The Great Financial Crisis of Our Times since the Great Depression

'Inside Job' won the Oscar for Best Documentary Film at the Oscars last week. This is more than a movie review. The documentary is about the vulture culture at the Wall Street and how it has plunged the world into financial crisis. In a daring series of interviews, it answers how much were the Economists paid to ignore the impending collapse? And how it will happen again.

At the Oscars, Charles Ferguson, Director of 'Inside job', accepted his Oscar with a relatively lesser scintillating "Thank-you" speech. After thanking the Academy for 5 seconds, he said, "Not a single financial executive at the Wall Street was arrested following the world financial crisis. This is something to think about."

Finance and Politics are two topics that an average man shies from. The reason? Both the concepts and their effects are too "complicated" for anyone to figure out. It is also true that these two have the most profound impact on each one of our lives - more than we care to fathom or more than we will ever come to agree, realise or accept.

Artists shy away with the discussion of Finance and Politics mainly because it represents the ugly truth and it has something more to do with facts. An artist would rather linger in the creativity of imagination. But kudos to Ferguson who has made sense of a global recession that has plagued our recent times and considering unemployment still is a major challenge worldwide, we are still to emerge out of this mess.

Kalyanee Mam, Researcher, DOP, Executive Producer has done an impressive job. Matt Damon has taken an audacious step by agreeing to narrate it.

The film shows extensive interviews with Economists, Lobbyists, Deans of Harvard and Colombia business schools, politicians, authors, researchers, a prostitute and a psychologist who shed light on the reasons as to why millions worldwide lost their jobs, major companies announced bankruptcy and how a world plunged into darkness. The effects were felt worldwide: In India, we were expected to see a blockbuster of an IPO with Emaar-MGF in 2008. Considering the crash of the stock markets world wide, with stocks falling up to 777 points in a single day, the IPO was cancelled 2 days after its scheduled debut at the Bombay Stock Exchange (BSE). Singapore's exports collapsed by 30%. Iceland, a country of democracy and a very high standard of living, was facing riots. People walked off from their Lehman Brothers' offices worldwide on a single day of notice of bankruptcy. 

One of the best features of the documentary was how it showcased the actual proceedings (court-room snippets) of Lehman Brothers' case and AIG bankruptcy - to name a few. The judge actually remarked to Lehman Brothers' CEO that he was filing bankruptcy, but he actually owns around 5-6 private jets, two helicopters, celebrated and expensive paintings and art in France. The CEO had no reply. Ask his lawyer, "Isn't that too many planes for a single person?" Even he has nothing to say to that. 

To bail out AIG, the US Treasury Secretary Henry Paulson demanded a bailout of 700 crore rupees from the US Government. He said the alternative to this was unthinkable. The office building of AIG has a helipad. The website of the US Treasury states that the department is responsible for formulating and regulating economic, financial, tax, fiscal policies; serving as a fiscal agent for the US government. 

A prostitute, who operated from her high-rise apartment, located only a few blocks away from Wall Street, says that she had around  10,000 customers during the "bubble". She said that the executives would rent a Lamborghini only to take the prostitutes out for a night out. They would give the women a corporate letter head, and ask them to fill the price and mention it against expenses incurred for "Corporate Research".

Raghuram Rajan, former Chief Economist of IMF, had presented a Paper titled "Has Financial Development made the World Riskier?"(2003) which warned Financial Industry about the amount of compensation that the financial executives were given, stating that it would lead to a crisis. Former US Treasury Secretary and former Harvard President Lawrence Summers called the Paper "misguided". Greenspan and Summers had enacted two major laws under the Clinton and Bush administration that allowed deregulation, endorsing unaccountability of Financial Markets and Derivatives segment, incomes and incentives earned by Financial industry.

After the crisis, lobbyists and politicians met at a gathering hosted by Greenspan. Here, business lobbyists joked that the politicians should have regulated the Financial industry; they were too greedy and hence they needed someone to stop them at a certain juncture.

Research shows that the area of the brain that gets stimulated with making large chunks of money is the same area which gets stimulated after having cocaine. 

Economic and Business Studies' professors from Harvard and Colombia Business Schools end up making a lot of money on the side as consultants and on boards of companies like Goldman and Sachs, and Nomura. These professors are also paid by these companies to write a book on Financial Stability in the bankrupt economies like Iceland to fool people, painting a rosy picture. One of the professors was compensated around $50,000. He was asked as to how he could downright lie in a book about the economy, and he fumbles for an answer. In his CV, he has mentioned about co-authoring book, but the title corrected to Financial instability in Iceland. 

Most of the interviewees turned hostile asking the camera to be turned off, and a Columbia B-School professor even ignoring to answer a question saying, "You only have three minutes left. I should have never agreed for this foolish interview."

The film explains the complex financials of the Derivative segment, much beloved in our own country, the unregulated Over The Counter (OTC) trading and sub-prime lending. Apparently, the financial market giants not only sold CDOs (Collateralised Debt Obligation) but also made money through insurance of the same. Here's how it worked. 

Financial giants like Goldman and Sachs, Lehman Brothers incentivised their top management with astronomical bonuses for selling a great deal of CDOs to people. A most common form of CDO would be a commercial real estate property. Even if you didn't have the ways and means to actually afford a loan or the necessary documents, they'd  still get it for you. They needed incentives. And when the President of the US says that people could now afford a better home, you start taking the agent seriously. Loan documents are doctored, and the loan is passed. This was one way to make money. 

The other: the same executives, or a separate department in the same company would tell another client that a particular CDO was a "crappy investment". When the CDO's value would be driven down in the market, Lehman Brothers' would not lose anything because it was insured against the same by AIG. The CEOs of the companies that were declared bankrupt went home taking astronomical figures, stashed safely in their bank accounts, around 10-12 months before they saw the possibility of a global financial breakdown. 

When the judge asked an executive as to how he could sell a "crappy" CDO to another client, citing evidences through a tirade of emails, the executive replied, "It is.... (pause) very unfortunate.........(fumbling).... that..... the conversation was on email."

It is interesting to see that none of these high profile CEOs regret what happened. Or notice the nature and most importantly, the impact of their criminal acts all over the world. 

Before he was elected President, Barrack Obama mentioned in his speeches how the highly unaccountability culture of the Wall Street executives has resulted in the loss of jobs (also since lot of US jobs are being outsourced), recession, and deregulation of the Derivatives market (specifically asked for by Henry Paulson and Alan Greenspan). After he was elected, he has chosen the very same people who were in the Bush administration and directly responsible for the global economic meltdown.

According to Robert Gnaizda, former Director of the Greenlining Institute, a group that advocates housing rights, "It is a Wall Street Government.' Just how safe are we? It will all happen again. 

Tweet