A Summary of Inside Job

by Ryu on May 20, 2011 in Movies

I recently watched Inside Job on a recommendation from a friend. Its a movie about the global financial crisis that began in 2008 and continues to this day. This movie was made in 2010 and is narrated by Jason Bourne. The movie begins with a bit of history and how the situation arose. The eighties in particular were very good to the financial industry. In 1972 Morgan Stanley had about 110 personal, one local office, and working capital of 12 million dollars. By 2008, it had 50,000 workers, offices in many nations, and capital of several billion dollars. Other firms saw a similar increase. The director draws a direct comparison to the savings and loan crisis in the righties, of how these firms used depositor money to engage in speculation and eventually required their own bailout.
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One of the most valuable analogies used was that of an oil tanker, those big ships that haul millions of gallons of oil. To prevent the ship from capsizing, one has to minimize sloshing of the liquid below deck one must build many isolated compartments, not one big hold. He notes that this compartmentalization was the state of affairs for a long while, and policy was altered to create in effect one giant tank, whose failure would be catastrophic, as opposed to many units that could be contained. Iceland is examined as an example of what privatization does to an economy. In 2000, Iceland was a stable democracy, with functioning institutions. It has a population of about 320,000 people and three very local banks in the whole country. Neither banks had ever invested money or done business overseas. After a favorable report and a recommendation, those banks were privatized. Immediately, the banks wrote loans totaling over 120 billion dollars, a figure 10 times bigger than Icelands GDP. Soon bankers were buying yachts, apartments in Manhattan, and real estate in London. This activity created a bubble that would burst and lead to their current troubles. The director explores how lending today differs from lending in the past. Long ago, banks were local, credit was checked and one was expected to pay. In 2008, banks were large, anonymous, multinational conglomerates. They do not need to be paid back in the conventional sense. Often what is done is that mortgages or student loans would be bundled together by the thousands, rated by Moodys, and sold on the open market. Indeed, banks can use other debt instruments to bet against a person paying a loan back! The most interesting part of the documentary described the cozy relationship between academia and Wall Street. There was a lot of intellectual support for privatization of finance and for the bailouts. It is apparently not uncommon to be paid great sums to work as a consultant or to serve on the board of a company if one is a professional economist. In one instance, a professor was paid 124,000 to co-author a paper on how stable Iceland was prior to its financial sector, three banks, being privatized. In a similar instance the author received 250,000 dollars. Many other examples were cited. The movie ends in a very sudden fashion, noting that apparent changes in policy have had little effect and that the causes of the crisis still exist. Overall, this movie does a very good job of summarizing the facts of the cases and finding suggestive relationships. It is not overly liberal or overly biased; while it is clearly against the greed of the financial giants it does not resort to pandering as Michael Moore is guilty of. I give this movie my recommendation as a once see-er dont buy it.