Questions based on “Too Big to Fail” movie Watch the movie and answer the following questions briefly. Upload your answers on Moodle using the Link “Submit Assignment on Too Big to Fail here” 1. When Lehman brothers was in trouble, Henry Paulson called the other banks’ CEOs on a meeting to find a solution to Lehman Brothers’s problem? Why did Henry Paulson think that a private sector solution, instead of government bailout, was needed? 2. (Up to about 43:00 of the movie) Why did the Lehman Brothers sell not work out? Why did Paulson want Lehman Brothers to file Bankruptcy before markets opened? 3.
Why did the markets in Europe and the USA still panic after Leman Brother’s bankruptcy? 4. (From about 53:00) How does the real economy (industries/corporations) get affected by a financial sector panic? You can use the example of General Electric as shown in the movie. 5. (From about 42:40) Why couldn’t the government let AIG fail? How was AIG entangled with the entire global financial market? Why would the other major banks go under if AIG failed? 6. Many people argue that the govt. should have bailed out the homeowners by directly giving monetary support to the homeowners, not to the big banks who had messed up with people’s money.
They argue that in that way homeowners would not have to go for foreclosures and home-price would not fall, and that would save the banks’ balance tables too. Why do you think the system could/couldn’t be saved that way? 3 Questions based on the movie Inside Job Background: Although the basic function of financial markets is straightforward – to match people who have money with people who need money – the way finance and Wall Street actually operate can get very complicated, and involves lot of jargons.
The Essay on Violent Movie Movies People Effects
Imagine, a man just got shot in the chest and his blood is pouring out like water from a faucet. The killer pulls out a knife to finish his work and violently stabs his victim to death. Why would anyone want to see this? The fact is, many people do want to see violent movies, and this has been proven with their high ratings at the box office. Whether people use these violent movies to release ...
The movie Inside Job however, does not involve very many new terms, and explains the recent global financial crisis nicely (even though some of the opinions in the movie may seem biased).
The terms Residential Mortgage Backed Securities (RMBS), and Collateralized Debt Obligations (CDO) are explained in the file “subprime mortgage Market and the Great Recession” available on your Moodle course page (under chapter 9).
The term credit default swap (CDS) is nicely explained in the movie “Inside Job” itself. Historically, banks that loaned money to home buyers kept those loans, and bore the risk of default.
Thus, banks had an incentive to make sure borrowers repaid them. This is one reason why banks required a down-payment. It also is why they charged subprime borrowers higher rates. Over time, banks began bundling mortgage loans together into pools known as residential mortgage backed securities (RMBS).
Large institutional investors, such as pension funds, bought these RMBS. Because the RMBS included a diverse pool of mortgage loans, they were deemed to be safe investments. The credit rating agencies gave these RMBS their highest ratings of “AAA.
” Now, investors – not the lending banks – bore the risk of default. Next, banks began bundling these RMBS together in a second kind of pool known as collateralized debt obligations (CDO).
The banks and rating agencies used complex computer models to determine what portion of a CDO could be labeled AAA. The rating agencies then gave AAA ratings to large portions of CDOs, even though the mortgage loans backing the CDOs were subprime. The fundamental reason behind giving these CDOs AAA ranking was the expectation that real estate prices would not decrease, and not all subprime borrowers can fail at the same time.
The Essay on Repay The Loan Bank Borrower Loans
Assignment # 41) One of the most important ways a bank can make sure its loans meet regulatory standards and are profitable is by establishing a written loan policy. A loan policy gives loan officers and the bank's management specific guidelines in making some loan decisions and in shaping the over all portfolios of the bank. The following are the most important elements of a Written Loan Policy; ...
Subprime-backed CDOs were popular, because they had high credit ratings and paid high returns. The credit default swap (CDS) was a tool to enable banks and investors to bet on subprime RMBS and CDOs, even without actually owning any CDOs. CDSs were side bets on whether home borrowers would default. CDSs are one of a type of financial instrument known as derivatives, because their value is “derived” from the value of the underlying asset (in this case, home mortgage loans).
Financial institutions used CDSs to place trillions of dollars of bets.
The movie Inside Job clearly explains and illuminates this daisy chain of risk. Links that might be somewhat related to the movie, and the questions: A recent interview of Alan Greenspan (watch from the 6:00th minute) http://www. youtube. com/watch? v=AWM0l8_F_X0 About CDOs: https://www. khanacademy. org/economics-finance-domain/core-finance/derivative- securities/CDO-tutorial/v/collateralized-debt-obligation-overview What is the total cost of TARP program? http://www. cbo. gov/publication/43663 4 Answer the following questions as precisely as you can. Please try to be brief and to the point whenever possible.
Question 1: Do you think events would have unfolded differently if the U. S. banks that made subprime loans had kept them instead of selling them to the Wall Street companies? Explain briefly Question 2: Are all CDOs risky at all times? How/why are the top tranches of CDOs relatively safe even though they are created from sub-prime loans? Question 3: Alan Greenspan appears throughout Inside Job. The film describes how Greenspan, as Federal Reserve chairman, led the deregulation and consolidation of the financial sector, beginning in the 1980s. One of the questions the film raises is about Greenspan’s ideology.
In the film, Robert Gnaizda, former director of the Greenlining Institute, discusses a series of meetings in which Greenspan recognized the complexity of subprime mortgages, and refused to regulate them. Gnaizda concluded, “It was clear he was stuck with his ideology. ” – What was the ideology and reasoning that prevented Alan Greenspan from regulating the subprime mortgage and derivatives markets? What are the potential benefits of this ideology? – To what extent was Greenspan right? – How was he wrong? Be Brief. Question 4: Why is Wall Street compensation so high?
The Term Paper on Korean Economic Crisis Government Financial Korea
Korean economic crisis: The intervened Banking system This paper is divided into 2 parts. The first part seeks to validate that government intervention on the banking system in Korea as a primary cause for the collapse of the economy in 1997; the second part examines the intent and rationale behind the intervention. Causes for the collapse of the Korean economy Currency crisis is commonly cited as ...
How does the current executive compensation/bonus system exacerbate moral hazard problems? Question 5: The bonuses did not change much even after the crisis. Take Citigroup as a small example: Citigroup paid $5. 3 billion of bonuses in 2008 even though it lost more than $27 billion that year and had to be supported by the federal government with $45 billion of TARP funds. 5 – Why are big banks and insurance companies saved by the government? Give a good reason (i. e. why it is sometimes necessary to save the big banks), and a bad reason (why the government officials have incentives to excessively favour these banks).
Be Brief. – Was the TARP money paid back by the banks? (Hint: search Google etc. ).
If the money is paid back, would you support bailout from the perspective of long-run wellbeing of the financial sector and the economy? Why or why not? Question 6: If you combine the scenarios given in questions 5 and 6, you can easily see that the mechanism of managing the U. S. financial system seems flawed, with ample scope for moral hazard at the levels of management, banks, regulation by the government and then when crisis is managed by the government.
List some possible ways to fix the system. Be Brief (Note: You may take help from Dodd-Frank Act 2010 and many other sources by google searching).
Question 7 Is there a “securitization food chain” that creates mortgage backed securities/bonds in Canada too? Do you think if Canada’s house price index goes down, it will cause a financial crisis similar to the U. S. ’s in 2008? Briefly point out why or why not. (Hint: The article “The shadow banking sector has been feasting on government-insured mortgages” available on Moodle would be helpful to answer this question)
