Founded in 2016, Ceteris Paribus is A student-led economics and finance publication at Davidson College.

The Problematic Narrative of "Inside Job"

by David Hager


“Inside Job,” a documentary by Charles Ferguson, tells a rather scary and dangerous narrative surrounding the 2008 financial crisis. This narrative essentially states that mortgage brokers falsely convinced borrowers to purchase mortgages that were hard-wired to explode and would cause the borrower to default on their loan. Banks, specifically investment banks, would repackage these loans into complex and scary financial products, sell them to investors (all while knowing it was doomed to fail) and make huge profits.


This narrative is both scary and dangerous, for different but intertwining reasons. It is scary because it paints a picture of mystery and complexity surrounding investment banks, and it is dangerous in that it fundamentally rejects certain truths about the financial crisis in an effort to appeal to popular opinion. This “inside job” narrative is one of hundreds of possible reasons for why the financial crisis occurred. If we take this narrative as the truth, then yes, I agree with your opinion that bankers and sketchy regulators ought to be held accountable for their actions. But the hard reality is that this narrative is not an objective truth; academics, regulators, those in the business world and on both sides of the political aisle are still trying to dissect the causes and cures of the 2008 financial crisis. There are objective facts about the crisis, however, that might aid in debunking the inside job narrative and thus understanding why bankers and executives have faced so few repercussions.


The inside job narrative is constructed on the basis that asymmetric information existed in the marketplace: borrowers had no idea that the loans they were going to take out would default and predatory banking institutions did. However, information was readily available to borrowers, as loans were marked with tags that stated whether income and assets were verified, stated or not collected at all (Stroup, 2016). Additionally, investors could easily calculate the price of these mortgages using various software programs in a matter of seconds (Cordell, Huang, & Williams, 2011). The burden of determining the quality of the loan fell on the borrowers, and they were presented with adequate information to make rational decisions.


Now that we have discussed the borrowers’ side, let’s turn to the banking side. Another key aspect of the crisis is that, contrary to the inside job narrative, mortgages were not created by banks and doomed to fail from the onset. The loans that were created before the crisis largely succeeded for both the borrower and the lender. Additionally, while the originations of many new loans increased during this time, the failure of rate of these loans (low doc/no doc and loans of individuals whose FICO score was less than 620) stayed almost constant (Foote, Gerardi and Willen, 2013).


Another pivotal aspect of the inside job narrative is this idea of complexity. These banking institutions supposedly started to create complex and scary financial instruments, which people had never seen before. Since they had never seen them, they apparently did not know that they were doomed to fail, which adds to the asymmetry information argument. However, these financial instruments, specifically the mortgage products (mortgage backed securities and collateralized debt obligations), had been in use since the 1990s (Lo, 2012). If these scary products caused people to act irrationally and purchase them when they should not have, why did we not see a financial crisis when these products were first introduced?


Finally, it is actually a myth that investment banks and other institutions that created these financial products were not harmed as a result of the financial crisis. The top 20 banks lost an average of $14.5 billion, with some banks losing upwards of $40 billion (Foote and Gerardi, 2014). Banks did make money during the crisis by charging fees to investors when they sold these financial products, as they always do. But when the loans failed and financial institutions could not pay other institutions back (since they held so much short term debt through other banks), there became a chain reaction of recurring losses.


I would like to conclude by stating that the facts I have presented do not point to a single narrative, but they do help refute one. The causes of this crisis will be mauled over for decades to come. Those on both side of the political aisle will point fingers in an effort to appeal to constituents, and many will use this crisis as an effort to say, “I was right” or to make money by appealing to popular opinion or scary narratives. Andrew Lo (2012), a professor of finance at MIT, writes a fantastic article that sums up 21 books about the financial crisis. Some of them present a similar narrative, and others completely refute each other. But Lo’s route is the one we need to take—we must not become so bogged down with emotional claims and enticing narratives that we lose sight of the fact that someone else may cling to an entirely different picture of the financial crisis. Not only will Lo’s route facilitate dialogue, but also it will lead to a better dissection of the crisis itself—and may even help prevent a future one.



Cordell, L., Huang, Y., & Williams, M. (2011, August). Collateral Damage: Sizing and Assessing the Subprime CDO Crisis. Federal Reserve Bank of Philadelphia.

Foote, C., Gerardi, K., & Willen, P. (2012, April). Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis. Federal Reserve Bank of Boston .

Lo, A. W. (2012). Reading About the Financial Crisis: A Twenty-One-Book Review. Journal of Economic Literature.


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