The Inside Job – How Financial Experts Ruined Our Economy

After watching the eye opening documentary “Inside Job” about the role of Wall Street in the fall of the economy to the terrible financial crisis of 2008, one must say that looking at it and understanding the financial terms used gives the audience a lot to think about. However, to be able to judge this documentary clearly, the audience must leave their emotions behind because the producers only showcase one side of the story.

The producers do their best to make the complicated financial terms understandable for everyone, and to narrow the documentary down, I will focus on the terms “Revolving doors”, “Executive Compensation”,  “The Ponzi Scheme”, and the ethics in the financial world in general.

The Revolving doors concept is a very interesting concept, at first one may think that it is a hotel door or an executive office building door. Well, it is basically that door but imagine that on the two sides there is the financial private market on one side and the government on another. What this is meant to say is that the high profile people in the financial market and specifically wallstreet end up making an exit being a regulator of the financial market for the government and vice versa.

The argument here is that there is high quality of information being transmitted from one side to another to ensure the quality of the market. However, I believe that this is a total scam because there are a lot of loop holes here that have to be put into question. People with a shady past in the financial market should not take high positions in the government, because the government is not a private-for-profit organization.

Instead, governments ought to be aimed to look after its people, but what happens when someone comes and leads the Finance Ministry when they were a CEO of Goldman Sachs for example, they would make regulations according to their friends needs that are still out there on Wall Street… and thereby paving the way for themselves when they enter another revolving door back to the private financial world.  

To strengthen the argument presented above, the documentary talks about “Executive Compensation” which according to the Center of Executive Compensation is:

“a broad term for the financial compensation awarded to a firm’s executives. Executive Compensation packages are designed by a company’s Board of Directors, typically by the Compensation Committee consisting of independent directors, with the purpose of incentivizing the executive team, who have a significant impact on company strategy, decision-making, and value creation”

A broad term is how it is described and that is exactly how it was used and is still being used. While the purpose is for motivating the team to make more profit, it was used to give bonuses and shares or stock from the company to CEO’s that were leaving the company. So, How is that justified as motivating a team?

I believe that these companies in recent years have created high risk businesses with investors money (this could mean anyone, from lower class citizens to the elite) and when the businesses fail they justify things with making the CEO’s resign. But they take with them hundreds of millions of dollars, whether in cash or in stock, and sometimes they don’t even have to pay taxes on these bonuses. Probably because of the regulations put due to the Revolving Doors theory.

Lastly, the Ponzi Scheme is a strategy that was firstly applied by Charles Ponzi in the 1920’s when he convinced people to invest in stamps and he offered them a 50% returns in 90 days. He couldn’t deliver the promise and started paying the early investors from new investments and not from actual profits. This type of fraud is still happening on a very big scale, where these companies invest people’s money high risk projects, then they fail and cannot deliver return on investments.

It is quite unbelievable how the scheme is not strictly regulated and punished, because companies invest hundreds of millions into failing projects that some even know they will fail. All the mentioned above happened because of the deregulation of the financial market in the United States and other capitalist systems where the financial market is basically completely privatized including the governmental side.

In conclusion and from the points presented above, it is important to note out that the problems in the financial markets are far more complicated because the economic recession is the work of many year in fraud and bad financial ethics.

To improve this situation, the quality of the market and the safety of people’s investments, the government should not allow the private sector to interfere and take leading roles in the government because they will only serve their benefit and while it is easy to say that the government should regulate the financial market more, it has to be noted that major companies will run away and they do generate a lot of money in the economy. Therefore, the government should set up regular meetings with these enterprises to make the economy move forward and at the same time protect its people from fraudulent behaviours that make them lose the money they earned with sweat and tears.

Almustafa Mahmoud

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