title Inside Job.pptx its global crises or fraud

KEY SPEAKERS:
 Dominque Strauss Khan
 George Soros
 Eliot Spitzer
 Fed Mishkin
 Paul Volcker
 Charles Morris
 Nouriel Roubni
 Ben Bernake
 Satyajit Das
 Robert Gnaizda

The story unfolds in Iceland with the Internationalization of 3 large
banks of Iceland.
 GDP of US $13 billion
 Banking losses running into US $100 billion dollars.
This was the starting point of recession.
The Global economic crisis of 2008 costs
Tens of millions their savings, their jobs & their homes.
KEY CAUSE: Sub Prime Lending for buying houses.

 1929 Great depression, banking industry was tightly regulated.
 During the late 90's deregulation and advancement of technology led to the
explosive growth of complex financial products called derivatives.
 In 1998, Citicorp and travellers merged (world's largest financial services firm).
 In 1999 Gramm- Leach - Bliley Act overturned the Glass Stegal Act which
protected the investors’ money from risky investments.
 Investment banks (supervision SEC & commodity futures trading commission)
 Trillions of dollars of mortgages were sold by lenders to the investment banks
which in turn created CDO's (Collateralized Debt Obligation) and sold it to the
investors. These mortgages mostly composed of subprime loans, but CDO's were
given the highest rating (AAA) by the rating agencies such as S&P, Fitch &
Moody's. It was rated on par with Govt. Securities. Pension Funds were also
invested in the CDO's. Investors bought CDS (Credit Default Swaps) to insure
themselves against the failure of CDO's. Even speculators could buy CDS to
HOW WE GOT HERE?

REASONS FOR THE CRISIS
1) The housing bubble
2) Poor creditworthiness of borrowers
3) Home loan borrowers unable to pay the Equated monthly installment (EMI's) due to
rising interest rates.
4) High leverage ratios of investment banks.
5) Speculation and betting in the derivatives market in the derivatives market
6) Collapse of major global banks in US & Iceland
7) Greediness & unethical practices of Investment Banks, Credit rating Agencies,
Auditing Firms, Financial services firms, CEOs, CFOs, stock market traders, brokers
, subprime lenders & Insurance Companies.
8) SEC (securities Exchange Commission failed in discharging its duty
9) MAJOR AFFECTED COMPANIES:
 investment banks: Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch & Bears
Stearn's
 financial conglomerates: Citigroup & JP Morgan
 Credit Rating Agencies: Moody's, Standard & Poor's and Fitch.
 Securities Insurance: AIG, MBIA and AMBAC

US $100 billion dollars were lended as subprime loans (high interest rates),
led to massive increase in predatory lending
99.3% of the house price were given as loans to the borrowers (high
foreclosures)
During 2003 - 2008, traders and CEO's became enormously wealthy.
During bubble, investment banks borrowed heavily to buy more loans &
create more CDOs.
On April 28, 2004 SEC lifted leverage limits on the investment banks.
In Raghuram . G . Rajan, former Chief Economist (IMF) published the
paper titled “Has financial improvements made the world riskier.
 Goldman Sachs sold more than US $3 billion dollars of toxic assets to the investors. They also bet
on these toxic assets by buying CDS from AIG, by this way they were actually piling risks onto the
AIG's books. Predicting the collapse of AIG itself, they spent US $150 million dollars in protecting
their CDS against the potential collapse of AIG. The logic was that if their investors lost more
money, Goldman Sachs would gain more profits. Morgan Stanley was betting that their entire
investments would fail.

1.As the links passed on from one stage to another, the magnitude
of risk in the chain grew exponentially.
2.In September 2008, Lehman Brothers was taken over by Bank of
America.
3.On September 16(2008) 5000 people belonging to the London
office of Lehman Brothers lost their jobs.
4.Also the Commercial Paper Markets collapsed. They are used
by companies for operating expenses such as payroll.
5.Foreclosures rose to 6 million by the year 2010
6.People in US started living in tents.

1.PART IV: ACCOUNTABILITY Most of the people and institutions
involved in the crisis went Scot free. SEC, CFTC & Federal Reserve Board
which were in charge of regulating the investment banks and other associated
institutions failed in their duties.
2.Top executives of the insolvent companies walked away with their private
properties intact.
3.For most of the period from 1990 - 2010, Academicians played a key role
in shaping the financial regulatory policies and banking practices. Some
people had conflict of interest due to their presence as consultant in
investment banks.

1. Tens of thousands of US workers lost their jobs.
2. European Union imposed stricter banking regulations. Most of the
investment banks had to pay penalties running into millions of dollars.
3. Merrill Lynch and Countrywide Financial Corp gets eventually taken
over by Bank of America.
4. Financial Institutions – Write-Downs
 Citigroup (USA) - $24.1 bln
 Merrill Lynch (USA) - $22.5 bln
 UBS AG (Switzerland) - $16.7 bln
 Morgan Stanley (USA) - $10.3
 Credit Agricole (France) - $4.8 bln
 HSBC (United Kingdom) - $3.4 bln
 Bank of America (USA) - $5.28 bln
PART-V WHERE ARE WE NOW? (note: year 2010)

Government bailed out the troubled firms by doling
out a package of around US $800 billion dollars. This
was done through TRAP (Troubled Assets Relief
Program).

Investors lost confidence in the stock market
Consumer spending slowed down due to lack of cash/ unwillingness
 World and U.S.A’s economic slipped into recession
Exports decreased.
Global Impacts of the Crisis

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