Inside Job presents how a chain of actions and decisions underpinned by increasing self-interest in the U.S. financial sector over the past 50 years has brought the U.S. to its current worsening socio-economic state.
Maximized Self-Interest – The Financial Crisis Time-Bomb Ticker
The key point that Inside Job presents is how the “securitization food chain” developed – borrowers, lenders, investment banks, investors, ratings agencies – governed by the commonly held value of maximized self-interest at every rung of the chain. It shows how precisely this chain was the ticking financial crisis time-bomb that exploded in September 2008, the effects of which are felt worldwide until today.
Here’s how maximized self-interest worked at every level of this chain:
- Borrowers wanted loans for buying homes or other high-cost assets (and since it was in the financial interest of people in the higher parts of the chain for as many people as possible to get loans, then loans were highly promoted during the first years of the 2000s)
- Lenders wanted the extra money they could make from any loans they provided, no matter how risky, since they sold all the loans to investments banks
- Investment banks wanted the extra money they could derive by collating all the loans they bought into complex derivatives called CDOs (Collateralized Debt Obligations), and selling those CDOs to investors
- Investors wanted the extra money they would get from the borrowers paying back the loans (the CDOs)
- Ratings agencies, which were hired by investment banks to evaluate the CDOs, wanted the extra money they would get from giving high ratings to the CDOs (since people in the ratings agencies would get paid more for giving CDOs high ratings, regardless of the actual value of the CDO)
This setup presents how the financial crisis of 2008 hit, showing one bankruptcy after another of major firms as the securitization food chain imploded:
- Lenders could no longer sell their loans to the investment banks
- As loans went bad, dozens of lenders failed
- The CDO market collapsed
- Investment banks held onto billions of dollars in loans, CDOs and real estate that they could not sell
Who Is Accountable For The Financial Crisis? A Few People Or Commonly-Held Values That Frame Society?
As the film follows the effects of the 2008 economic meltdown, it searches for a voice to be held accountable among the major players of the financial sector, finding none. No person or group of people could be found responsible, but speaker after speaker, what becomes clarified is that everyone in this chain was simply subjected to the commonly held value of “maximize your profit at any expense.”
As long as everyone in the chain was getting what they wanted, everything seemed fine. However, when the system imploded, resulting in bankers having to lose those profits, and millions of people losing their homes and jobs, it shows how the commonly held value at every layer – “maximize your profit” – is in dire need of a revision.