Inside Jobs Essay

639 words - 3 pages

Deborah N. FreireECO 202-001June 17, 2014Inside JobQuestion 1: What role did the U.S Government played in the making of the financial crisis?Starting from 1982, the Reagan administration deregulated savings and loan companies, permitting them to make risky investments with their depositor's money. This effect cost taxpayers 124 billion dollars and also cost many people their life savings. Moving from Regan years to the Clinton, deregulation continued and the advances in technology led to an explosion of complex financial products, called derivatives. According to Phil Gramm, they unified markets and reduced regulatory burden. By 2000, Congress passed the Commodity Futures Modernization Act, which banned regulation of derivatives. In addition, Citicorp and Travelers merged, to form Citigroup, which violated the Glass-Steagall ...view middle of the document...

Contrasting from the old system, when homeowners paid their mortgages, the money went to investors from all over the world. This caused lenders to stop caring about borrowers repaying and make risker loans (subprime) and the more CDO's, the higher the profits. Due to lenient regulations for loans resulted in an increase of mortgage loans, allowing more people to own homes leading to the bubble. Investment banks favored subprime loans because they have higher interest rates and during the bubble this created more CDO's. Many home loan borrowers were unable to pay the EMI's due to the rising interest rates.Question 2: Who were the winners and losers in the crisis?Losers: Lehman Bro's and AIG Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch, Bear Stearns, Citigroup, JPMorgan Chase, AIG, MBIA, AMBAC, Moody's, S&P, Fitch, GM & Chrysler.-People who were living to paycheck to paycheck lost their homes and jobs.Winners: The top five executives at Lehman Brothers made over a billion dollars between 2000 and 2007; and when the firm went bankrupt, they got to keep all the money.-Merrill Lynch's board of directors allowed him to resign; and he collected 161 million dollars in severance.-Joseph Cassano, the head of AIGFP, was kept on as a consultant, for a million dollars a month.Question 3: Who was accountable after the dust of the crisis settled?The Federal Reserve Board, Commodity Futures Trading Commission, and the Securities and Exchange Commission because they were in charge of regulating the CEO's of the investment banks.Question 4: Was the 2008 financial crisis avoidable?Yes, because if the regulation of credit ratings and mortgage loans during the housing bubble would have prevent the crisis.Question 5: Do you agree with the view presented by the firm?I do agree because since the wrong decisions during the Reagan, Clinton, and Bush caused industries to go bankrupt and led to lost of jobs of millions of people.

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