Question

Your assignment is to summarize the film Inside Job in your own words.

Some questions that you might consider addressing in your short paper include, but are not limited to:

What factors caused the real estate bubble? What was the role of the bubble in the economic crisis?

To what extent is the crisis attributable to deregulation?

Do you think that compensation is/was a factor in the crisis?

What about the professors interviewed in Inside Job? Consider specifically the dean of the Columbia Business School (Glenn Hubbard) and the Columbia Economics professor (Frederick Mishkin) and the interviews regarding their compensation for writing “research” articles. Should business schools encourage externally funded research?

What is the relationship between ethical behavior and legal behavior? Goldman Sachs appears to take the position publicly that there was nothing wrong with taking short positions against the securities it sold to clients, partly because those positions were not substantial and partly because their clients should be presumed to be sophisticated in financial matters. Do you agree with this view?

Are our economic problems limited to the financial industry? That is, if we “fixed” the financial system, would we be out of the woods?

To what extent are our economic problems attributable to our political system?

Are you optimistic or pessimistic about our economy over the next 12 months? 2 years? Longer?

What do you think are the most important steps to take to address our economic problems?

Etc.

Answer 1

The following factors that caused housing bubble burst are mortgage underwriters, investment banks, rating agencies, investors ,low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance.

• The main factor that contributed to the housing bubble burst was increase in mortgage loans that were offered to borrowers with poor credit ratings.
• The high volume of home equity loans that were given to homeowners when the value of their property increased. Once the housing prices dropped, these homeowners were left owing more in equity debt than their property was worth.

So, the role of bubble in the economic crisis is that the interest rates began to increase and unemployment rates also started to rise, many homeowners were unable to pay their mortgages. So,banks were less motvated to hold large amounts of property-based debt.