During my spare time yesterday, I re-watched the documentary by Charles Ferguson that highlighted and analyzed the financial crisis that America suffered in the late part of this past decade. My personal knowledge of the crisis only stretched as far as the news covered it. Such films as,”Capitalism: A Love Story,” by Michael Moore, shocked me back then and every time I watch these types of documentaries. Inside Job, went more into detail of the governments cooperation with the private financial sector, from President Regan’s deregulation in the financial sector, to the laissez faire approach the government took during the George W. Bush presidential era.
There was a huge amount of risk that was involved with the housing market. (Starting from the bottom up) Subprime loans were handed out from banks to individuals who couldn’t pay back. The banks would approve loans to individuals who wouldn’t fit the criteria of “bankable” meaning they couldn’t provide information that would assure the bank that their annual income or assets would cover the monthly payments. Banks sold these loans and mortgages over to investment banks who packaged them into CDOs. Then insurance companies joined into the mess with credit default swaps (CDS) which insured CDOs. Both CDOs and CDS were all rated AAA by many rating agencies. Then in 2007, when the market for CDOs collapsed, investment banks were left with loans and real estate that they couldn’t unload and since they took on more assets than they could handle, many failed and required government intervention.
The blame should have fallen on the CEOs and other big players in the SEC and federal government that allowed for this risky behavior to continue. At the same time there has to be some blame to be put on the individuals. Those who were trading CDOs, those in charge of giving insurance coverages to those CDOs (CDS), to those who foolishly took out subprime loans or mortgages. Even though the movie generated outcry and a positive response to the atrocities, my feeling is that, just like every powerful documentary, the feelings are temporary. Out of every 100 people who watch the movie, possibly only 2-5 people actually go out of their own time and are proactive in the solution.