Inside Job Transcript - Final Version - 9.30.10 - Sony Pictures Classics
Inside Job Transcript - Final Version - 9.30.10 - Sony Pictures Classics
Inside Job Transcript - Final Version - 9.30.10 - Sony Pictures Classics
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<strong>Inside</strong> <strong>Job</strong> transcript – <strong>Sony</strong> <strong>Pictures</strong> – September 2010 23<br />
And linking them all together was the securitization food chain, a new system which<br />
connected trillions of dollars in mortgages and other loans with investors all over the<br />
world.<br />
01:27:34.12<br />
REP. BARNEY FRANK: Thirty years ago, if you went to get a loan for a home, the<br />
person lending you the money expected you to pay him or her back. You got a loan<br />
from a lender who wanted you to pay him back. We've since developed securitization,<br />
whereby the people who make the loan are no longer at risk if there is a failure to repay.<br />
01:27:51.21<br />
NARRATOR: In the old system, when a homeowner paid their mortgage every month,<br />
the money went to their local lender. And since mortgages took decades to repay,<br />
lenders were careful.<br />
In the new system, lenders sold the mortgages to investment banks. The investment<br />
banks combined thousands of mortgages and other loans — including car loans, student<br />
loans, and credit-card debt — to create complex derivatives, called collateralized debt<br />
obligations, or CDOs. The investment banks then sold the CDOs to investors.<br />
Now, when homeowners paid their mortgages, the money went to investors all over the<br />
world.<br />
01:28:33.11 The investment banks paid rating agencies to evaluate the CDOs, and<br />
many of them were given a AAA rating, which is the highest possible investment grade.<br />
This made CDOs popular with retirement funds, which could only purchase highly rated<br />
securities.<br />
01:28:50.05 This system was a ticking time bomb. Lenders didn't care anymore about<br />
whether a borrower could repay, so they started making riskier loans. The investment<br />
banks didn't care, either; the more CDOs they sold, the higher their profits. And the<br />
rating agencies, which were paid by the investment banks, had no liability if their ratings<br />
of CDOs proved wrong.<br />
01:29:17.11<br />
{GILLIAN TETT<br />
U.S. MANAGING EDITOR<br />
THE FINANCIAL TIMES}<br />
GILLIAN TETT: You weren't gonna be on the hook; and there weren't regulatory<br />
constraints. Um, so it was a green light to just pump out more and more and more<br />
loans.