...What caused the global economic crisis, and what could have been done (by governments or the private sector) to prevent this? Also, give your personal thoughts on this issue. My personal thoughts on this issue: After watching all five parts of the movie, I think the global economic crisis key factor was caused by deregulation which began since Reagan administration, because it contributed to the real estate bubble and allowed greedy and overpaid banks to go on unreasonable leverage. Regulatory bodies allowed privatization of the banks, dropped the regulations that limiting the investments of the banks and amounts they could borrow. The banks, Wall Street traders and investors and mortgage lenders failed to look at what they bought and ignored risk management. When the going is good, they pocket more than their fair share. The banks borrowed more than several times of their value. Derivatives allowed the lender to repackage the loan and sell to investment banks, which in turn repackage and sell them to investors without considering if the customer ever pays the loan back, since they have their money. Banks and greedy lending groups were showered with incentives to give loans to anyone for exorbitant interest rates, and since nobody cared if the loans were repaid, the commission alone was all that mattered. The massive amount of liquidity in the system and the hunger for mortgages resulted them to repackaged the loans into collateralized debt obligations (CDOs), with numerous...
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...and yet there exist so many people that claim they can guarantee certain returns. This fallacy is one of the main components of economics as a study. So called experts have been known to praise certain theories while they unknowingly march into a market crash. In order to understand how market crashes happen, it is critical to understand the beliefs that were held leading up to past crises. In Olivier J. Blanchard’s paper published in 2008 by the National Bureau of Economic Research, he declares that “the state of macro is good” (Blanchard 2008, 2). Blanchard, of MIT, was expressing his contempt with the way in which the macroeconomy appeared to be operating and the ability of economists to explain the operations. He was not alone. Alan Greenspan, former Federal Reserve Chairman, admitted in October of 2008 to the House Committee on Oversight and Government Reform that he was “shocked because [he had] been going for 40 years or more with very considerable evidence that [the economy] was working exceptionally well.” What had led these renowned experts to believe all was well while the markets were wildly deviating from their expectations? The answer lies in the belief held by many economists of an “idealized vision of an economy in which rational individuals interact in perfect markets (Krugman 2009, 2). This idea ignored all the things that can go wrong that humans do not typically expect. Trust the Market The study of economics was birthed in 1776 around the ideals detailed...
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...emergency that caused recession due to the borrowers being approved for loans that they could not afford – resulting in a large amount of default and foreclosures. The loans were largely based on the assumption that the value of home prices would continue to increase. There are a number of theories as to what led to the sub-prime crisis. It is believed it to have been caused through several factors. The crisis began with the bursting of the U.S. housing “bubble” that occurred in 2001. A housing bubble is defined as a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices. In the wake of the dot-com bust, and the September 11, Former Federal Reserve Board Chairman Alan Greenspan dramatically lowered interest rates to historically low levels, from about 6.5% to just 1% to keep the economy strong. This made banks borrow from the federal for only 1% interest rate. There was an abundance of cheap credit which made it easy for people to buy houses or make other investments...
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...TermPaperWarehouse.com - Free Term Papers, Essays and Research Documents The Research Paper Factory Join Search Browse Saved Papers Home Page » Film and Music Inside Job- Review In: Film and Music Inside Job- Review “Inside Job” Movie review -Deepshikha Dubey SYBCOM (Hons) Roll number-1071 ‘I nside job’ true to its title, is an exasperating documentary about the actual causes and consequences of the financial crisis of 2008. Directed by Charles Ferguson and narrated by Matt Damon, the movie is not a piece of muckraking or breathless support. It rests its infuriation on proper reason, research, figures and careful argument. Several interviews of eminent personalities from political, financial and academic backgrounds, along with news clips and aerial shots of New York, Iceland, London and other disaster areas — are all in there! Though dealing with a very complex issue, the movie has beautifully dealt with the topic and made it much easier for common man to understand the reason behind the nerve wrecking recent financial crisis that hit USA and then the world’s economy. The film is divided into five main parts, covering a wide scope- Who, what, when, why, how… it is all answered! Unlike most other documentaries that have been released over the past several years, ‘inside job’ bases its arguments on numbers and facts and doesn't just emotions. The first part of the movie- “How we got here?” Takes the viewers...
