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Nicole Gelinas and Judith Miller
Hollywood Explains the Economy « Back to Story

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USA is turning Communist!
What is communism? It is a fraud perpetrated by the apparatchiks to maintain power and say that what they do is for the benefit of all.
Where is USA post 2008 different?
Communism had rich leaders and poor workers. Where is USA different?
Forget the theology, ideology, sociology its the same end!
Proof Christopher Hitchens turned from rabid Trotskist to rabid invade everywhere right winger! But he still says the same thing - "Underclass unit with USA might"
I plan to watch this on HBO this evening.
Good actors in a relevant story.
You and both movies left out the rating companies. All firms have restrictions on risk. Risk is generally weighted by the ratings of the rating agencies. The products in question MBS securities, particularly TBAs. These products were traditionally rated AAA (the highest rating) which allows the most possible leverage by the banks. As these produucts began incorporating a lot sub prime (high risk borrowers) loans the rating on them should have been adjusted accordingly. The agencies were just rubber stamping these things AAA which allowed for the over extenstion.
The issue is that the rating business is competitive. There are 3 major raters and companies will use the agencey most likely to give them the best rating. This obviously clouds their subjectivity on the issue...?? silly, no?
I enjoyed the dialogue between these two sharp ladies. "Top Ten List" of causes of this crisis:

10. Free globalized trade, which flattened incomes for the middle class and resulted in an enormous debt bubble in the developed world.

9. Extended low interest rate conditions after 9/11.

8. Failure to regulate derivatives.

7. Allowing speculative credit default swaps (CDS) and synthetic CDO's (portfolios of CDS) to exist at all. This encouraged the creation of garbage mortgages, as folks could hedge their bets.

6. Allowing investment banks to lever over 20:1 (encouraged by relaxation of the net capital rule in April 2004.)

5. Allowing short-term financing of financial institutions; very high levels of financing was in overnight markets instead of stable say 10-year bonds.

4. Not having resolution mechanisms for investment banks, similar to depository banks. We shut down WaMu without a ripple, yet Lehman triggered a global collapse.

3. Not regulating the shadow banking system similarly to the traditional depository banking system.

2. Rating agency practices and incentives, resulting in AAA ratings for junk mortgage instruments. With accurate ratings, the housing bubble would not have happened.

1. Not requiring 20% down payments on homes, with 40% for second homes, as China does. This allowed rampant speculation and the housing bubble to form in the first place.
i also agree the point of Ferguson’s film... i want to share something here that is
federal regulators unveiled new fuel economy labels that could make it easier for new-car buyers to compare fuel-efficient vehicles and gas-... this is main issue of economy...
Christina Gombar May 26, 2011 at 12:39 AM
As a Wall Street veteran, including stints at AIG, S&P and briefly, Lehman, I felt that "Inside Job" was overly simplistic, and that both films missed the boat big time on AIG.

The story started a few years earlier, when Spitzer ousted AIG CEO Hank Greenberg, which caused stock and credit analysts to downgrade the company immediately, necessitating a scramble to increase reserves. Everyone on Wall Street knew that without Greenberg AIG was a Leviathon without a head. The gambling spree in the credit default business proved this.

Unlike his successors, Greenberg always knew where every position and dime was, every minute, and would not hesitate to get out of any business that threatened its financial integrity.

I'm not defending the company's ethics, before or after Greenberg, but I do think ordinary Americans would feel less helpless if they had a more complete picture of the events.

But having spent most of my career trying to educate the average American about finances, I must report that they just don't want to know. If someone else is getting 30% annual returns, they want it, too. The hardest thing is defending a conservative investment strategy to the greedy investor, who will just take his money elsewhere for better returns, damn the risks.

These movies do nothing to encourage citiznes to take responsibility for their own actions. It's easier to keep blaming the "big swinging dicks" and feel bitter and victimized. If everyone had to read the text book for the Series 7 Securities exam -- not even take the test, just read it -- the financial crisis wouldn't have happened.

I have lots of friends with Ivy graduate degrees who were stunned, absolutely shocked that their stocks weren't guaranteed investments, despite signing prospectuses.

Both films ended by delivering the grim news that the financial crisis further consolidated the banking industry and made its leaders richer than ever. This is all true enbough. But I wonder why American high school students learn so much about sex -- pro or con -- but few graduate knowing the difference between a stock and a bond?

Wait a minute: not one word here about the "right" of poor people to buy homes they cannot afford, and the shenanigans at Fannie and Freddie, the demogoguery of Watson and Frank who in their hearings berated the "regulators" on C-Span ? Sounds like a cover-up to me.
You got my attention! I will look to get the films on DVD. I was going to ignore them thinking they would be simply politically skewed. I would like to understand what "really" happened.
Daniel McLaughlin May 25, 2011 at 7:45 PM
You might want to review the Austrian Business Cycle Theory and then view the movies again for another flash of insight. The Fed was not the hero. Rather, it created the bubble markets with monetary inflation and artificially low interest rates, ignoring all market signals. Deregulation or not, there would have been no inflationary credit bubble or subsequent resulting crashes without the Fed "stimulating" the bubble during the go-go years.