Inside Job---Big Crisis
Inside Job, a documentary, was filmed to explore the cause of the outbreak of the financial crisis in 2008. Starting with the situations of Iceland, interviewing the Wall Street financial elite, economists, government officials, financial consumers and showing the real objective data materials, the documentary, including four parts, shows us the reasons of the crisis and some of its influences subtly and logically. From the documentary, we can find out the reasons of the crisis as follows:
Firstly, it is the broad policy of deregulation with easing credit conditions. Besides, greedy Wall Street financial elites and some greedy government officials accounts for it. What’s more, misguidance of the credit rating agencies also makes “a contribution” to the crisis. Finally, it could be the dereliction of duty of the U.S. financial regulatory bodies.
Among the reasons stated above, the broad policy of deregulation with easing credit conditions and dereliction of duty of the financial regulatory bodies seem to count much. The word, “regulation” appears fluently, and it seems that every time when it mentioned, lack of regulation and dereliction of duty of the financial regulatory bodies are obvious to us.
Now, let’s learn about how these c auses account for the big crisis in detail.
As we know, nothing could happen without reasons, and of course, together with its consequences. The crisis appeared when an industry was out of control. That’s the collapse of the financial markets. And the most important reason of the collapse is, obviously, the dereliction of duty of the regulation. But, why the regulation could not take its responsibility well? How could that happened?
Well, thanks to the fact that the financial industry was tightly regulated with most regular banks were local businesses, and prohibited from speculating with depositors' savings, the United States had 40 years of economic growth without a single financial crisis after the Great Depression. This great achievement, unfortunately, just could not last forever. When it came to the 1980s, with the thought that he highest order of business before the nation is to restore American economic prosperity, President Ronald Reagan together with his administration deregulated savings and loan companies, allowing them to make risky investments with their depositors' money. The deregulation continued or even worse situation it is when presidents Clinton and George W. Bush were in power. For example, by the late 1990s, the financial sector had consolidated into a few gigantic firms. Each of them was so large that their failure could threaten the whole system; the Clinton administration, however, helped them grow even larger. What’s worse, in 1999, at the urging of Summers and Rubin, Congress passed the Gramm-Leach-Bliley Act, which overturned Glass-Steagall, a
law which prevented banks with consumer deposits from engaging in risky investment banking activities. The Gramm-Leach-Bliley Act played an important part in clearing the way for future mergers. Thus, the broad policy of deregulation continued, and the crisis was in the corner.
In fact, when the deregulation continued, there came the chance for the financial industry and those greedy guys.
Beginning in the 1990s, deregulation and advances in technology led to an explosion of complex financial products, called derivatives. In order to maximize the profit, financial enterprises focused on derivatives trading. What is worse, In December of 2000, Congress passed the Commodity Futures Modernization Act. It banned the regulation of derivatives. Financial derivatives were flourishing from that moment. Regulators, politicians, and businesspeople did not take seriously the threat of financial innovation on the stability of the financial system. Using derivatives such as CDO, CDS and subprime loan as well as credit default swaps, financial firms and bankers could gamble on virtually anything to earn a large fortune. The world's biggest financial firms started laundering money, defrauding customers, and cooking their books. The market became more unstable gradually. In other word, the wind was blowing, and it would rain at any time.
Now, it comes to the misguidance of the credit rating agencies.
As for investors, Rating is the scale and orientation or direction. But major rating agencies, such as Moody's, Standard & Poor's and Fitch, did not fulfill their own responsibility. The investment banks paid rating agencies to evaluate the CDOs, and many of them were given a AAA rating. Those agencies just wanted to earn as much money as they can.AAA means nothing to them. They gave out 2A even when some financial firms, such as Lehman Brothers, Merrill Lynch, AIG, were becoming impoverished. These people did a lot to blow the world up.
Finally, when we say that the dereliction of duty of financial regulatory bodies was also an important cause, that means sometimes financial regulatory bodies did nothing when they did can do something with their rights in hand. They were just unwilling to do their jobs. Take the Securities and Exchange Commission; it conducted no major investigations of the investment banks during the bubble. It is their dereliction of duty made the situation even worse---to big crisis.
When we finished learning the reasons of the crisis, we now turn to the influences. The global economic crisis of 2008 cost tens of millions of people their savings, their jobs, and their homes. This is the very fact without any overstatement. The consequences, actually, was disastrous. Here are the evidences we could find from the documentary.
When it refers to Iceland, we must be impressed by her suffer. When the finance took over, a massive bubble was there with stock prices went up by a factor of nine and house prices more than doubled. Thus, When Iceland's banks collapsed, losing $100 billion, at the end of 2008, unemployment tripled in six months. There is nobody unaffected in Iceland .So a lot of people lost their savings. Isn’t it terrible?
In the American case, don’t expect it to be any better. When it dated back to 1980s, in America, hundreds of savings and loan companies had failed. That crisis cost tax payers 124 billion dollars, and cost many people their life savings. The next crisis came at the end of the '90s. The investment banks fueled a massive bubble in Internet stocks, which was followed by a crash in 2001 that caused 5 trillion dollars in investment losses. This time, unfortunately, the result was the biggest financial bubble in history.
In September 2008, the bankruptcy of the U.S. investment bank Lehman Brothers, and the collapse of the world's largest insurance company, AIG, triggered a global financial crisis. Stocks fell off a cliff – the largest single point drop in history. Share prices continued to tumble in the aftermath of the Lehman collapse. The financial industry turned its back on society, corrupted America’s political system. For the first time in history, average Americans have less education and are less prosperous than their parents. They face a financial crisis as serious as any that we have faced since the Great Depression. On October 4th, 2008, President Bush signs a 700-billion-dollar bailout bill. But world stock markets continue to fall. Unemployment in the United States and Europe quickly rises to 10 percent. The national debt of the United States doubled.
The result, in fact, was a global recession, which cost the world tens of trillions of dollars; rendered 30 million people unemployed. And as U.S. consumers cut back on spending, Chinese manufacturers see sales plummet. Over 10 million migrant workers in China lose their jobs. Life gets harder for those who lost their jobs. And when looked at the cost of the crisis — destruction of equity wealth, of housing wealth; the destruction of income, of jobs, about 9 million homeowners lost their homes and 50 million people globally could end up below the poverty line again…
Isn’t it a hugely, hugely expensive crisis? When those greedy traders and CEOs became enormously wealthy during the bubble, ironically, the poor have to pay for the crisis. Isn’t the culprits punished? When the reasons of the big crisis are obvious, that’s, when the root of the problem gets clear, i sn’t it the very right time to take real action? Anyway, wisdom comes from experience. Governments, financial elite, and economists have to think twice before they make a decision. I hope that we are not going to experience such a hugely expensive crisis any more.。
