An Analysis of the Movie Inside Job, Documentary - What Led to the Crisis - Admission/Application Essay Example

An Analysis of the Movie “Inside Job, Documentary” 1.1. The main philosophy behind economic policy before the crisis The conceptual and philosophical behind the prohibition of Reba (interest) and Gharar can be derived through the shortest process of discursive interpretation of the Quran. Riba is a form Gharar, and it opens the door for speculation, ruthless greed and social decay (Boakes p 123). Both Reba a Gharar can result in social harm in the form of inflation, volatility, environmental degradation and economic instability. The years that preceded the crisis had laws that tightly regulated the financial sector. The film is trying to analyze the reasons which were behind the Financial Crisis of 2008. It is mainly concentrating on the major de-regulations actions which have been taken by the State since 1980 and binding those de-regulations to the people who were mainly behind them from the economic and the political sector. It is showing that the Crisis was not an over-night event, and it was by no mean a surprise. It is claiming that it was some sort of an organized crime which pushed the American Financial industry a few steps further and shaped it more concentrated and more powerful than ever before and the bill for that all was put on the account of the ordinary tax payers and investors from all over the world. The most important weaknesses in the market economy that expose it to crises, One of the weaknesses that may lead to an economic crisis is when there are product quality deficiencies. This only means that the products being offered in the market are not secure and have great deficiencies in them. Most times the investors or customers to buy these products have been made to believe otherwise or are simply ignorant to the deficiencies. The second major weakness is the lack of superior financial controls which is mainly lack of regulation. Loose regulations in the economic sector lead to massive fraud, which later has very grievous effects on the economy. 1.1. Which weakness allowed for the start of the crisis, The greatest weaknesses that lead to crisis in the 1980 were mainly because of deregulation. The first step was when the savings and loan system was deregulated, and the banks were at liberty to gamble with depositors’ money as they so wished. The complex trading systems that came up circumvented older regulations which controlled systematic risk, and now the market allowed for large increases in risk taking. This was mainly because of the financial abuses that had earlier on led to the Great Depression, which was the first time the economy had gone into recession in the U.S.A. 1.1. Whether the policies to remedy the situation helped to clear or to complicate the crisis, U.S congress introduced laws which were used to control the financial crisis, the establishments of independent consumers within the Federal Reserve to protect the borrowers against abuse of public funds played a crucial role in ending the crisis. The laws that were put in place limits on financial risk taking, and required disclosure of a lot of financial information. Since the financing, one counter value is certain, the interest on the loan counter value is uncertain, the yield from investing the loan by the creditors is in fact an extreme case. Ridha saadallah states that, the reason behind the banning of interest is to forecast injustice, since the amount is increasing in the return of the time term. 1.1. In the aftermath, is the market economy now immune to crises? After the enactment of laws by the congress which led to the of the financial crisis, the laws were enacted in a way that they would prevent future economic crisis. Meanwhile, the Republicans argued the bill creates a more intrusive government, and it fails to prevent the future of ballots which would cause another financial crisis. 2. Islamic economics prohibit Reba, Gharar and risk trading. Have any of those elements contributed to the crisis? The securitization chain created by the American system is based on Riba, Gharar and risk management (Boakes p 276). The conceptual and philosophical behind the prohibition of Riba (interest) and Gharar can be derived through the shortest process of discursive interpretation of the Quran. Reba is a form Gharar, and it opens the door for speculation, ruthless greed and social decay. Both Reba a Gharar can result in social harm in the form of inflation, volatility, environmental degradation and economic instability. They are prohibited under the sharia as their harm outweighs the benefits; however, Gharar can be allowed in some instances where its benefits outweigh the harm. According to the movie, crises are not caused by the financial methods, which are being used. They were caused by the de-regulations processes, which were carried out by certain people in power, and economic sector, which led to excessive manufacture of CDO’s, which were very risky, and lack of regulation of the new market practices depending on the technology, which emerged in the 1990’s. The justification for the prohibition of interest among the Muslims as shown in the movie the framework highlights how risk rewarding sharing would be more conductive to the realization of equity and the promotion of enterprenuership. 