Activity Base Costing

Roberson

Case Study: Inside Job

The movie Inside Job was an interesting and thought provoking movie on the economic crisis of 2008. It did a great job of tying together the cause and effect of actions taken by those involved in the crisis. Over the next several paragraphs I will explain how the positive intentions of financial innovation and regulation often lead to less desirable unintended consequences. I will also explain how the financial crisis of 2008 occurred and who and where should the blame be placed.

In financial markets there will always be a desire to seek more and larger profit margins. Financial innovation that finds new ways to generate funding is the path to those profit margins and also funding to clients that might not otherwise be available. With great intentions there are often unintended consequences generated. Some unintended consequences pointed out in the movie were; lost of personal contact with local banker; local banks not taking responsibility for loans, the interconnections of financial markets (commercial banks, investment banks, insurance firms). The most critical consequence is the political influence financial institutions have over the government.

Another area in which unintended consequences impact financial markets is regulations. Inspection and oversight of any industry has its’ place, in fact history has proven that businesses without some form of regulation will find themselves making poor judgments leading to legal and potentially financial disaster. Too restrictive regulations lead to cumbersome guidelines slowing down funding applications. The regulations are not timely in a fast moving world market place and they tend to discourage potential investors. A major unintended consequence occurred when the Security Exchange Commission (SEC), gave big rating agencies a regulatory role. They defined risk which they were supposed to