Watched the documentary "Inside Job" last night...

[papa_squat]

... and I was blown away by how irresponsible many of these bankers and economists could be and get away without so much as a slap on the wrist!

If nobody minds, I'll post the official page here:

Inside Job - Movie Website for the Documentary Film

I'm not terribly savvy about much of the technical aspects explained in this film. The whole explanation about CDOs is a bit over my head. Anyone care to explain this about this a little further? From my perspective, it appears that these CDO were debts that were being traded like assets, which just seems absolutely stupid to me, very much like counting your chickens before they've hatched.

For those of you who have seen the film, what did you think? Is there a strong bias you could identify? How credible did you find the people interviewed? More importantly, do you think the documentary explained the housing bubble and the crisis accurately?

[Nightfly]

I didn't see "Inside Job", but CNBC's "House of Cards" gets into some of the same subject matter at a pretty understandable level. Why haven't any of these folks been called to account? Who knows? If anything, many of the perpetrators of the housing crisis scored millions of dollars for their mismanagement. Franklin Raines and others involved with Fannie Mae come to mind.

[photo]

Originally Posted by papa_squat

I'm not terribly savvy about much of the technical aspects explained in this film. The whole explanation about CDOs is a bit over my head. Anyone care to explain this about this a little further? From my perspective, it appears that these CDO were debts that were being traded like assets, which just seems absolutely stupid to me, very much like counting your chickens before they've hatched.

Oddly enough, I watched it (Netflix DVD) just the other night, possibly even the same night as you.

As I understand it, a CDO is simply a package of debts (mortgage). Out of all the debts, it's inevitable that some will not be good, but the buyer is betting that the majority will cover the losses of the few that are bad. However, and I believe this is why the government is suing the banks -- the banks knew that many of the debts were bad, and they packaged them up and sold them as higher grade debt. The buyer of the debt was not aware of the large number of highly questionable loans contained within that CDO. Therefore, the banks, on one hand, are telling prospective buyers that the package is a great one, but at same time, know that the package is a very bad buy. In fact, in the film, I believe one guy was put on the spot because he had said to one person what a great buy something was while in an e-mail, was exclaiming what a "piece of sheet" the investment was.

For those of you who have seen the film, what did you think? Is there a strong bias you could identify?

Yes, there was one important fact that they failed to mention. The government, in order to make this a more egalitarian society, said that people with lower incomes were being discriminated against because of their incomes and therefore could not buy houses. When you're talking about financial matters and the discrimination is based on finances, that's only logical. Most, if not all of us reading this, will be discriminated against if we seek loans for a billion dollars. The reason is obvious. But the government, in its infinite wisdom, decided that poorer people deserved to buy houses as well, so they mandated that Fannie Mae and Freddie Mac sell more sub-prime loans. This all began in the Clinton administration with Barney Frank being one of the instigators of encouraging these loans. Of course, nothing at all was mentioned in the film about this -- only the banks' roles.

I'll be the first to admit that I don't understand the entire mess, and it is complicated. However, the film, although helping explain what happened, omitted a few important facts. The banks were greedy, no doubt. However, with government mandates and consumer groups putting pressure on the banks for loaning to more people, there's plenty of blame to go around.

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Originally Posted by Nightfly

Why haven't any of these folks been called to account?

It's a vicious cycle. Like it or not, a person running for Congress needs money. Corporations and companies have money. So, to build and sustain their campaign finances, people running for Congress receive much of their money from these businesses. And, of course, the price is not cheap. So, the Congressman or woman sells his soul to these businesses, who continue to finances the campaigns, and the member of Congress, once elected, votes to protect those businesses. We don't bite the hand that feeds us.

And in the case of CEOs who are imbeciles and still keep getting the multi-million dollar bonuses -- friends. It's hard to reprimand someone you've known for years, even if he's incompetent. Also, how is it going to look if a board of directors has no confidence in their CEO and doesn't pay him well? They'll look like the idiots (that they really are) for hiring him in the first place.

You kiss my behind, and I'll kiss yours: page one in the standard operating procedure of both business and government.

I think we should go after the individuals like Barney Frank, whose heart may be in the right place but whose head is on sideways, and CEOs and other executives who absolutely knew that they were screwing others with the decisions they made or allowed to be made.

[Nightfly]

And in the case of CEOs who are imbeciles and still keep getting the multi-million dollar bonuses -- friends. It's hard to reprimand someone you've known for years, even if he's incompetent. Also, how is it going to look if a board of directors has no confidence in their CEO and doesn't pay him well? They'll look like the idiots (that they really are) for hiring him in the first place.

You kiss my behind, and I'll kiss yours: page one in the standard operating procedure of both business and government.

I think we should go after the individuals like Barney Frank, whose heart may be in the right place but whose head is on sideways, and CEOs and other executives who absolutely knew that they were screwing others with the decisions they made or allowed to be made.

So true - which is why some mechanism needs to be put in place to make sure that boards of directors and CEOs are somehow called to account by shareholders (something with more teeth than one vote per each share) but that seems a distant reality.

Frank and Chris Dodd (and many others in the political arena) take some of the blame for the entire fiasco. One way to fix it, in my view, is to get government COMPLETELY out of the real estate game. No Fannies, Freddies, HUD, etc. Make it a true market-based supply and demand market. Alas...