inside job

2008

iceland
320000 population
$13B GDP
bank losses: $100B

stable democracy high standard of living

low employment and govt death

2000 broad policy of deregulation

envi and economy

exploit iceland's geothermal activities

privatized iceland's 3 largest banks= result

financial deregulation

5 year period, 3 tiny banks which do not operate

outside iceland borrowed $120B dollars w/c is 10x

its economy

bank showered itself, each other and their friends

massive bubble, stock price went up to 9; housing

prices more than doubled

iceland bubble gave rise to people like yon

asgarreon, he borrowed billions from banks to buy

high end business retail in london, also bought a

private jet, a $40M yacth, manhattan penthouse

took a billion dollar loan to buy billions of

things

feb 2007 - upgrade banks to highest possible rate

(AAA)

banks collapsed in 2008 - unemployment tripled in 6

months

lot of people lost their savings

the govt regulators who should have been protecting

the icelanders have done nothing

2lawyers - 19SUVs aside the banks

1/3 of iceland's financial regulators went to work

for the banks

universal problem ; in NY there's a same problem

wall street incomes - excessive

massive private games and public loss

sept 15 2008 - bankruptcy of US investment

bank,lehman brothers and collapsed worlds largest

insurance company, AIG triggered global financial

crisis

global recession = result

30M unemployed

not an accident, caused by out of control industry

1980s- rise of US financial sector led to increasing

severe financial crisis that caused a lot of damage

while industries has made more and more money

PART 1- how we got here

US - 40 years of economic growth w/o the single

financial crisis

morgan stanley , 1972, 110 personnel i office and

capital of 12M USD; now, 50T workers and capital of

several billions and offices all over the world

1980s financial industry were exposed

people on wall street started getting rich

1981 ronald regan(president) choses treasury

secretary donald regan(treasury secretary)

regan administration started 30 year period of

financial deregulation

1982 - deregulated saving and loans company risky

investment with their depositors money

end of the decade 100 of savings in loan company

have failed ;

caused taxpayers 124B USD and caused people their

life savings

thousand of savings and loan executives were put up

to jail for loothing their companies

charles kiting -

1985 hired economist, allan greenspan , no risk in

investing customers money ; paid greenspan

40thousand dollars

greenspan appointed by regan as chairman of

america's central bank, the federal reserve; also

appointed by clinton and bush;

clinton administration- deregulation continued under

greenspan ; robert ruben - former CEO of investment

bank, goldman sachs ; larry summerst harvard

economics professor

1990s - financial sector consolidated into big

investment bank

1998 - citi corps and travelers merged and formed

citigroup ; largest financial company in the world

1999 - summers and rubin , congress passed the

"Gramm-Lee-Bliley Act" - citigroup relief act - over

turn glass legal

monopoly power

robert rubin earned 126M as Vice Chairman of

citigroup; doesn't want to be interviewed

next crisis - late 1990s;

investment bubble in internet stocks followed by in

2001 an invesment losses

SEC - had done nothing

dec 2002- 10 investment banks settled the case for

1.4B USD and promised to change their ways

since deregulation began, the worlds biggest

financial firms, have been caught laundering money,

de-frauding customers and cooking their books, agian

and again and again.

