I just finished watching Charles Ferguson’s documentary about the financial crisis of 2008, “Inside Job.” It is an outstanding piece of journalism, which I urge everyone to see, no matter which end of the political spectrum you may reside upon.
The movie makes it clear the danger began with deregulation of the financial industry that began with Reagan, but continued unabated through the Clinton and Bush II presidencies. That it was further fueled by industry insiders who had power and influential positions high up in those administrations, and that it was ignited by the greed of Wall Street bankers.
Ferguson and his crew explain the crisis — that is the financial dealings and misdealings — in a way that is easy to follow and understand. Basically, deregulation, lax oversight and politicians all too willing to overturn decades old laws at the bidding of their Wall Street masters created the derivatives business, in which mortgages and other loans are sliced and diced, then recombined like Spam, and sold to investors through the aid of fraudulent AAA ratings. Companies like Goldman Sachs would sell these crappy investments to their customers, while simultaneously betting these investments would fail. How could they do such a thing? Well, in our wisdom we allow someone to insure an investment — but not just ones they own. A company like Goldman Sachs could insure investments that didn’t belong to them. It’s as if my neighbor could get fire insurance should MY house burn down, AND was the distributor for Johnny Pyro Action Figures, with genuine jets of flame — fun for the whole family!
The whole scheme requires a steady stream of mortgages, and no one cares if the borrowers can pay their debts, so the investments get riskier and riskier. Then, when the housing market tanks and all these bad loans start failing, the insurance companies — primarily AIG — suddenly have to pay out multiple claims on the same bad loans. If they don’t the biggest banks will collapse, so the U.S. government takes over AIG and pays out 100% of the claims to Goldman Sachs and other banks… and guess who is responsible for that decision. People like Treasury Secretary Henry Paulson, who just so happened to be the former CEO of Goldman Sachs. Paulson made a fortune — over $100 million — running Goldman Sachs while it was cheating its clients, then funneled U.S. tax payers money through AIG to keep his old company afloat. Sheer genius.
The system is so corrupt that Tony Soprano would be appalled. Or envious.
Anyway, I haven’t done this film justice. And speaking of justice, not one person has been prosecuted for this mess — and you’d think that there would be some fraud cases pending, since these companies knew the investments they were pushing on their customers were crap. The companies issuing the ratings — like Standard & Poors — either knew or didn’t try to find out that they were crap; they’d just give out their top ratings, because it was in their own financial interest to do so.
The sad thing is nothing has changed. No real regulations have been enacted and most of the same criminals that infected previous administrations are the ones Obama has put in charge of “fixing” this mess.
Meanwhile, the justice department is pursuing cases against Roger Clemens and Barry Bonds.