Have you seen the Inside Job? If you haven’t- GO SEE IT! Watch it on Netflix, borrow it from the library… whatever you need to do to get this information in your head. It’s important. Just beware, cause it’ll make you mad as hell.
So definitely watch the Inside Job, but before reading the rest of this post, you must watch this 10 minute, top-notch explanation of the financial crisis:
The Inside Job starts off with a neatly contained example of how things went wrong in Iceland. Iceland was once a largely state run economy. Then, they decided to try and hyperboost their economy by deregulating banking- taking out the rules that aim to protect the average Icelander (the ones who don’t know hardly anything at all about banking- so most everyone). Their theory was that regulations were inhibiting growth and creativity within the market, and that Iceland was in a comfortable enough position that they really didn’t need those old-fashioned, cumbersome regulations anymore. So they said bankers: Go for it! It’s your own world now!
And they did, of course. There was money to be made!!!!!!! And things exploded, banks were hopping, money was being made by the millions, everything seemed to point to success with the new deregulations. The problem was…. no one really knew what was going on, cause there were no regulations. Needless to say, Iceland’s banks tanked and the economy is in dire straits.
The Inside Job then dives into our, the United States’ financial crisis. Same scenario, on a much larger, complicated scale. The documentary starts out with referencing the Stock Market Crash on Black Tuesday- resulting from problems within the system. This crash led to 15 years of severe depression, affecting the entire United States- even those who had no idea what went on at Wall Street. CAUSE YOU SEE, THESE BANKERS USE OUR MONEY TO PLAY WITH- you know the money we invest for our retirement…. And they also influence small and big business with their lending powers. The choices these bankers make affect the entire economy.
So the government says: We can’t let this happen again! And they get together with some of their brightest and put in some rules. Rules that check and balance each part of the financial system so there is some accountability. AND LET ME TELL YOU- ACCOUNTABILITY IS WHAT IT’S ALL ABOUT. And for the next 50 years, our economy does pretty darn well.
Then the late 70’s and 80’s come and we’ve all been enjoying a healthy economy, but it could be better. It can always be better. Greenspan comes along- brilliant intellect. He thinks these regulations the government has put in place are actually limiting the economy, curbing creativity and narrowing the future. He comes to deeply believe that deregulation (and lower interest rates) will help the economy. So that’s what he does, he starts tearing down the rules. Rules that were meant to protect people like me and you.
Things get cooking. With the door wide open now, the sky is the limit. Bankers start throwing numbers around and changing up the way they process and own loans, Leverage becomes fiat power, derivatives grow into a monstrous three dimensional rubix cube, CDO’s sweep the investment world and cause a frenzy of greed, subprime loans multiply and replenish the earth, short-term gain becomes the only true Bible. I can’t explain it near as well as the Inside Job, it’s complex and vast, but here are two problems that jumped out at me:
#1- The government deregulated the real estate loan process.
Banks could now sell their loans to other institutions- institutions that used money from investors, people like you and me, and then those people bundled loans and sold them once again. The problem with that, is now banks aren’t worried about the loan defaulting. So they start loaning to anybody. Yes- remember the days when you could buy a house with nothing down? When the bank surprised you and declared you could own a home way more expensive than you imagined. When credit ratings didn’t matter too much- maybe a little higher interest, but nothing to hinder you. The banks didn’t care, because they weren’t going to own the loan for long. So this created a housing bubble and gave homes to people who simply couldn’t afford them. NO SURPRISE when people started defaulting…. By the hundreds of thousands, and home prices dropped causing bankruptcies galore. That wasn’t supposed to happen! This wasn’t in the “theory”. Oh well, say the bankers….(they don’t care about me and you because they’ve already made their millions- millions safely in their pockets.
#2 No accountability, no transparency.
It’s so terribly ironical there are rules that you can’t steal a lawnmower from someone, but there are no laws about cheating people out of their entire retirement funds. You won’t believe the lies and deceptions that go on in Wallstreet with very little penalties or accountability. All those rating systems you hear about that give investment portfolios a AAA rating (good) – all a house of cards. They get paid by the very companies they are supposed to be rating. Ex-politicians make $$$ off of policies they put into place, while in office. Ivy League professors are paid for their supportive positions. Bankers buy loans and then buy options/derivatives betting against those very loans.
You’ll watch the show and realize the bankers involved in the financial crisis KNEW what they were doing was unethical, corrupt, and horribly wrong! They knew it! But it wasn’t about right and wrong. It was about what they could get away with and how much money they could make. There absolutely needs to be more penalties and jail sentences and money taken away from people who are so flagrantly corrupt. Flagrant! No nuances here.
There are lots of debates on free market vs. government regulation. But the fact is and always will be: there is definitively a percentage of society that will do whatever it takes to feed their greed. They do not care about others suffering, they only care about making money and there is no end to how much is enough. People argue the free market takes care of it itself. That’s like saying that we don’t need police or laws, cause humans will take care of themselves. And yes, “Lord of the Flies” is a great way to explain what happened to Wallstreet .
Look back in the early industrial age: child labor. Businessmen hired young children and paid them very little to work the entire day. Sent 12 year olds into dark coal mines to fill up their lungs and darken their sights with coal dust. They did this because they could. There were no laws and children were cheap. Parents sent their children to work, cause they were poor and because it wasn’t illegal. This child abuse didn’t stop happening, until people petitioned the government and laws were made protecting childhood. I guarantee child labor would still happen today within certain dregs of society if it was legal. That’s how the underbelly of human nature works. We need prudent regulation.
Certainly the government was to blame as well- shifting the risk from the private sector to the public sector. Bailing out these companies, allowing executives and corporations to get away with criminal behavior. However, it seems their motives were much purer than the soul-less CEO’s and head execs, that knew exactly what was going to happen.
And now we are in a financial crisis. But you have to understand the banker- he DOSEN”T CARE. He played with money, so he could make millions of dollars. And he made millions of dollars, and when things went south, he took his millions, received a slap on the hand and went his way:
For example, Joseph Cassano, an officer of AIG’s Financial Products division, received $315 million from 1987 until he retired in March 2008, six months before AIG was rescued by the federal government. Robert Rubin, the former Treasury Secretary and head of Goldman Sachs, made $126 million during eight years as a board member and advisor to Citigroup through 2009.
$315 million! ?%*#@
This hit me like a thunderbolt? They really don’t care about what is right or wrong or the impact down the road. They don’t care about the people who are struggling to make ends meet. It is all about short term gain, so they can fill their bank account and when it all crumbles (as they knew it would) they take their millions and buy yachts and jewelry. Not a one of them felt bad for their terrible schemes. They just played the game. The market was open and free, no one was checking up on them, there were no laws, it was all about how much money they could make, and with the deregulations, they made money hand over fist, beyond their wildest dreams. And DON’T forget where this money comes from.
No, I don’t believe in a completely free market. Yes I do think there should be productive regulations. Greenspan did not take in to account, the whole of human nature. Yes, government should play a regulatory role in business, though limited. YES!! PEOPLE NEED TO BE HELD ACCOUNTABLE.
It just makes me so mad. We trust our money with these investors and their AAA ratings. We don’t know the financial world- that’s their job. We deserve to be told the truth. We deserve to know if our investors are betting against us, even as they are taking our money. We are expected to do our jobs with integrity… why not them? I don’t have time to figure out the complexities of derivatives and CDO’s. It’s so crazy complex… like the tax code… there’s no way I could see these things as I should. We are all easy targets, easily manipulated. That’s why there needs to be consequences and regulations- to keep a balance. We need to figure out what those should be and make sure they don’t tip in the opposite direction- but it can be done. Of course it can be done.