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...Dr. Milton Friedman 1. The Social Responsibility of Business Is to Increase Its Profits." that business has a 'social conscience' and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution In 1970 Milton Friedman wrote that "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." That's the orthodox view among free market economists: that the only social responsibility a law-abiding business has is to maximize profits for the shareholders. The most successful businesses put the customer first, ahead of the investors. In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the customer-centered business, customer happiness is an end in itself, and will be pursued with greater interest, passion, and empathy than the profit-centered business is capable of. 2. Friedman is careful to note that the corporate executive has direct responsibility to his employers, the shareholders. He is also careful to argue that this is not necessarily the manager's sole responsibility; there is, after all, the duty to conform to the basic rules of the society. It is not clear if the latter is a moral responsibility or a social responsibility--i.e., if it is a duty the manager...
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...• A complex problem such as the GFC has many causes (economic, political, etc.). Your task is to focus on the organizational causes that contributed to the crisis. • You are required to use at least two organizational theories and/or concepts from the pensum to motivate your answer, making sure that you make a clear reference to them in your answer and within the literature list that is to be included at the end of your assignment. It is recommended that you focus on explaining a few possible causes in detail instead of discussing ten superficially. • You are required to select relevant data to produce justified answers to the research question relating such data to the theory and concepts selected. Sources of data can include newspapers, annual reports, statistical databases, websites, etc. Make sure that you make a clear reference to the data sources in your answer and in the reference list that is to be included at the end of your assignment. • Note that the level of analysis that you can use is quite open. For example, you might choose to see it from an inter-organizational perspective, from a field level (i.e. industry level) or from the perspective of an individual organization. It is recommended, however that you are very clear on the level that you are choosing. • Finally, note that you may want to use the literature, videos and presentations used during the Case Days as a starting point. A list of resources used to build the Global Financial Case in class is uploaded...
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...Economic effects of subprime lending A subprime lending is an option for individuals that have difficulty meeting mortgage payment schedules or for individuals who have low credit scores and considered risky borrowers. For example, an applicant with a low credit score of 500 will have a very difficult time locating a loan. Subprime lending comes with a high cost to borrowers. Lenders see bad credit applicants as riskier than applicants with better credit scores. Borrowers in turn pay for this risk by accepting loans with a higher interest rate. Subprime lenders offered the realization of the American dream of home ownership to borrowers who would otherwise be denied credit. Interest only loan options were offered, and combined with the mortgage-backed securities (MBS) added so much liquidity that in turn created a housing boom. Over time borrowers end up paying higher interest rates with zero payment application against their loan amount. Unemployment setbacks that ultimately resulted in defaults, added to the economic crisis. Consequently, more homes were placed in a market that is already saturated with newly constructed homes. This created less demand resulting to more houses that builders were unable to sell. Controls of banking rules and regulations during the 1980’s were relaxed, and monitoring policies for these were not the highest priority. Jimmy Carter’s “Depository Institutions Deregulation and Monetary Control Act of 1980” was a window for financial institutions...
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...dollar bail-out from United States taxpayers. The 158-year-old Lehman Brothers financial firm had just collapsed and filed for bankruptcy. It was an uncertain and extremely precarious time. The then President Bush asked for an astonishing 700 billion dollars to prevent a contagion from spreading through the financial markets and it was approved by Congress. So, what went wrong? How did our nation go from record surpluses in the late 90’s to the most devastating economic collapse since the Great Depression at the end of the Bush Administration? On that date October 23, 2008, these were the questions members of the Committee on Oversight & Government Committee Reform were asking at a hearing with Alan Greenspan (former Chairman of the Federal Reserve). During the hearing Mr. Greenspan made a surprising admission “ I made a mistake in presuming...
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...RONALD REAGAN ECONOMIC POLICIES Name: Instructor: Ronald Reagan Economic Policies Reaganomics was the popular term that was used to describe Ronald Reagan’s economic policies, which advocated for a decreased social spending, widespread tax cuts, increased military spending, and deregulation of the domestic markets. This paper aims at analyzing the economic policy of President Reagan’s administration. Generally, Reagan pledged to advance, or return, to a free market and that involved getting the government off the citizens’ backs. Specifically, he was in favor for a massive deduction in government spending, a balanced budget by the year 1984, and a more drastic cut in taxation. His main concern was the reduction of income tax, and ensuring a come back to the gold standards, when money supply was done by the markets and not the government. Besides calling for free markets domestically, Reagan asserted deep commitment to liberty of international trade. However, when the president’s advisors went to office with the idea of cutting both taxes and spending, they found out that the first objective was easier to achieve than the second because of politics of the day. Cutting tax was popular and they did come down substantially. The top marginal rate reduced to 28 per cent from 70 per cent (Magazzino, 2010). Many loop holes were eliminated and the tax base broadened. However, cutting the spending was unpopular and the democratic...
