ArgumentPost-mortemCrises and market historyIncentives
The incentives ran through the ratings agencies and the academy, not only the banks
Inside Job · 2010
The idea
The dramas about 2008 put the banks at the centre. Inside Job argues that the failure was wider: the agencies were paid by the issuers whose products they rated, and parts of the academic establishment were paid to lend credibility to deregulation. On that reading the crisis was not a few bad actors but a set of incentives that pointed the same way for everyone who could have said no. The documentary argues a position rather than reporting neutrally, so the useful move is to treat its claim as a hypothesis and test it against the incentive at each link in the chain.
Follow the incentives through every institution in the chain, including the ones that were supposed to be the check.
When it works
When a conversation about a failure stops at the most visible actor, and when assessing any system where the checker is paid by the checked.
When it may fail
The film is a polemic and selects its evidence. Treat its conclusions as a case to test, as the Library note says, and look for the counter-evidence before repeating them.
How to use it
Before accepting any third-party opinion, from a rating to a fairness opinion to an audit, write down who pays for it and what that party wants the answer to be.
Where it came from
Documentary Inside Job · 2010
What the source says. The regulatory and academic capture story the dramas leave out, argued as a case rather than reported neutrally.
Connected ideas
Takes it further
A rating is a model output, and the model rests on a correlation assumptionAsk what a rating assumes about defaults happening together before trusting what it says about the pool.
Says something similar
Follow the fee before you follow the adviceBefore weighing advice, work out how the adviser is paid and what that pays them to say.
Puts it to work
Invert the question, and look at the incentives firstAsk what would make this fail and who is paid for what before asking anything else.
Concepts
Put it to work on L3VLUP
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