The Crimes behind the financial crisis of 2008

We are all aware now about the financial crisis of 2008 that shocked the (financial) world. Some among us, luckily, know about it only from the news. However for millions of people, especially those in the States, it hit uncomfortably close to home. Pun intended.

The effects of the crisis and the credit crunch that followed is still palpable, 8 years on. The immoral and blatantly criminal activities of the “wolves of Wall Street” that almost brought down the world’s financial system in the worst recession since the infamous Wall Street Crash on “Black Tuesday” of 1929. However, the main perpetrators of the “2008 version” were not prosecuted in the most part. The ones that caused the crash received millions of dollars in bonuses, the so called “golden parachutes” instead of being sent to jail for their crimes.

Estimates of the costs and consequences of the crash in 2008 range from a conservative $14 trillion up to whopping $22 trillion in the US alone with some 8 million people losing jobs stateside. In the 2007 – 2011 period 9 million people in the US lost their homes to foreclosures.

Chilling figures to say the least.

Yet despite all the news coverage in the aftermath of the crisis, it is difficult for the average person to grasp the consequences of the crash, let alone the meaning of the terms like “housing bubble”, “toxic CDO’s”, “subprime loans”, “hedge funds”, “derivatives”, “shorting” and so on – the activities and instruments that caused the crisis.

So how to go about and achieve a desirable level of understanding of it for us that are financial and economic laymen? One way is to bury oneself in books, articles and scientific papers. Economic - crisis of 2008The literature is, however, far too often littered with special lingo, formulas and concepts that make it a dull if not undecipherable read.
A notable exception is “Economix” a graphic novel by Michael Goodwin that gives the whole story of the economy, from the rise of capitalism to Occupy Wall Street. Certainly a recommended literature for all curious critical thinkers out there.

For those who do not consider themselves “bookworms” there are some great celluloid works, often book adaptations, that help understand the fraudulent schemes of Wall Street happy-go-lucky egomaniacs a-la Jordan Belfort, Stephen A. Cohen, Mathew Martoma, Richard Fuld, Ken Lewis, James Cayne and John Thain, just to name a few.

It will also, hopefully, help you understand the role of Alan Greenspan, Larry Summers, Robert Rubin, Henry Paulson and Tim Geithner – key players in the upper echelons of the government – equally responsible for the crash as they firmly opposed and prevented regulation and oversight of the markets.

Below you can find a list of movies and documentaries that are my favorites on the subject.

 

  • Boiler Room

A crime drama released in 2000, the film is based on interviews the writer conducted with numerous brokers over a two-year period, and is inspired by the firm Stratton Oakmont and the life of Jordan Belfort who will later be depicted by Leonardo Di Caprio in Martin Scorsese’s 2013 film “The Wolf of Wall Street”.

The Boiler room is a riveting expose of one of the biggest and most lucrative scams in American history — and a dramatic look at a generation obsessed with the speed of wealth and success.

 

  • Enron: Smartest Guys in the Room

2005 American documentary film based on the best-selling 2003 book of the same name by Fortune reporters Bethany McLean and Peter Elkind, a study of one of the largest business scandals in American history –  the 2001 collapse of the Enron Corporation, which resulted in criminal trials for several of the company’s top executives of which most prominent ones are Kenneth Lay and Jeffrey Skilling.

Because of the market manipulations caused by insider trading and shutdowns of pipelines the State of California had a shortage of electricity supply in 2000 – 2001 period. Energy traders took power plants offline for maintenance in days of peak demand and then selling the power at premium prices, sometimes up to a factor of 20 times its normal value.

 

  • Inside Job

2010 documentary film, directed by Charles H. Ferguson, about the late-2000s financial crisis. Ferguson says the film is about “the systemic corruption of the United States by the financial services industry and the consequences of that systemic corruption.” Inside Job is the first film to expose the shocking truth behind the economic crisis of 2008. Through extensive research and interviews with major financial insiders, politicians and journalists, Inside Job traces the rise of fraudulent practices of financial trading in hand with corrupted politicians and deregulation of the markets.

 

  • To Catch a Trader

2014 PBS Frontline documentary on the US government’s ongoing, seven-year crackdown on insider trading. The documentary centers on hedge fund titan Steven A. Cohen and the company that he founded – SAC Capital Advisors. In 2013 several former employees were indicted by the U.S. Department of Justice and the firm itself pled guilty to insider trading charges and paid $1.2 billion in penalties.

The documentary depicts the investigation, featuring interviews with both Wall Street and Justice Department insiders.

crisis of 2008 - FinancialsEqually interesting is 2009 Frontline documentary “The Warning” which focuses on Brooksley Born and her failed campaign to regulate the secretive, multitrillion-dollar derivatives market because of the opposition of the most powerful trio in the financial world – Alan Greenspan, Robert Rubin and Larry Summers.

 

  • The Big Short

2015 movie based on Michael Lewis’ best-seller The Big Short: Inside the Doomsday Machine, which centers on the housing a credit bubble of the 2000s. Although the movie has a star cast (Christian Bale, Ryan Grosling, Brad Pitt, among others), at best it paints an incomplete picture of the mortgage bubble/crisis. According to Greg Ip of The Wall Street Journal, the movie puts too much of the blame on Wall Street corruption, while failing to examine the less severe but more compelling causes for the bubble. While choosing to merely criminalize the bankers, it oversimplifies what actually happened. The movie also never answers the question as to how the mortgage bubble formed.

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