
The Part one among the documentary explain that how this Financial happened . From
where did it started.
The main reason behind this Financial crisis was deregulation in 1980s of

monetary Institutions which include Banks, Insurance Companies, Credit Rating Agencies
etc. Removal of regulations rules especially in the economic sphere is known as
deregulation. It is the repeal of governmental regulation of the economy. It became
common in advanced industrial economies in the 1970s and 1980s, as a result of new trends
in economic thinking about the inefficiencies of government regulation, and the risk that
regulatory agencies would be controlled by the regulated industry to its benefit, and
thereby hurt consumers and the wider economy. The same results were observed in the US.
On the other hand, in Iceland, three major banks Iselandsbanki, Kaupping, and Glitnir
created bubble in economy that burst at the end of 2008. The banking institutions in 1982
were indirectly allowed make risky investment with the saving deposit of public. This lead to
several loan companies failing this cost taxpayers $124 billions. The political system was also
captured by economists. By the end of 1990, the economic system was correlated with the
decision of these financial firms. 1999 Citicorp and Travelers merged together to form
Citigroup, this merger violated the Glass-Steagal act, which prohibit making risky investment
with customer deposits.
In 2005, the industry was dominated by five investment banks Goldman Sachs, Morgan
Stanley, Lehman Brothers, Merrill Lynch, and Bear Stearns. Two financial conglomerates
Citigroup, JPMorgan Chase, three securitized insurance companies AIG, MBIA, AMBAC
and the three rating agencies Moody’s, Standard & Poor's, Fitch. These investment bank act
as an mediator, hence, they combined mortgages with other debts and loans into
collateralized debt obligations (CDOs), which they sold to investors. These CDOs again
received AAA ratings from rating agencies like AIG. Also, due to the bank started lending for
home loan purposes to those who had little ability to repay the loans. Credit history and KYC
process was not taken into consideration while granting loans by banks to these people.
Part-II: The Bubble (2001-2007)

Part two in the documentary shows the fault and negative returns Insurance companies
earned.
Housing prices skyrocketed as anyone could get a loan. Many banks offered full loans to
customers. Usually an individual has to pay some amount of the price of house by
himself/herself but here, these banking institutions provided full amount of house prices as
loan without checking the individual’s ability or income.
At the same time insurance companies like AIG started to give insurance on CDOs which
were known as Credit Default Swap (CDS). Investment banks had started selling CDOs to
investors. As these CDOs had received AAA ratings which were considered highest from
rating agencies, AIG thought that failure of CDOs is very less. However the AIG also issued
these derivatives to those who did not own CDO. Goldman-Sachs sold more than $3 billion
worth of CDOs in the first half of 2006.
Part-III: The Crisis
This crisis was a result of the above activities. People who did not have ability to pay, could
not repay the loans to the banks. These loans were charged on adjustable interest rates,
meaning the interest rates were low in the beginning and increased later. Many people
were not aware of this system. These loans were defaulted. As a result these banks started
auctioning off homes of its customers and as a result prices of housing market collapsed.
As a result the loans were higher than the prices of the houses and loans kept on defaulting.
Banks did not receive amounts. This led to fall of CDOs as investment banks could not get
funds from these banks. Again this process led to loss to AIG, as it had provided insurance
on CDOs because they thought CDOs would never collapse because they had AAA ratings.
AIG incurred loss of more than $90 Billions but later it was bailed out by the government of
USA by funding around $85 Billion. Hence, major financial institutions started collapsing and
went bankrupt. The major bankruptcy was of Lehman Brothers in September, 2008 and this
bankruptcy caused major disruption in the global financial markets. Bear Stearns was
acquired by J.P. Morgan Chase and Merrill Lynch was acquired by Bank of America.
The loss incurred by these banks and other financial institutions was estimated around $450
Billion.
Part-IV : Accountability
During the bubble period of 2001-2007, top five executives of Lehman Brothers made
millions of dollars. Joseph Cassano, the head of AIGFP was kept on as a consultant instead of
being fired In march of 2008, the AIG’s Financial Product Division lost 11 Billions US dollars.
The deregulations was supported by many academic economists but many of them opposed
reform after 2008 crisis.
Although the Federal Reserve could regulate CDOs and CDS, then chairman of the Federal
Reserve Alan Greenspan refused to regulate CDOs and CDS. On the other hand many
economists were appointed as advisors in economic affairs of the country and many were
elected as directors of major financial institutions. Many of these economists had conflicts
of interest, collecting sums as consultants to companies and other groups involved in the
financial crisis
Part-V: Where Are We Now
This financial crisis resulted in job loss, business loss and hence the USA economy has grown
weak as compared before the financial crisis. As the economy of US is one of the biggest
ones, the impact of 2007-08 crisis were observed all over the world leading towards a global
recession.
USA faced highest unemployment. Approximately 7.5 million jobs were lost between 2007
and 2009, representing a doubling of the unemployment rate, which stood at nearly 10
percent in 2010. In general, the key leaders of financial firms, as well as other very wealthy
Americans, had not lost as much in proportional terms as members of the lower and middle
classes had, and by 2010 they had largely recovered their losses, while many ordinary
Americans never did. Morgan Stanley had to pay $ 14 Billion to its employees as well as
Goldman Sachs paid over $16 Billion to its employees. This 2008 financial crisis had struck
just before the 2008 USA elections. Hence, Barak Obama addressed it by pointing at Wall
Street greed and promised to bring in reforms. However Obama government made very
little efforts to make reforms. Furthermore, for rating agencies, lobbying etc. no significant
regulations were even proposed. As the film suggests, those who were responsible for this
crisis are still in power.
Conclusion –
The film points out all the major reasons as well as minute details about the politics are how
people in charge only thought of their benefits. This crisis would have not happened if banks
never lent on low interest rates, CDOs and CDS were regulated. It is perfect example of
mismanagement and lack of communication between government and financial institutions.
It also to be noted that in the name of low interest rates, people bought huge sums of loan
which they could never repay. Here, people were not aware of the fact that this is going to
turn into a loss. Therefore awareness among the people about financial management is also
necessary.
As the film suggests at the end, politicians in power will always promise us about security
and they will never explain solutions to us in the name of problems which are too complex
for us to understand and it is also our responsibility to choose the right people in the
government.

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Subject – Financial Institutions and Markets

Report writing – ANALYSIS OF THE DOCUMENTARY MOVIE

Name –Shubhankar Santosh Shukla

‘Inside Job’ documentary is divided into five parts –

The main reason behind this Financial crisis was deregulation in 1980s of

Part-II: The Bubble (2001-2007)

Part-III: The Crisis

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