What caused the global economic crisis, and what could have been done (by governments or the private sector) to prevent this? Also, give your personal thoughts on this issue.

My personal thoughts on this issue:
After watching all five parts of the movie, I think the global economic crisis key factor was caused by deregulation which began since Reagan administration, because it contributed to the real estate bubble and allowed greedy and overpaid banks to go on unreasonable leverage. Regulatory bodies allowed privatization of the banks, dropped the regulations that limiting the investments of the banks and amounts they could borrow. The banks, Wall Street traders and investors and mortgage lenders failed to look at what they bought and ignored risk management. When the going is good, they pocket more than their fair share. The banks borrowed more than several times of their value. Derivatives allowed the lender to repackage the loan and sell to investment banks, which in turn repackage and sell them to investors without considering if the customer ever pays the loan back, since they have their money. Banks and greedy lending groups were showered with incentives to give loans to anyone for exorbitant interest rates, and since nobody cared if the loans were repaid, the commission alone was all that mattered. The massive amount of liquidity in the system and the hunger for mortgages resulted them to repackaged the loans into collateralized debt obligations (CDOs), with numerous of them backed by subprime mortgages, then sold to investors. Besides, the ratings agencies such as Standard & Poors were paid to give them all AAA ratings, which caused many buyers to believe in what they were buying. However, long after the damage is done, the rating agencies acted too late to downgrade these papers. People cautioned that this would lead to catastrophe, but those that warned inside of the government were pushed aside by former Fed chairman Alan Greenspan, Ben Bernanke and Treasury Secretary Hank Paulson, plus academic economists who sold their opinions to corporate bidders, making them enablers of the disaster. I strongly agree to this movie director's closing admonition that strong financial industry regulation needs to be reinstated, executive compensation needs to be limited and consumers have to get protected by the government. The government should empowered to rate bonds, especially if it requires certain kinds of fund managers to possess only officially rated bonds. The respective regulatory units should have started new rules and policies to oversee CDOs, CDS, leverage aspect of financial firms and their capital at risk. The public should be prepared to regulate themselves, and the most important thing for them is voting wisely. Since Reagan era until Obama, they failed to prevent deregulation to happen. Obama had great ideas before he was elected president. It’s just sad that he was forced to appoint the wrong people to the wrong places. * *

* b) The bailouts do not really bailout the end borrowers. They simply extend the life of the companies. * * Maybe the bailouts will allow the companies more time to foreclose these properties in an orderly manner. Very few of those will be able to renegotiate their existing loans on decent terms to allow them to continue to fund their mortgages.Most of the loans were priced at a time when property values were at least 30%-40% higher than now. Perhaps, it’d be better to declare bankruptcy than to continue to reconfigure the loan? * c) The public are not equipped to regulate themselves. That is why there are agencies created with “capable people” to regulate and monitor the markets. * * You cannot expect the majority of borrowers to understand in detail CDOs, credit default swaps, or whether the brokers are leveraging themselves to the hilt. * * You instead get assurance from top ratings agencies that brand certain papers as top notch grade. Who will really pore over hundreds of pages in a report, examine if these debt papers/bonds consist of thousands of small mortgages spread out over the country or how to value the price trends and affordability ratios of borrowers? * * d) The public often acts in herd-like mentality and like most people, they are driven by the pursuit of wealth. * * They see people making 50% in two years from speculating in properties and they, too, want to be part of it. Then they apply for loans, and were probably even more shocked that mortgage lenders were more than willing to lend to them. * * The markets are often characterised by bouts of insanity; if you stir them up with enough incentives and carrots, people will act irresponsibly. * * The regulating agencies are there to ensure an orderly market and to quell excesses. The people cannot do it themselves. * * The ones who got out early will think they are very smart. The ones who got hit will think they were unfortunate victims. Both are wrong in their perception of their actions, financial decision making and brain power. * * Both groups are closer to each other in every aspect than they would care to admit. It’s like a game of financial musical chairs “ the winners and losers are those who act the fastest/slowest when the music stops“ not how smart you are. * * PS: In case you haven’t figured the headline out: The bald, the beard & the ugly are Paulson, Bernanke & Greenspan. * This began with the Reagan revolution, during which regulation of every industry, especially the financial industry, was weakened, and regulatory organizations like the Securities and Exchange Commission were gutted. The office that oversaw risk management for the