JP Morgan Bribed Govt Officials

Riggs Bank Laundering money for chilean Dictator

Augusto Pinochet

Credit Suisse Laundered money for an in violation of

US Sanctions- nucelar program, fined 536M USD , 100M

drag money out of mexico

Freddie Mac - Accounting Fraud fined 125M USD

1998-2003 - Fannie Mae, overstated its earnings by

more than 10B USD- Accounting Fraud fined 400M USD

CEO, Franklin Reigns, clinton's budget director,

received 52M USD in bonuses

UBS was caught helping the american _ taxes they

refuses to help the US govt- fraud fined 780M

Citibank, JP Morgan, Merrill lynch - helped enron

conceal fraud and fined 385M USD

beginning of the 1990s, deregulation and advances in

technology led to an explotion of complex financial

products called derivatives, economists and bankers

say they made market safer but instead they made

them unstable

regulators, politicians and business people did not

take seriously the threat of financial innovation on

stability of financial system

using derivatives, bankers could gamble virtualy on

anything, they could bet at the rise or fall of real

prices, the bankruptcy of a company, even the

weather

late 1990s derivatives were 50Trillion USD were

unregulated market

in 1998, someone tried to regulate them

brooksly bourn, graduated in stanford law school and

the first woman who edited the law review

after running the derivatives practice, was

appointed by clinton as chair of CFTC w/c over saw

the derivatives market

may 1998, CFTC issued a proposal to regulated

derivatives

larry summers have 13 bankers and directing her to

stop

greenspan, rubin and SCC chairman arthur levit,

issued a joint statement condemning bourn in

recommending legislation keep derivatives

unregulated

after leaving the senate, Phil Gramm became the Vice

Chairman of UBS

since 1993, his wife wendy had served in the boared

of enron

larry summers later made 20M USD as a consultant to

a hedge fund that relied heavily on derivatives

dec 2000, congress pass the commodity future

modernization act, it banned the regulation of

derivatives

bush in 2001, the US financial sector was vastly

more profitable, concentrated, and powerful than

ever before

dominating this industry were=

*5 investment banks: goldman sachs, morgan stanley,

lehman brothers, merrill lynch, bear stearns

*2 financial conglomerate: citigroup, JP Morgan

*3 securities insurance companies: AIG, MBIA, AMBAC

*3 rating agencies: moody's, standard & poor's,

fitch

linking them together made a securitization food

chain, w/c connected trillions of dollars on loans,

mortgages with investors all over the world

old way: home buyer pays to lenders and lenders are

very careful because of a decade of paying mortgages

by the home buyers

modern way: lenders gave the home buyers money to

investment banks and these banks will sell it to

investors.

everybody in the securitization food chain didn't

care about the quality of the mortgage, but they

care about maximazing their volume and getting a fee

out of it.

subprime loans

investment banks actually preferred subprime loans,

cause they carried higher interest rates. this led

to a massive increase in predatory lending.

borrowers were needlessly placed in expensive

subprime loans, and any loans were given to people

who could not replay them.

selling the most profitable products

PART 2: THE BUBBLE (2001-2007)

housing - biggest financial bubble

real home price doubled until 2006

SEC conducted no major investigation of the

investment banks during the bubble.

2004 henry paulson, goldman sachs- help lobby the

SEC to relax limits on leverage, allowing the banks

to sharlpy increase their borrowing

on april 28, 2004, the SEC met to consider lifting

leverage limits on the investment banks.

AIG selling huge quantities of derivatives called

credit default swap

AIG issued bonuses to its employees after receiving

contracts from investors and speculators, but if

CDOs went bad, AIG would be in big trouble

jonathan alpert is a therapist whose clients include

many high-level wall street executives

kristin davis ran an elite prostitution ring from

her high rise apartment.it was located a few blocks

from the new yorl stock exchange.

40-50% all wall street executives

goldman sachs sold atleast 3.1B USD worth of these

toxic CDOs in the first half of 2006

henry paulson, the highest paid CEO on wall street

in 2007, allan sloan published an articel about the

CDOs issued during the Paulson's last months as CEO

late 2006, golman made a step further; they didnt

only sell toxic CDOs, it started actively betting

against them at the same time it was telling its

customers that they were high quality investments

goldman sachs started betting at AIG against CDOs,

if it didnt make good, they will still be paid by

AIG

in 2007, goldman sachs made a step even further,

they started selling CDOs specifically designed so

that the more money their customers lost, the more

money the goldman sachs made

Morgan Stanley were sued for fraud. morgan stanley

have amde millions of dollars, but its investors

almost lose all of their money.

goldman sachs, john paulson, and morgan stanley

weren't alone. the hedge funds Tricadia and magnetar

made billions betting against CDOs they had designed

with Merrill Lynch, JP Morgan and Lehman Brothers.

the CDOs were sold to customers as "safe"

investments.

PART 3: THE CRISIS