...Abstract Lehman collapse was the largest bank bankruptcy in the United States history. Complex causes combination lead to this tragedy. This paper is going to illustrate primary causes that result in its failure, and also discuss impacts on financial systems supervision and regulations. TABLE OF CONTENTS 1. INTRODUCTION 1 2. LITERATURE REVIEW 4 3. RESEARCH METHODOLOGY 1 3.1 Data collection 2 3.2 Methodology x 3.3 Limitations 3 4. ANALYSIS AND DISCUSSION 4 4.1 5 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.2 4.3 6 5. CONCLUSION 1 6. REFERENCES 4 7. APPENDICES 1 8. ACKNOWLEDGEMENTS 1 1. INTRODUCTION The credit crunch occurred in 2008 has been arguably recognised as an extreme phenomenon during the financial crisis, which generated to the longest recession in the U.S. history since ‘the Great Depression’ in1929. Over 600,000 jobs lost in during 2008, and unemployment rate went up to 6.1% which was the highest point in 5-year time (Isidore, 2008). According to the Turner Review (2009), faultiness of regulation and supervision underpinned financial problems’ increase. Therefore, to illustrate the causes of Lehman Bother’s crash in 2008, events occurred during crisis progress are listed in Appendix 1. Among those serious cases, bankruptcy of Lehman Brothers was concerned to be the most typical...
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...Recession and the Weak Recovery John B. Taylor* February 2014 It’s been nearly five years since the recession of 2007-2009 ended. By all accounts, this very severe recession was followed by an extremely disappointing recovery. Economic growth during the recovery has been far too slow to raise the employment-to-population ratio from the low levels to which it fell during the recession, or to close materially the gap between real GDP and potential GDP, in marked contrast to the rapid recovery from the previous severe recession in the early 1980s or from earlier severe recessions in U.S. history. When you include both the periods of the recession and the slow recovery, economic instability has more than tripled according to a common measure of performance used by macroeconomists: The standard deviation of the percentage gap between real GDP and potential GDP rose from 1½ percent during 1984-2006 to 5½ percent during 2007-2012 (Taylor, 2013). In this paper I consider the role of economic policy in this poor economic performance. I. The Shift in Policy In evaluating the role of policy it is important to consider actions taken before, during, and after the financial panic in the fall of 2008. A careful look at the full decade from 5 years before to 5 years after the panic reveals that there was a significant shift in policy away from what worked reasonably well in the decades before. Broadly speaking, monetary policy, regulatory policy, and fiscal policy each became more discretionary...
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...Organizational Change of the Chrysler Corporation in the 1978 Bailout and Lee Iacocca Dustin T. Embler BA 401 Research Paper/Case Study Abstract In the year 1978 one of the United States largest corporations was on the brink of financial crisis, the Chrysler Corporation. Hundreds of jobs, billions of taxpayer dollars, and the success of an American company all lay in the balance. Chrysler was overcome in debt due to its subpar decision making, increasing government regulations, and inability to compete with its domestic and foreign competition. Nevertheless, a hero arrived when Lee Iacocca joined as President of Chrysler to aid to its recovery in such adverse times. Fighting his way through the United States legislation for financial assistance to save Chrysler, Iacocca is able to successfully get the necessary legislation passed that will not only help him keep the company afloat but to also change the entire organization into a successful and profitable business in a matter of years. History of the Chrysler Corporation and Lee Iacocca “The Chrysler Corporation was founded in 1925 by Walter P. Chrysler, a former railroad mechanic who rose through the ranks of GM to lead the highly successful Buick Division. Chrysler did not get along well with William Durant, the founder and head of GM, and eventually left to form his own company (Braun).” “Always short of capital in this capital-intensive business, Chrysler was forced to build its cars largely of purchased parts...