industry had a single staffer. The Great Depression led to strong financial regulation laws, the banning of speculation by banks, and forty years of steady economic growth. In the 1980s, banks went public, and the trading led to a massive infusion of cash from the stock market. The CEO of Merrill-Lynch was made Treasury secretary in the signature move of having banks essentially police themselves with no resistance. Then the financial crises began, including the savings and loans collapses that cost taxpayers $120b in bailout money. The solution to this hiccup was to further weaken regulation laws. Remember Charles Keating? Well, at least he went to jail behind his fraudulent practices. By the 1990s banks had consolidated into fewer giant firms. The largest merger was by Citigroup, in violation of the Glass-Steagall Act which had been in place since 1933 to control the banking industry and suppress speculation. This Act was repealed the following year in 1999 so the party could really begin. Inside Job effectively describes why this exacerbated the situation, and left only skeletal regulatory bodies to halt the destruction. At the same time, the temptation of grossly inflating profits and fraudulent business practices would be irresistible to the sociopaths who were trusted to govern themselves. Interestingly, we get to review the innernet bubble in the 90s, as financial firms put money into companies that were expected to fail, and reaped the profits until made to settle for billions in court for defrauding investors. Sounds familiar. Still, the fines were dwarfed by the profits, and so the banks had no reason to change their practices. That the settlements involved only money with no criminal charges involved only endorsed future actions. Banks continued to expand their operations, laundering money for drug dealers, for corrupt regimes like that of Pinochet, and for Iran’s efforts to start their nuclear program.

* Then we get to derivatives, which have never been explained very clearly until now. Essentially they are an expansion of the real estate investment food chain. This once consisted only of the customer and the lender; the customer was expected to pay back the bank with interest, and that was that. Derivatives allow the lender to repackage the loan and sell to investment banks, which in turn repackage and sell them to investors. Meaning the bank doesn’t give a shit if the customer ever pays the loan back, since they have their money. Banks and predatory lending groups are incentivized to give loans to anyone for exorbitant interest rates, and since nobody cared if the loans were repaid, the commission alone was all that mattered. The loans were repackaged, sold on to investors, and ratings groups like Standard and Poor’s were paid to give them all AAA ratings. Sold things are resold until they no longer make sense; one fascinating factoid is that mathematicians helped create these derivatives. Banks borrowed up to 30x their net worth to invest in these worthless products, and since everyone did it, and there was no regulation of it, the party kept pumping. Cash bonuses spiked, with managers and brokers awarding themselves lavishly instead of shoring up a bank’s actual assets. And then the derivatives birthed credit-default swaps so the banks could simultaneously insure their holdings and bet against them. Another great factoid (lots of these in here) is that instead of a property being insured by only one person, now it could be insured by fifty different people/financial products. So if a property owner defaults on their loan, all fifty products must cough up some green at the same time. The ability of this system to magnify how much liquid cash is in the system was eventually dwarfed by how much it could magnify the losses. akin * Inside Job spends a great deal of time highlighting efforts by a few heroic individuals to alert the system to the impending disaster. Each time the individual is marginalized and ignored by the banking icons. Names we know like Ben Bernanke, Henry Paulson, Alan Greenspan, Larry Summers are at the center of this storm, and all are uniform in their endorsement of a system without regulations, and their utter faith in financial institutions to police themselves. Essentially this is a faith-based system in which an industry creates its own beliefs and plows ahead with complete conviction that those rules will guarantee indefinite prosperity. Meanwhile, borrowers had less than 1% of their own money into the houses that were bought at inflated values – and these started to drop fast. When customers began defaulting on loans and walked away from overvalued real estate, this faith-based system collapsed. Even Greenspan was forced to admit that the system failed, but every last banking bigshot clung fast to the belief that there should be no regulation whatsoever. Even as they demanded taxpayer money to fund their fuckups and pay themselves handsomely. This is the psychology of a sociopath who feels the world is owed them, and nobody may dare question either their work or their compensation. We all know the aftermath, with the titanic bailout sums involved and the recession that followed leaving a still weak economy and high unemployment rate. * And then Inside Job gets surreal. President Obama, who benefited mightily by the economic crash that allowed him into the White House, put in place the brain trust that would repair the financial system and drive reform. And we see the same fucking names that were the heads of banks that oversaw derivative markets and engineered the elimination of regulation. Summers, Bernanke, Paulson, and