Was it all just an Inside Job?

 “Inside Job” – The quirky movie title perfectly describes the theme the film highlights: the fact everyone on Wall St appeared to be involved in the financial disaster. The film focuses on the changes which took place to the finance industry in the 10 years running up to the crisis, for example the political movement towards deregulation. 

I found it inconceivable that the very bodies which were supposed to be regulating the industry were all involved. The film documents the pressure from the Wall St bosses on the political process to avoid regulation which controls systemic risk. This allowed risk taking managers to maintain an unerring focus on their bonuses, with little concern over the potential risk of the products. Lenders were pushed to sign up for mortgages without regard to risk, or even favouring higher interest rate loans, since, once these mortgages were packed together, the risk was disguised. As these products were branded with AAA ratings (the safest rating possible), equal to US bonds, they could be used by investors such as pension funds.

The film focuses on changes in the financial industry in the decade leading up to the crisis, the political movement toward deregulation, and how the development of complex trading such as the derivatives market allowed for large increases in risk taking that circumvented older regulations that were intended to control systemic risk. In describing the crisis as it unfolded, the film also looks at conflicts of interest in the financial sector, many of which it suggests are not properly disclosed. The film suggests that these conflicts of interest affected credit rating agencies as well as academics who receive funding as consultants but do not disclose this information in their academic writing, and that these conflicts played a role in obscuring and exacerbating the crisis.

A major theme is the pressure from the financial industry on the political process to avoid regulation, and the ways that it is exerted. One conflict discussed is the prevalence of the revolving door, whereby financial regulators can be hired within the financial sector upon leaving government and make millions.

Within the derivatives market, the film contends that the high risks that began with subprime lending were transferred from investors to other investors who, due to questionable rating practices, falsely believed that the investments were safe. Thus, lenders were pushed to sign up mortgages without regard to risk, or even favouring higher interest rate loans, since, once these mortgages were packaged together, the risk was disguised. According to the film, the resulting products would often have AAA ratings, equal to U.S. government bonds. The products could then be used even by investors such as retirement funds who are required to limit themselves to the safest investments.