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...Positive and Negative Effects of the Global Financial Crisis Harlita H. Tomlinson Capella University BMGT8114: Accounting in the Global Era Dr. Wendy Achilles June 8,2014 Table of Contents Abstract 3 Positive and Negative Effects of the Global Financial Crisis 4 Background on the Global Financial Crisis 5 Global Financial Crisis and Its Negative Effects 9 Lack of Financial Sector Regulation and Oversights 9 Increase in the Number of Bankruptcies 11 Global Financial Crisis and Its Positive Effects 12 Designing Regulations to Monitor the Financial Sector 12 Global Governance as a Side Effect of the Global Financial Crisis 13 Lessons Learned 16 Domestic Lessons Learned 16 Global Lessons Learned 17 Lessons from Romania. 18 The Role of Financial Executives in GFC 19 Conclusions 21 References 24 Abstract The first financial crisis of the twenty-first century has not yet ended, according to Gorton and Metrick (2012), the wave of research on the crisis has already exceeded any single reader’s capacity, with the pace of new work only making this task harder. The Global Financial Crisis is considered by many economists to be the worst financial crisis since the Great Depression. Global Financial Crisis resulted in the threat of the total collapse of large financial institutions, the bailout of banks by national governments, and market downturns around the world. In the aftermath of this crisis, the housing market declined significantly and has not...
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...NBER WORKING PAPER SERIES THE FINANCIAL CRISIS AND THE POLICY RESPONSES: AN EMPIRICAL ANALYSIS OF WHAT WENT WRONG John B. Taylor Working Paper 14631 http://www.nber.org/papers/w14631 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 January 2009 I am grateful to John Cogan, Angelo Melino, John Murray, George Shultz and participants in the Global Markets Working Group for helpful comments and suggestions. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2009 by John B. Taylor. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong John B. Taylor NBER Working Paper No. 14631 January 2009 JEL No. E0,G01 ABSTRACT This paper is an empirical investigation of the role of government actions and interventions in the financial crisis that flared up in August 2007. It integrates and summarizes several ongoing empirical research projects with the aim of learning from past policy. The evidence is presented in a series of charts which are...
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...GREAT HOUSING CRISIS OF 2007-2014 Clinical Professor of Law Notre Dame Law School Judith Fox 54 WASHBURN L. J. (forthcoming, 2015) Notre Dame Law School Legal Studies Research Paper No. 1504 A complete list of Research Papers in this Series can be found at: http://www.ssrn.com/link/notre-dame-legal-studies.html This paper can be downloaded without charge from the Social Science Research Network electronic library at http://ssrn.com/abstract=2573203 Electronic copy available at: http://ssrn.com/abstract=2573203 The Future of Foreclosure Law in the Wake of the Great Housing Crisis of 2007-2014 Judith Fox* ABSTRACT As 2014 came to an end so, perhaps, did the worst foreclosure crisis in U.S. history. On January 15, 2015, RealityTrac, one of the nation’s leading reporters of housing data, declared the foreclosure crisis had ended. Whether or not their declaration proves true, the aftermath of the crisis will be felt for years to come. During the crisis it is estimated more than five million families lost their homes to foreclosure. Federal, state and local responses to the crisis changed laws and perceptions regarding foreclosure. Despite these changes, we end the crisis much the way we began---with a nationwide foreclosure system mistrusted and disliked by lenders and consumers alike. This paper examines the responses to the crisis in an effort to determine what worked, what did not, and where foreclosure law should go from here. In the end, it is clear that we need...
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...However, the academic discourse, politics or media has been unable to solve the mystery surrounding the main causes of the crisis[1]. The mystery is academically relevant to the world of research just like the Great Depression, whose causes are still being discussed. Other sources believe that the crisis might have been as a cause of human failures especially following the refusal to bail out the Investment Bank Lehman Brothers. The housing bubble was the immediate trigger of the 2008 financial crisis. The following were the triggers under the housing bubble. I. Subprime lending A subprime mortgage is the mortgage that is readily acceptable without imposing strict measures of standard on it. Before the 2008 financial crisis, there existed a fierce competition between mortgage lenders. The competition between the mortgage lenders ensued from the struggle for market share and revenue. It also took place in tandem with limited supply of creditworthy borrowers which put unconditional stress on the financial institutions. The relaxing mood by the mortgage was apparent and hence less creditworthy borrowers were granted mortgages. This was a financial err due to failure to adhere to high standards of lending and hence riskier mortgages were granted to the borrowers.[2] This was also evident in early 2003 where the Government Sponsored Enterprises (GSE), due to their...