3. Was the crisis due to transient factors or is systemic, i.e., due to structural weaknesses in the system? The financial crisis, which was witnessed, was linked to easy credit, speculation, fraud, corruption and fraud. Easy credit can lead to adequate market discipline, which in turn instigates imprudent and excessive lending. It is difficult to single out which factors were the main source of the financial crisis one might argue that the main cause of the financial crisis and is contributing to a laxity of lending higher returns, and have been facilitated by the absence of sufficient and the appropriate government regulatory control (Lewis p 28). There is no doubt; Reba and Gharar are the major factors leading to the current Islamic financial crisis. Prohibition of Reba and Gharar along with other moral and Islamic values, and be recognizing others interests in one economic affluence, if they are adhered to, the economic crisis would not have occurred. Keeping the society from the economic crisis can clearly be seen by some of the financial institutions. The question is how to avoid further financial crisis. Even if taking interests in banking operations is prohibited the question remains, what is the solution or an alternative to solve the financial crisis. The current banking laws do not provide any alternative which can be used to rectify the problem. When viewing the documentary I realized there is a need to investigate the institutional framework of the financial system, which prevail in the Islamic societies before they can be colonized by the western countries. The financial system was developed without taking any Islamic civilization lessons. It is questioning to note, all branches of modern knowledge have admitted the contribution of the Islamic civilization, towards their discipline, expect the science of economics and finance which does not recognize the effort made by the Islamic civilization in this field. According to the movie, this crazy financial industry began with the presidency of Regan and Greenspan, the American the American economy has shifted from being based on heavy industry such as American Steel, General Motors, Chrysler, etc. towards Financial Industry based on high tech and de-regulations! High profits in short time periods, with long term risks and high future obligations! As it was mentioned the Crisis doubled the debt of the USA, and for the first time in the American history future generations are left with less education chances and prosperity aspects as their parents. 4. If a new American law were introduced by Congress before the crisis, which sets penalties for causing economic instability. Whom would you send to court to be tried for such crime? Assume the role of the prosecutor, and present your list of accusations to each suspect. The definition should be clearly be made by what it means by economic instability within a country. It is explained in the movie that the American financial industry is becoming more powerful, more profitable and more concentrated than before. There is no instability caused just a restructuring the financial sector, which is vital to make the American economy stronger in facing the new decade of globalization. The fact is that the bill was to be used to restructure process had to be paid by innocent people via taxes, investors, retirees. The president had to appoint economic advisors, who played a significant role in supporting the de- regulation policy under the presidency of Clinton (Ebert p 267-301). He participated in issuing of a joint statement, which included the Federal Reserve board treasury and security exchange commission’s chairman who were supposed to protest against the suggested proposal which was presented by Commodity futures and trading commission in 1998 to meet the dangers of the uncontrolled usage of derivatives. Whom should be sent to prison? The officers or their executives? The economists or the politicians? The president or his counselors? The government or the congress? Most of those who were working in the financial institutions just followed the instructions of their superiors, and as Mr. Rajan from the IMF "International Monetary Fund" explained in his paper in 2005, the incentives which were proposed were dangerous and leading to a financial crisis. The CEO's of the major Investment Banks and Lending Institutes ended up working with the government as Secretary of the Treasury or on the Board of the Federal Reserve Bank. The economists were playing the counselor role for most of the presidents, executives who helped to ban the regulations of derivatives were later appointed for the CFTC! Should be the charged with causing the crisis, and should be sentenced to death. 5. Why Islamic banks were not affected at the beginning of the crisis, but started to suffer at later stages? Explain. This is because there is no direct relation between Islamic banking and financial mechanism of the American economy, which pushed the bank, insurance companies and lending companies towards bankruptcy. The economy is based on the gambling rule doesn't allow I such a manner in Islamic banking. The SWAP technique is not also acceptable in the Islamic Banking. What was affected was the manufacturing industry, major projects, which were financed by foresight direct investors and the export sector. Depositors were also affected; many people had to lose their savings because of the crisis. Works cited Boakes, Kevin. Reading and Understanding the Financial Times. Harlow, England: New York, 2008. Print. Riesner, Dean. The Moneychangers. Hollywood, Calif: Ross Hunter/Jacque Mapes, 1976. Print. Lewis, Michael. Liar's Poker: Rising Through the Wreckage on Wall Street. New York: W. W. Norton, 2010. Print. Ebert, Roger. Roger Ebert's Movie Yearbook 2013. Kansas City: Andrews McMeel Publishing, LLC, 2012. Internet resource. Schoen, Douglas E. Hopelessly Divided: The New Crisis in American Politics and What It Means for 2012 and Beyond. Lanham, Md: Rowman & Littlefield Publishers, 2012. Print. Read More