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...394 Part 5: Cases Liar’s Loan: How the Mortgage Industry Nurtured Deceit.” Slate, April 24, 2008, http://www.slate.com/id/2189576/ (accessed November 14, 2008); Greenspan, Alan. “We Will Never Have a Perfect Model of Risk.” Financial Times, March 16, 2008, http://www.ft.com/cms/s/edbdbcf6-f360-11dc-b6bc-0000779fd2ac,Authorised=false. html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fedbdbcf6-f360-11dc-b6bc-0000779fd2ac. html%3Fnclick_check%3D1&_i_referer=http%3A%2F%2Fsearch.yahoo.com%2Fsearch%3Fp%3Dthe%2Bm ost%2Bwrenching%2Bsince%2Bthe%2Bend%2Bof%2Bthe%2Bsecond%2Bworld%2Bwar%252C%2BAlan%2B Greenspan%26fr%3Dyfp-t-501%26toggle%3D1%26cop%3Dmss%26ei%3DUTF-8&nclick_check=1 (accessed November 15, 2008); Gutierrez, Carl. “Countrywide’s New Bad News.” Forbes, March 10, 2008, http://www.forbes. com/markets/2008/03/10/countrywide-fbi-mortgage-markets-equity-cx_cg_0310markets26.html (accessed September 1, 2009); Staff infoZine,“Kansas, 11 Other States Reach Agreement with Countrywide Financial Corporation.” Kansas City infoZine, November 14, 2008, http://www.infozine.com/news/stories/op/storiesView/ sid/31858/ (accessed September 1, 2009); LenderRATEMATCH. “Mortgage Industry Statistics.” freeratesearch. com/en/newsroom/mortgage_statistics/ (accessed April 1, 2008); Marco, Meg. “Subprime Meltdown: Inside the Countrywide Subprime Lending Frenzy.” The Consumerist, August 27, 2008, http://consumerist.com/consumer/ subprime-meltdown/inside-the-countrywide-subprime-lending-frenzy-293902...
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...Thinking big is all the rage these days with U.S. money managers. Many are hiring high-profile economists to help them better navigate global economic and geopolitical events. Hedge funds and other institutional investors are tapping so-called macro thinkers like economists Martin Feldstein, Henry Kaufman and former Federal Reserve Chairman Alan Greenspan at a time when fundamental analysis is often being overwhelmed by big-picture political and governmental risks. This year alone, hedge fund EQA Partners brought on former Federal Reserve governor Randall Kroszner, and Brevan Howard, a British-based hedge fund, hired Shelley Goldberg, a former commodities strategist at Nouriel Roubini’s Roubini Global Economics. Yet with the mediocre performance this year of macro funds that make wagers on big-picture events, it is surprising that even more narrowly focused hedge funds keep turning to famous macro thinkers for advice. Skeptics say it may simply be a case of fund managers looking to find cover for positions they take by bringing on a famous name to justify their moves to investors. Indeed, it’s been a frustrating year even for the best investors, not just managers of macro funds, which are down more than 1 percent year-to-date, according to Hedge Fund Research. The overall hedge fund industry is up a meager 5 percent, roughly half of the gain posted this year by the benchmark Standard & Poor’s 500 index. The rough time for hedge funds is showing up in some high-profile...
