Inside Job - The Economic Collapse

I recently watched the movie, “Inside Job”.  It’s the story of the financial collapse in the run up to 2008.  I heard audible gasps in the theatre – some of them were mine.  I thought I had a pretty good sense of how it all came about but the facts revealed in the movie are even more astounding and the complicity clearer.  Even President Obama, who promised financial reform and more serious regulatory effort has failed to deliver.  As one expert said, we now have a Wall Street government.

Without going into too much detail, the “de-reg” mentality started with Reagan and has continued through every administration since them; both Dems and the GOP.  It finally hit the bottom when Investment Banks were allowed to gamble with our money and their leverage limits were basically removed.  Some of them gambled up to 35 times their existing assets.  In ordinary terms that would be like you borrowing $35,000 if you only had $1000 in collateral.  And then gambling it on high risk bets.  What happens if you lose it all.  You’re out $1000 and the lender is out $34,000.  Except in this case, we investors were the lenders.

That’s bad enough, but what was worse is that a financial product called a derivative was designed that allowed the big institutions to package sub-prime loans and sell them to the market as an investment instrument called a CDO (Collateralized Debt Obligation).  The rating agencies were paid to give them excellent investment grade ratings.  The investment companies recommended them to investors at the same time that they were selling them short.  (Short-selling is a process of contracting to sell an investment that you think will go down in value.)  Yes, that’s right. They were promoting investments that they thought would fail and made money on both ends when they did fail.

It’s commonly thought that unregulated derivative trading broke the back of the economy.  And derivative trading is still not regulated.  A parade of economic experts lobbied the government against financial regulations on derivative trading and anything else for that matter.  Just a few names you might recognize who fought these regulations: Alan Greenspan, ex-chairman of the Federal Reserve, Ben Bernanke, the current chairman, Timothy Geithner, previously the president of the Federal Reserve Bank of New York and now the Secretary of the Treasury under President Obama.

An hour into the film and I was exhausted and then came the coup de grace:  it’s not only the existing financial players and government enablers that keep the corrupted system in place, they’ve invaded academia.  The film showed a series of interviews with economics professors who are literally on the payroll of the big financial companies.  They not only influence the minds of their students toward unfettered capitalism and away from government interference but they regularly write papers of recommendation on companies that pay them – without disclosing that they got paid.

Everyone in this disturbing film was earning millions of dollars while they destroyed our financial system.  They’ve done this, while millions of ordinary folks have lost their life savings, had their pension plans bankrupted, their homes repossessed, and their jobs eliminated.  Even though the film was filled with fraudulent behaviors not a single person has been charged.  Bad enough yet?  There’s more. 

These same victims are the first to support political ideologies that are designed to keep the status quo.  Why?  Because the political think tanks are brilliant at muddying-up the public discourse with emotion-laden social issues that keep us at each other’s throats.  It’s basically a bait and switch strategy that distracts us while they do whatever they please. 

So far we haven’t had daily circuses and free bread but it took Rome at least 300 years to learn how to appease the masses.  We still have time.  So don’t worry.  Be happy.  And enjoy your favorite “reality show” instead.

Robert DeFilippis