Investing Outside of Wall Street – “Inside Job” by Charles Ferguson

For those who remain interested in gaining a better understanding of what led to the market crash of 2008, which destroyed the financial future of millions of people around the world, the 2010 film, “Inside Job,” is a must-watch. I would not be surprised if the creator of the 2015 film, “The Big Short” by Michael Lewis, relied heavily on it.

Most of us would probably agree that collateralized-debt obligations (CDOs), which became the vehicle for refinancing mortgage-backed securities since 2002, are the culprit that eventually brought about the market collapse in 2008.

What was striking about “Inside Job” is a list of those who declined to be interviewed by the filmmaker. Most of us would also agree that humans are imperfect beings. If those key players, listed below, had thought through their actions, did their best to protect the public and, therefore, had nothing to hide, why would they be averse to explaining themselves on camera? Each of them made millions (some of them, hundreds of millions of dollars) thanks to deregulation (repeal of the Glass-Steagall Act of 1933), from which they all benefited at the expense of unsuspecting clients/public.

• Secretary, U.S. Treasury:
  1. Robert Rubin
  2. Larry Summers
  3. Henry Paulson
  4. Tim Geithner
• Chair, the Federal Reserve of the United States:
  1. Alan Greenspan
  2. Ben Bernanke
• Chair, the US President’s Council of Economic Advisers during the Clinton Administration:
  1. Laura Tyson
• Credit-Rating Agency Presidents:
  1. Deven Sharma, Standard & Poor’s
  2. Raymond McDaniel, Moody’s Corporation
  3. Stephen Joynt, Fitch Ratings
• University Presidents
  1. Drew Gilpin Faust, Harvard
  2. Lee C. Bollinger, Columbia

According to “Inside Job:”

• Before the banking-industry deregulation, approved by Congress, banks were not allowed to bet depositors’ money on investments. As a result of deregulation, retirement-account holders lost much, if not all, of their life savings.
• After people lost billions of dollars, the credit-rating agencies – Moody’s, S&P, Fitch – all testified in Congress that their ratings were “opinions” and should be considered as such. Customers “trusted” that the AAA rating meant low risk when, in fact, the ratings did not represent at all what they appeared to represent.
  • My notes:
    • One of the scenes I clearly remember from “The Big Short” is where a rating-agency manager is being asked about the AAA rating for these risky investments. She said something along the lines of “We get paid by these banks. What do you expect us to do?”
    • These rating agencies made billions of dollars by rating these risky instruments AAA. Amazing, isn’t it? Doesn’t this make you wonder how these agencies have been able to remain in business when their ratings are deemed worthless to you and me? Clearly, they are providing some useful services to somebody. The question is, “Whom?”
  • Major investment banks sold CDOs to unsuspecting customers (e.g., pension funds) as safe investments while, simultaneously, making money betting against them.
  • Those who were responsible for the financial industry’s stealing of our retirement money never went to jail.
    • It is nothing short of criminal that they could get away with such audacious evasion of responsibility, isn’t it?

The bottom line

• I do not have issues with those who work hard to attain wealth – to remain financially independent. In fact, that is exactly what I have been aspiring to do myself since the market crash of 2000.
  • I do have a problem, however, with those who rise to positions of power and retain their enormous wealth that had been acquired – at the expense of unsuspecting others – in an unconscionably unfair manner because of their political connections.
  • Typically, these people have no interest in teaching financial literacy to the masses, either. Have you ever wondered why schools never teach you “how to invest” your money?
• Few, if any, individuals – even those on Wall Street or Congress – have a full grasp of today’s financial system.
  • Given busy lives that we all lead, many of us would like to ride the coattails of those who, we believe, know something we do not.
  • Having gone through the market crashes of both 2000 and 2008, here is the lesson I learned:
    • When we invest in instruments that we do not fully understand, we are playing with fire.
    • Are you having a “duh” moment, yet?
    • Above all else, know that there is no one that cares about your financial future better than yourself.
  • The sooner you start educating yourself, the better – on an investment vehicle of your choice.
    • First, learn the basics.
    • Second, as soon as you know enough, invest a small amount to learn the effects of your investment with your own money. When your money is on the line, you will learn quickly what you do need to know – to protect your hard-earned money.
    • Third, as you gain a better understanding, gradually invest an increasing amount.
    • Lastly, always be willing to learn at every stage of becoming a full-fledged investor.

Happy investing!