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Inside Job Presented by:1) Niranjan K – 290322) Nivas R – 290343) Pavan Kumar R – 290354) Porcko P – 290375) Rachel Priyanka – 29038

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Inside Job is about..• The systemic corruption of the United States by

the financial services industry and the consequences of that corruption.

• The sequence of events leading to and the aftermath of the global financial crisis.

• The repeated failure in sensing that such a crisis would arise despite so many warning sign arise.

• The failure to understand the need of regulation and controlling the rising number of Financial products during the period of the bubble.

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Inside Job – Parts• Part I: How We Got Here• Part II: The Bubble (2001-2007)• Part III: The Crisis• Part IV: Accountability• Part V: Where We Are Now

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I : How we got here• Stricter Regulations since 1940’s till period of Ronald

Reagan – 1980’s.• Beginning of the deregulation – Oil Tanker• Savings and Loan Crisis and The Internet Stock Bubble• Doing away with Glass Stegal act with Gramm Leach

Biley Act. Robert rubin then became Vicechairman of CitiGroup

• Citibank, Merryl Lynch, JPMorgan helped Enron Conceal Fraud

• Emergence of Derivatives and new FP’s and the pressure to not regulate

• The dominance of few leaders in the US Financial Sector

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I : How we got here• The securitization food chain.

• Creation of the complex CDO’s that included sub prime lending's.

• The dubious ratings given to the CDO’s

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II : The Bubble (2001-2007)

• Investment banks preferred subprime loans because of higher interest rates

• It then led to massive increase in predatory lending• Borrowers were needlessly placed in expensive

subprime loans, and many loans were given to people who cannot replay them.

• Result - Biggest real estate boom in history• Subprime lending – $30 to $600 billion in 10 yrs• SEC Lifted leverage limits for investment banks• Neuroscientists proved that money stimulates the

same part of brain tat stimulates thro’ cocaine• Borrowers’ borrowed 99.4% of money in the house

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II: The Bubble (2001-2007)

Credit Default Swaps• Investors can buy CDS as a insurance to CDO• Even speculators can buy CDS• No money to cover losses but issued bonus• Raghuram Rajan alerted about the incentives for

risk.

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III: The Crisis• 2004 – FBI warned epidemic mortgage fraud• 2005 – Raghuram Rajan warned thro’ “Has

financial development made the world riskier ?”• Repeated warnings from IMF and many

economists from time to time• 2008 - Home foreclosures skyrocketed• 2010 - Home Foreclosures reached 6 million• $700 billion to bail out banks

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IV : Accountability• Top Executives were paid bonuses instead of

being fired• Bankers complained Regulators did not do their

job• $5 Billion for lobbying & campaign contributions• Academic Economists advocated for deregulation• Conflicts of interest as these economists were

consultant to companies

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V : Where we are now• Average Americans are less prosperous than their

parents• Obama came with lot of promises and action• Result – WALL STREET Government• Key economists are the same people who built the

structure• Finance companies as a service company should serve

others before serving themselves.• As of mid 2010, no senior executive was criminally

prosecuted.• At enormous cost we avoided disaster and are

recovering, but those who created this are still in power.

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A few lessons..

• Beware of complex financial instruments.• Do not believe in Rating agencies – “Just

Opinions”.• Ensure that warning signals are investigated on

time and aren’t ignored.• Before paying your employees huge bonuses,

check if you could repay your customers if the company were to go bankrupt.

• Understand the implications that Conflicts of Interest could have.

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