Question

What argument does The Inside Job make about the main cause(s) of the financial crisis? (a) What is the main point of each of the following, and (b) what role do they play:

1) The insider links between regulators and industry

a) Main point

b) Role

2) the culture of Wall Street investment bankers

a) Main point

b) Role

3) the philosophy of policymakers

a) Main point

b) Role

4) the structure of compensation ratings agencies and their clients

a) Main point

b) Role

Answer 1

The Inside Job make about the main cause(s) of the financial crisis?

The main cause of financial crisis was deregulation  and to give financial industry a full freedom, as a result, they acted in their own interest and made millions of dollars at the cost of taxpayers and general public investment.

1) The insider links between regulators and industry

a) Main point: The financial bubble was created from 2001-2007, everyone could get house mortgage loan, even if they can not afford to pay it back, as a result the house price skyrocketed. In this period of bubble the US Govt and Security and Exchange Commission of US did not monitored the banks closely. And bank also heavily borrowed in this period, the ratio of loan versus actual deposit was 33 to 01.

b) Role: Due to neglignece of US Govt and Security and Exchange Commission of US the ratio of loan versus actual deposit became very very high.

2) the culture of Wall Street investment bankers

a) Main point: Wall street investment bankers created Securitization Food Chain, The lenders started to make mortgage loan to home buyers and they sold those mortgage loan to investment banks and the investment banks make a new product called CDO (Collateralized Debt Obligation) , the investment banks paid Rating Agencies for rating CDO and these CDO received AAA rating,

b) Role: The culture of pay and get highest rating shown wrong informaton to the investors.

3) the philosophy of policymakers

a) Main point: 1999 Citicorp and Travelers merged together to form Citigroup, this merge rviolated the Glass-Steagal act, which prohibit making risky investment with customer deposits. In the same year the congress passed Gramm-Leach-Bliley-Act,this act was passed to facilitate the said merger, but on the basis of this new act many other mergers took place, which latter became the cause of Financial Crisis.

b) Role: Philosophy of policymakers was very generalized therefor other companies took advantage of it.

4) the structure of compensation ratings agencies and their clients

a) Main point: Moody’s, Standard & Poors and Fitch made billions of profits by rating these CDO as ‘AAA’ rating.

b) Role: By taking money from Investment Bankers rating agencies given high ratings to non-standered CDO, it re-presented wrong view to the Investors.