Inside Job: Storyville

Inside Job: Storyville

In this documentary, Charles Ferguson analysis the global financial crisis of 2008 and discovers how the costs of $20 trillion happened. This was described as the worst recession since the great depression and according to Barrack Obama, was caused by the greed on wall street and the failure of regulatory companies. I personally think it is due to a small percentage of people that have strong influence in the finical market, that are known as “Corporate Psychopaths” and this is due to the self centre attitude towards their success and the lack of care on how they get there.

Iceland economy collapse in 2008

The documentary started off analysing the collapse of Iceland economy in 2008 and their main reason for why it did was due to the decision to privatise the three main banks in Iceland. This caused the three main banks to borrow 120 billion dollars in the next five years and a lot of the money was reinvested into companies in countries outside if Iceland. This has major negative economic impact as the money in no longer in the country’s economy, this will have a major reduction on reinvestment on service and industry in Iceland, causing hem to go into decline and close. This will further decline the county’s economy, as said in the documentary that Iceland unemployment rate tripled. This means there will be a reduction in the average house hold income and people will be more careful with their money, reducing expenditure in the economy. This further  creates negative impact on the industry and business sector of Iceland. This caused the Iceland banks to collapse in 2008 and this became a shock to the rest of the world as Iceland was seen to be highly developed with their clear energy and low crime rate. I think that the mains cause of this problem was the thoughtless decision by the government to make the three main banks privatised, as bankers have a reputation of being greedy when offered the chance and to create short term profit with little care of the long out comes. This should have been considered by the government and maybe trailed with a less important bank, instead of the three main ones.

Secularisation food chain (SFC)

This was a structure that was analysed in the documentary and is a chain of assets that leads to huge loan payments. After the ban on regulation of derivatives in 2000, the finical market was dominated by five investment banks, two finical conglomerates, three security and insurances companies and three rating companies. The secularisation food chain linked them all together. The chain starts with the home owner getting a mortgage or loan off the lenders, who then sold in to an investment bank that turned them into complex derivatives called collateralise debt obligation. They then sell the CDOs to investor and all the home owners money go to investor across the world. The investment banks then payed the rating agency to give the CDOs high ratings like AAA or AA+ and makes them more popular. I feel like this chain shows how money and power has a massive influence on any market, as they don’t even need to make a good reputation for them self because they just pay trusted companies to build it for them. This causes the bank to have less risk when giving out loans and makes them take riskier loans called subprime loans. the known that there is a chance that they couldn’t pay back the loan, but they still give it to them for profit on derivatives. I feel like this shows a good example of “Corporate Psychopaths” as they disregard the fact that they could destroy people’s life and only care about the profits they can make off them. This causes home prices to rocket and a finical bubble was created, due to the 100s of billions dollars flowing through the secularisation food chain.  Countrywide finical loan gave out 97 billion dollars in loans and made 11 billion dollars in profit. The short-term profits drive the company blind the negative long-term impacts that it would have on their business. In evaluation the SFC was a very effective way of making short term profits and the levels of risk were very low as loan didn’t need to be repaid to make profit and government ban the regulation of derivatives so the risk was even lower. However, it was bad because, the long-term effects were bad on the business if they used the SFC structure, you would have to have very poor ethics towards your customers, if you are giving out these subprime loans.

The effect of globalisation of the finical crisis

After the long-term impacts of SFC had occurred, banks like Lehman brother and AIG become bankrupt and the fact that modern day world is so globalised, the impacts was global. Lehman brother and AIG become bankrupt in 2008 and caused 30 million unemployed workers. These companies both had recently been awarded high ratings by rating agency, even though they become bankrupt shortly after. I feel like the fact that the world is so globalised is mainly a benefit as this helps less developed countries like India, to develop in business sector rapidly. I think this is due to the fact that communication links are a lot stronger and the spread of information is a lot more efficient. As American has such a huge global present in the world, the finical crisis effected huge amounts of the world. This caused 10 million Chinese migrants to become unemployed as the demand for product in American lowered due the finical crisis. As a response to this, a group of people from the banking sector group together to ask congress to give 700 billion dollars to bail out the banks. They bailed out the banks and the government took over AIG and I feel this was because of the impacts the finical crisis had globally, as a lot of the world was suffering due to the lack of regulation of American’s finical market. What I got from this was that the finical crisis started as an international problem, but due to the globalisation in American, it spread globally and other countries are reliant on the success of the finical market in American.

Overall in conclusion I feel like the main parties at fault here was the government for making the poor decision about privatising the banks and the ban of regulation of derivatives. The other main party would be a small group of people know as “Corporate Psychopaths” as the ability to climb up the business structure and take control over business markets, has led to lack of consideration of the long-term impact of the world. Therefore, I feel that it very important to remove all “Corporate Psychopaths” from the business as soon as possible because once they gain authority the decision could back fire of the business. From watching this documentary, I have learnt that as the world is so globalised, all business crisis around the world will impact each other and this means there is urgent need to solve these problems. In reflection, there has been a reoccurring theme to the cause of problems in businesses, in my blogs and that is the lack of customer problem awareness. So, from this I have learnt that all customer problems should be taken seriously, just in case they develop into bigger issues.