Inside Job makes allegations that are very widespread, far-reaching, and controversial. To place blame for the 2008 economic crisis on anyone is a very lofty assumption and carries a great deal of weight. Because of the highly controversial subject of this documentary there has been a lot of questioning in regards to the accuracy of the claims made in Inside Job. Many economists have found the views to be slighted and narrow and have found that it is incredibly easy to portray wall street as an evil villain as they are the traditional direction to point blame. A major claim that Inside Job puts forth is that the treasury secretary under Ronald Reagan, George H.W Bush, Bill Clinton, and George W. Bush; Allan Greenspan, was a chief reason that the government started deregulating and giving into banks. Greenspan certainly was a major contributing factor to the entire banking crisis but one can not pin the entire economic disaster on one individual. Additionally, Inside Job takes direct attacks on derivatives and CDO investments saying that they are completely corrupt in nature and have no added value to markets. Derivatives have shown to be important to banks in providing insurance for investments, of course, they must be properly regulated and that was the major downfall of derivatives in the 2008 crisis.
Alan Greenspan is perhaps one of the most controversial figures attributed to the banking crises. Due to his direct involvement in government deregulation of the banks and pressure on others to continue to deregulate, many of his actions have been called into question. Greenspan is a very strong libertarian and follows in the footsteps of Ayn Rand. Following his resignation in 2006, Greenspan has actually shown remorse for his actions and has shouldered some of the blame for the crises himself. In an a testimony to a house committee following the crises, Greenspan apologized and stated the following, “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,”(nytimes.com). Greenspan claimed that he put a great deal of faith into his own ideologies and thus disregarded the advice of others. Following more pressing from the primarily democratic house committee Greenspan further conceded that he found a flaw in his ideologies and commented, “I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”(nytimes.com). Following his time in office, Greenspan has spoken on multiple occasions on introducing further restrictions, particular on CDOs and credit default swaps. Whether Greenspan could see the crisis coming and was succumbing to outside pressures like Merrill Lynch, AIG, and Citigroup still remains a question. No doubt, the fact the Greenspan deliberately ignored the advice of others is incredibly concerning and raises many questions that will probably never be answered. One can only hope that other economists have seen the flaws in Greenspan's decisions and keep them in mind with future market regulation.
Inside Job portrays derivatives in a particularly negative light. Derivatives allow investors to bank on pretty much anything and invest in any interest. It is a very high risk environment, and because the banks placed a great deal into derivatives, there were incredible losses when the derivatives fell through. Inside Job plays derivatives into the ground. But studies have actually shown derivatives to be beneficial in multiple shapes in forms (sify.com). It is because of this, that derivatives simply require more regulation to be effective and beneficial. Derivatives are often used as a form of insurance for businesses (businessinsider.com). For example, an airliner might invest in the fuel derivative to earn money in times of rising gas prices(and thus increased cost for their product.). Regulation in other nations has proven to be effective. Inside Job fails to address that derivatives, although highly volatile, have their benefits. The film exposes the failures of the SEC to properly impose any restrictions on derivatives, but goes further to the extent of making it seem like derivatives should be entirely eliminated. It is important to understand that derivatives now are planted in modern economies, and are essential to its proper function.
Although controversial and flawed in some respects, Inside Job, does a proper job of bringing those who are responsible for the crises into the limelight and exposing the underlying flaws of worldwide economies predating the crises. It is certainly a cautionary tale. With Greenspan himself admitting his ideological flaws, it will be essential that those who believe in deregulation attempt to find a better balance between giving leniency to markets and tightening them up. Whatever economy it may be, humans are inherently greedy and will look for shortcuts. It may seem restrictive on the surface, but regulation is essential to proper functioning of markets and preventing major crises. One cannot also single out derivatives as a major cause of the crisis. For certain, a lack of regulation and rules on derivatives was a contributing factor to the recession, not the derivatives themselves. Hopefully, it has become apparent that regulation in the world of derivatives is important. As humans, mistakes are made often. These mistakes were tremendous in their scale and some of them were infuriating. The only way to make up for those mistakes is to learn from them and create a stable economy for our future. Otherwise, we may be entering into a never ending cycle of "boom and bust", something evident in our government dating back to the 1920s before the depression.
Sources:
http://www.huffingtonpost.com/michael-shermer/inside-job-or-internal-gr_b_790523.html
http://www.sify.com/finance/special-report-in-derivatives-trade-rip-otc-news-equity-lc2o4lgcdcd.html
http://www.businessinsider.com/is-inside-job-accurate-2011-2?op=1
http://www.forbes.com/sites/greatspeculations/2011/04/01/inside-job-reveals-true-crime/
http://www.nytimes.com/2008/10/24/business/economy/24panel.html?_r=0
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