many other talking heads and empty suits create an incestuous web of self-policing that seemed to find very little wrong with the system, thanks. The financial reform act, decried by right-wing politicians as socialist, was intended only as a temporary measure, and did little to reform the industry. Obama followed his predecessors Clinton and Bush in being deeply conservative where it counts. The most significant criticism of the film is surprisingly levelled at academics in economics. Professors from Harvard, UC-Berkeley, and other respected universities actually authored papers considered important in driving deregulation and endorsing the fake financial products at the heart of this disaster. Every last one of them make significant portions of their salary from working for investment firms, giving stamps of approval for their policies, and ensuring that the federal government does nothing to get in the way of the banking industry. When challenged on camera as to whether their actions constitute a conflict of interests, they balked, refusing to acknowledge such a thing applies to the financial world. Serial killers have a stronger sense of civic duty. Meanwhile, these assholes are imparting their toxic philosophy to the next crop of sociopathic economists. * Inside Job is driven to provide a clear and efficient description of what happened to our financial system, and lays blame clearly on anti-regulation fanatics who are trusted time and again to keep the system humming by one administration after another. Ultimately, however, the perpetrator of this Inside Job is the voter. We routinely vote for the charlatan of the moment, including a duplicitous Obama who was just as conservative as the Bush we all were supposed to hate. Perhaps he changed his tune after election, talking left and walking right. But did we rise to shout down his right of center policies? I sure as shit did not. And neither did you. The most vocal activists out there are the right wing radicals of the Tea Party, and their passion for no government whatsoever is the greatest gift the Paulsons and Summers could dream about. Unless the left develops a voice for its own interests and financial survival, we may yet see a day when the United States becomes the worst investment that Europe or China could avoid. Liberals have come to feel shame for their belief in equality, a strong middle class, a living wage, and a government that does more than facilitate transfers of wealth to the wealthiest among us. We impugn the notion of arguing with the socially conservative poor who are comfortable with voting away their jobs and future in exchange for a ban on gay marriage, or the affluent radicals who feel they are owed the nation’s wealth. So arguing with them is a waste of time. Then perhaps a new mission statement is required of the wheezing, dying Democratic party – perform or we will destroy you and your lobbyist whores. Inside Job does not hide its call to action, and feels that the United States is worth fighting for. If it is not, then perhaps your job, that savings account or retirement account that stand to be vaporized by the next engineered crisis fueled by coked-up bankers would be worth preserving. What does it take? * A large chunk of the film explains the housing market, and the bubble that came before the demise of housing prices nation-wide. We learn how mortgages work, and who profits in which scenario. The idea of "derivatives" was talked about in Michael Moore's film "Capatilism: A Love Story", but here we really get a deeper understanding of what they are and how they work. Don't know a thing about derivatives? Go watch Inside Job. * The title of the movie of course, refers to the fact that the same people who saw unprecedented profits during these times, are also the same people in power making the policy decisions, and continue to today. It's hard to argue with some of the facts shown in the movie, but of course if you are already in the richest 1% of the country I'm sure you have a difference of opinion. * We learn that companies strive to become "too big to fail", literally hijacking our economy. That the same companies that loan us money secretly bet against our loan to fail, and that it's legal to do so. That prostitution and laundering are commonplace amongst the larger financial institutions. We see that when an investment is given a AAA rating, the highest such rating, that it's only someone's "opinion" and that there are politics in play with how investments are rated. We see how the US collapse effects not only our economy, but other countries around the world. * "Inside Job" will make you mad. Not just at the grand larceny taking place with large financial corporations stealing from common Americans, but at our government officials in whom we place our trust to defend us from things like that. For those of us that have shared in the hurt and suffering, who have lost our jobs or foreclosed on our home, this movie will resonate with you despite your political party or leanings. It's a lot to take in. So much so that you may not be able to retain all of the information in the film. But it does a good job in what it set out to do: educate people on what goes on every day in our economy. It may be an inside job, but the more of us that become aware, perhaps we can take action to force change...That's such a massive concept, a concept seen recently in the education documantary "Waiting For Superman", where one little movie takes on such incredibly wide-spread issues. Both movies tell us that change is necessary, and overwhelming as it may seem, that change is possible.