1. Inside Job
Presented by:
1) Niranjan K – 29032
2) Nivas R – 29034
3) Pavan Kumar R – 29035
4) Porcko P – 29037
5) Rachel Priyanka – 29038 1
Team 5 Inside Job
2. 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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3. 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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4. 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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5. 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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6. 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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7. 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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8. 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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9. 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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10. 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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11. 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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