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...However, the academic discourse, politics or media has been unable to solve the mystery surrounding the main causes of the crisis[1]. The mystery is academically relevant to the world of research just like the Great Depression, whose causes are still being discussed. Other sources believe that the crisis might have been as a cause of human failures especially following the refusal to bail out the Investment Bank Lehman Brothers. The housing bubble was the immediate trigger of the 2008 financial crisis. The following were the triggers under the housing bubble. I. Subprime lending A subprime mortgage is the mortgage that is readily acceptable without imposing strict measures of standard on it. Before the 2008 financial crisis, there existed a fierce competition between mortgage lenders. The competition between the mortgage lenders ensued from the struggle for market share and revenue. It also took place in tandem with limited supply of creditworthy borrowers which put unconditional stress on the financial institutions. The relaxing mood by the mortgage was apparent and hence less creditworthy borrowers were granted mortgages. This was a financial err due to failure to adhere to high standards of lending and hence riskier mortgages were granted to the borrowers.[2] This was also evident in early 2003 where the Government Sponsored Enterprises (GSE), due to their...
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...Banking Industry and the Economy Ja’Net McQueen Slater Strayer University Birmingham, AL Instructor: Dr. Lisa Kincaid Research and Communication- RES 531 April 18th, 2010 Context of the Problem Today the economy is at its worst than it’s ever been before since the 1940s. Unemployment is at a record high as well as companies that are continuing to close down due to financial issues. The housing markets, auto industry, banking industry, & loss of jobs are all major things that are being affected by the way the US is spending money. The housing market and banking industry are both some of the main things that are having a major affect on the U.S. and to how this affects all other aspects of daily living. Some people may ask, “How did we get this way”? Over the past 180 years the United States grew to a huge, integrated, industrialized economy that makes up over a quarter of the world economy. The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources (especially timber, coal and oil), an entrepreneurial spirit, a commitment to investing in material and human capital, and at times a willingness to exploit labor. In addition, the U.S. was able to utilize these resources due to a unique set of institutions designed to encourage utilization and extraction. The economy has maintained high wages, attracting immigrants by the millions from all over...
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...crises have been pervasive phenomena throughout history. Bordo et al. (2001) find that their frequency in recent decades has been double that of the Bretton Woods Period (1945-1971) and the Gold Standard Era (1880-1993), comparable only to the Great Depression. Nevertheless, the financial crisis that started in the summer of 2007 came as a great surprise to most people. What initially was seen as difficulties in the US subprime mortgage market, rapidly escalated and spilled over to financial markets all over the world. The crisis has changed the financial landscape worldwide and its costs are yet to be evaluated. The purpose of this paper is to concisely survey the literature on financial crises. Despite its severity and its ample effects, the current crisis is similar to past crises in many dimensions. In a recent series of papers, Reinhart and Rogoff (2008a, 2008b, 2009) document the effects of banking crises using an extensive data set of high and middle-to-low income countries. They find that systemic banking crises are typically preceded by credit booms and asset price bubbles. This is consistent with Herring and Wachter (2003) who show that many financial crises are the result of bubbles in real estate markets. In addition, Reinhart and Rogoff find that crises result, on average, in a 35% real drop in housing prices spread over a period of 6 years. Equity prices fall 55% over 3 ½ years. Output falls by 9% over two years, while unemployment rises 7% over a...
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...Enron Corporation (Former NYSE ticker symbol ENE) was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000staff and was one of the world's leading electricity, natural gas, communications and pulp and paper companies, with claimed revenues of nearly $101 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal also brought into question the accounting practices of many corporations throughout the United States and was a factor in the creation of the Sarbanes-Oxley Act of 2002. Enron filed for bankruptcy protection in the Southern District of New York in late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It emerged from bankruptcy in November 2004 after one of the biggest and most complex bankruptcy cases in U.S. history. On September 7, 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd. Following the scandal, lawsuits against Enron's directors were notable because the directors settled the suits by paying very significant sums of money personally. The scandal also caused the dissolution...