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...Productivity growth is the elixir that makes an economy flourish. Best described as output per worker, productivity grows when workers harness innovation, machinery, experience and their own skills to produce more in less time. When that happens, historically, society prospers. Workers get paid more because companies are generating more cash and lowering expenses; governments raise more tax revenues because citizens and corporations are more prosperous, and more money is available for the research and education that will nurture the next round of productivity. The so-called productivity miracle of 1997-2003, which was boosted by heavy spending on technology, fostered rapid growth, decent wages and low inflation. The crucial role productivity plays makes recent news all the more alarming. Worker output actually fell in the first two quarters of 2011, the first back-to-back decline since 2008, according to the Labor Dept. Just as worrisome, the productivity gains that often occur at this stage of a recovery are far more anemic than originally estimated, and Labor Dept. economists have revised the data from 2007 to the present downward. Worker output per hour rose at a 2 percent annualized pace between the fourth quarter of 2007, when the recession began, and the first three months of 2011, according to the DOL revisions. The original estimate was 2.7 percent. Productivity for the foreseeable future will advance between 2 and 1.5 percent, well under the 3.4 percent pace set during...
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...Influence of Alan Greenspan on the Economy Scott Miller English Composition 1 October 18, 2008 Outline: The influences of Alan Greenspan on the Economy -About the Federal Reserve 1. Year Alan Greenspan appointed. 2. Duties of the Federal Reserve -Alan Greenspan as Federal Reserve Chairman (1987) 1.Stock Market crash -Savings and Loan Crisis (1988-1982) 1. Bank Failures 2. Recession -Economy Growth(1993-2000) 1. Dot.com ere 2. Federal Surplus 3. Millennium 4.Clinton Era -(2001), and beyond on the economy 1.President Bush 2.9/11 3.Recession 4. Dot.com bubble 5. Housing boom and bubble -Conclusion(2006) 1. Greenspan Retires Alan Greenspan was the Federal Reserve chairman for the last nineteen years he was the longest chairman in that position. Alan Greenspan was first appointed by President Ronald Reagan in 1987 and retired under President Bush in 2006. The chairman of the Federal Reserve is appointed every four years by the president, and then the Senate. The Federal Reserve is in charge of the financial system in the United States, and is independent part of the government that is not influenced by politics. The duties of the Federal Reserve are to preserve a sound banking system, preserve the power of dollar, print money if needed, and to regulate interest rate policies. Alan Greenspan had massive...
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...Introduction Currently the United States is in the midst of the worst global financial crisis of the 2l century, which traced its origins to the sub-prime mortgage disaster that began to unravel in 2007. The shocks of global crisis are devastating: homeowners filed for bankruptcies and faced foreclosures in record high numbers, leading Wall Street firms such as Bear Sterns and Merrill Lynch crumbled under their massive exposure to sub-prime mortgage holdings that turned into toxic had assets and over $50 trillion in wealth had been wiped out within the last two years. No financial crisis since the Great Depression prompted many policy reactions as governments scrambled to map out rescue plans to restore stability and revive economic growth. The after effects of the sub-prime mortgage meltdown have left policymakers both in the United States and around the world struggling to restore growth and confidence in their economies. What are the causes behind the U.S. sub-prime mortgage crisis? Is one cause more responsible than another? Why of why not? The principal cause of the economic slowdown was the collapse of the global credit boom and the ensuing financial crisis, which has affected asset values, credit conditions, and consumer and business confidence around the world. The immediate trigger of the crisis was the end of housing booms in the United States and other countries and the associated problems in mortgage markets, notably the collapse of the U.S. sub-prime mortgage...
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...Accounting professionals provide validity, signing off on annual reports, which directly or indirectly play a critical role in establishing and maintaining the confidence of the investors. Unfortunately, we are not learning from our past mistakes. History shows us that after every crisis, e.g the great depression of 1929, economic downturn of 1988, dotcom bubble of 2000, Enron and Worldcom issues, and finally the subprime mortgage crisis, there has been a need to appoint boards which recommended changes mostly pertaining to the accounting areas. Accounting professionals are constrained in providing information from data provided to them. While it is their responsibility to follow Generally Accepted Account Principles (GAAP) accounting standards, they do not have a crystal ball to predict the future, but they should have seen the crisis coming much earlier and played by the ethics rules and standards established by GAAP. Also, there is a caveat in the annual reports which says it is the management teams of entity who are responsible in ensuring integrity of data provided to the accounting professionals. The mortgage subprime crisis was driven by greed at many levels including at the homeowner, broker, lender, banks, and government levels. Accounting professionals should play a role in identifying "the train" and should stop the accident from happening much earlier. Economists, however, are better equipped to do so than the accounting professionals though. They should...
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