Inside Job Movie Analysis

INSIDE JOB, DOCUMENTARY
1. Two pages summary of the movie.
The movie is divided into five parts. The first part (How we got here): the movie explains how the economy used to be after the great depression. At first the financial industry was highly regulated. Banks were prohibited from speculating in depositors’ savings and investment banks were small and private partnerships hence, this structure reduced the risky activities. However, the Reagan administration started a 30 years period of financial deregulations which created the savings and loan crisis. In the 1990s the financial system had consolidated into few gigantic firms each of them is so large that their failure can threaten the whole system. In 1999 Citicorp and Travellers merged
The series of deregulations that started in 1990s till the 2008 and altered the financial market have played major role in causing the financial crisis. For example, in 1998 Citicorp and Travelers merged to form Citigroup. This merger violated the Glass-Steagall Act which prevents banks with consumer deposits from engaging in risky investment banking activities but the Federal Reserve allowed it. In addition, the Congress passed the Gramm-Leach-Bliley Act which overturn the Glass-Steagall Act and cleared the way for future mergers. Moreover, the Commodity Futures Trading Commission (CFTC) issued a proposal to regulate the derivatives market in 1998. However, the treasury department and Federal Reserve had issued a statement condemning the CFTC proposal and recommending keeping derivatives unregulated. Federal Reserve Chairman Greenspan had also refused to use the Home Ownership and Equity Protection Act which regulates the mortgages industry which led to the increase of subprime loans. All the above unregulated factors were the major issues that started the financial
Why Islamic banks were not affected in the beginning of the crisis, but started to suffer at later stages? Explain.
A study was done on 2010 analysing the performance of Islamic banks compared to the conventional banks. The key factors that were used to assess the performance of the Islamic and conventional banks are the changes in profitability, bank lending, bank assets, and external bank ratings.
Prior to the crisis, Islamic banks performance and profitability were higher than conventional banks in terms of average returns on assets and equity. That continued to be true during the initial effect of the crisis. In 2007-2008 both Islamic and conventional banks suffered a decline in profitability; however, Islamic banks profitability decreased approximately 10% only compared to 30% decline in profitability in conventional banks.
The report argued that Islamic banks enjoyed a higher average return on assets and equity prior to the crisis which will lead to a significant decline in profitability only if this high profitability was a result of greater risk taking.
However, as the impact of the crisis moved to the real economy at later stages, Islamic banks started to suffer a huge decline in profitability compared to the conventional