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...Tax Research and Bibliography University Instructor: Introduction This paper addresses three aspects of corporate tax research and its associated bibliographies to clarify the subject matter, thus providing credence to the work and its authors. Three subject have been explored; first examined was ‘equal opportunity and disabled workers’, next was the deductibility of tuition, and finally, the matters of ‘tax court and TEFRA’ were looked at and provided a nice grouping of responses over ten years. Research Results Subject 1: Equal opportunity and disabled workers, returned one result in ten years. Lytes v. DC water & sewer auth. No. 08-7002 936 (UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT 2005) A (Appellant) former employee sought judicial review of the United States District Court for the District of Columbia's entry of summary judgment in favor of appellee, his former employer, on his claim that the employer refused to accommodate his disability and then terminated his employment, in violation of the Americans with Disabilities Act of 1990 (ADA) and while the appeal was pending the ADA Amendments Act of 2008 became law. Only the district court's holding that the employee was not actually disabled was challenged and in applying the ADA prior to its amendment, the employee failed to discuss his functional capacity at the time of the alleged discrimination. In fact, the employee never discussed or provided any proof...
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...again. Many people attribute the global economic meltdown to the collapse of the subprime sector in the United States. To put it simply, the mortgage sector was blamed for the crisis because of how many financial instruments were collateralized by mortgages of people who had bad credit histories. When too many of them failed to meet their obligations, it began a series of defaults that ultimately collapsed not only the mortgage industry but the financial industry as well. All those that have investments in both sectors, local and foreign entities, also became affected as they lost what they have invested. However, a crisis of such scale as that which took place in 2008 to 2009 could not be attributed to one cause alone. Instead, as this paper will show, the most recent global economic meltdown was due to several causes in different parts of the world. As the crisis was still engulfing different countries, governments, policymakers, banks and treasuries scrambled to seek the best...
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...Richard “Dick” Fuld Richard Severin Fuld Jr. is best known as the last CEO of Lehman Brothers. He was born on April 26th, 1946 in New York City, New York to Richard Severin Fuld Sr. and Elizabeth Schwab. He graduated from the University of Colorado and then got his MBA New York University Stern School of Business. Richard Fuld Jr. began his career with Lehman Brothers in 1969 as a commercial paper trader but rose rapidly through the company. He earned his reputation running the firm’s fixed income business. In the early 1980’s Richard Fuld Jr. became the supervisor for both fixed income and the equities division overseeing all trading at Lehman Brothers. While his trading skills were polished, his managerial skills were not as great. He was described as a computer who just made decisions and never interacted with anyone. His new responsibilities included 22 managers reporting to him in major divisions that accounted for a major proportion of the company's profits. Fuld’s performance excelled, and in 1982 his divisions generated record profits. Fuld would eventually earn the nickname “Gorilla”, because of his competitiveness and cut throat style of business. In 1994 Fuld became the Chief Operating Officer of Lehman Brothers and held that position till 2008 when the company collapsed. Fuld also experienced many changes with the company as well, the biggest being the acquisition of Lehman Brothers by American Express, which eventually ended with the company changing their title...
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...Th Fi ncial Cris he inan sis: 2007 2 7-2009 gar N g A. Norton, Jr. Illin nois Sta Uni ate iversity y Cover page im mage ©2010 Pho otoDisc, Inc. Copyright © 2010 by John Wiley & Sons, Inc W c. All rights rese erved. No part of thi publication ma be reproduced stored in a ret is ay d, trieval system or transmitted r in any form o by any means, electronic, mec or , chanical, photoco opying, recordin scanning ng, or otherwise, except as permi itted under Sections 107 or 108 o the 1976 Unit States of ted Copyright Ac without either the prior writte permission of the Publisher, o authorization t ct, r en f or through payment of th appropriate pe he er-copy fee to th Copyright Cle he earance Center, I Inc., 222 Rosewo Drive, ood Danvers, MA 01923, website www.copyright A e t.com. Requests to the Publisher for permission should be r addressed to t Permissions Department, Joh Wiley & Son Inc., 111 Rive Street, Hobok NJ 07030the hn ns, er ken, 5774, (201)74 48-6011, fax (20 01)748-6008, we ebsite http://www w.wiley.com/go/ /permissions. To order book or for custom service, pleas call 1(800)-CA ks mer se ALL-WILEY (2 225-5945). Printed in the United States of America. e o ISBN 978- 0-470-56516-2 The Financial Crisis: 2007-2009 Objectives Understand the major influences that led to the 2007 2009 Financial Crises Describe the role that agency cost issues played in the financing of mortgages to developing...
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