Following the financial crisis of 2008, the United States government decided to take legislative action in order to protect the American public and tighten the leash on the financial sector. From unregulated derivatives markets to excessively risky trading and speculative losses written off under the cover of a portfolio hedge, the tools and investment vehicles utilized by the finance industry generated enormous amounts of revenue, however as the crisis showed, even financial powerhouses are susceptible to failure. Bailing out the finance industry with billions of dollars provided a quick fix for keeping major firms afloat with the taxpayer money, but it was clear that real change was necessary. Continue reading
The 2008 financial crisis left many people with no homes, jobs, or way of life. It affected the economy more significantly than any crisis since the Great Depression. Dodd-Frank was created in response to this catastrophe to assure that it would never happen again. The law imposes regulation in nearly every aspect of the financial industry, covering investment and commercial banks, insurance companies, rating agencies, hedge funds, and many others. With the implementation of Dodd-Frank, we must consider the costs and benefits of such a bill. If there is too much regulation on banks, for example, they will be less likely to lend, decreasing liquidity in our economy and leading to a lack of economic growth or even a recession. Continue reading
Following the financial crisis of 2008, the financial industry suffered backlash from the public following a historic and infamous series of events that threatened America’s economy. From media pundits to organized efforts such as the “Occupy: Wall Street” movement, there has been a continual protest against the ‘injustice’ and corruption of greed that supposedly plagues large financial institutions. However, many Americans rely on financial services for retirement savings, investment opportunities, the ability to get a mortgage and more. Despite the complexity of many financial systems, which may be simply understood by the general public, the causes of the crisis held blame with those behind-the-scenes, and an ethical analysis can bring these actors and their decisions to light and provide a clear picture of what was done wrong and why. Looking into AIG, a major player in the financial crisis, a history of ethically questionable management can be seen, with blatantly unethical choices leading underlying collapse of the financial system in 2008.
During the financial crisis of 2008, AIG was one of the most critical firms facing failure, and as the US Government stepped in to provide assistance in order to prevent the larger financial system from unraveling. The outcome of the situation involves an overhaul of regulations a la Dodd-Frank, as well as a number of government-influenced management decisions after giving AIG a multi-billion dollar bailout. My focus for paper 2 is to analyze the precedent AIG set for establishing a business of such magnitude on practices that could tear down the financial sector of the United States in a matter of weeks, and threaten the greater economy as a whole.
After watching the film, I definitely agree that the notion of firms being “too big to fail” still exists today, and in more industries than just investment banking. The 2008 financial crisis showed that investment banks are interconnected and rely on each other’s financial wellbeing. In the film, this interconnectedness could be seen after the Lehman Brothers’ bankruptcy filing. Investment banks saw immediate hits to their businesses as a result of the dwindling confidence in the industry. Other firms, such as GE, saw that their operations were affected by the lessening access to capital from investment banks. To the dismay of many, the notion of “too big to fail” means that the government may be required to aid the financial system at large when the market is unstable. Continue reading
Although the concept of “too big to fail” was clearly seen in the financial crisis of 2008, I believe it still exists today. In fact, “too big to fail” is probably an even bigger concern now because of the rapid growing of the few largest banks in the United States. This is an issue because banks are able to get away with risky behaviors since they know that they won’t be allowed to fail. We haven’t learned from our past failures. Instead of the government finding ways to fix this problem, it seems to be getting worse. We can’t deny that these major banks are at the center of our economy and that we need them to be in business in order for our economy to function properly.
The major banks in the United States take up a large percentage of the economy as a whole. For this reason, it is impossible to let one of these large banks collapse, because the economy would then collapse as well. Since these banks are only getting larger, the problem persists. Just as it is common for the rich to get richer and the poor to get poorer, the major banks are gaining more and more control of the United States economy, while smaller banks are being pushed out. The distribution of the economy as a whole is getting less and less. The government has no chance but to step in in the event of a crisis, because without their help, the economy would turn to disaster. Where does this end? A solution is needed in order to take the risk out of our economy. So much of our society is dependent on our large banks and it is likely that they will keep getting larger. The question becomes, should we implement policies to force these banks to downsize, or should we let them go and risk the possibility of the government having to provide bailouts?
After watching “Too Big to Fail,” it is clear that the financial crisis in 2008 further exacerbated the problem of “too big to fail.” The fact that “10 banks now hold 77% of all US bank assets” is proof of this (TBF). Clearly we didn’t learn from our mistakes…the size and span of these banks is what caused such destruction. Rather than learn from this, we made these banks even bigger. It is clear, however, that the government had little time to come up with a solution. A solution that, if not effective or executed fast enough, could have ruined the economy. Bernanke emphasizes this when they are trying to get the stimulus package passed: “If we don’t do this now…we won’t have an economy on Monday.” Continue reading
I believe the notion of “Too big to fail” still exists today. As we have learned from the recession and the fall of Lehman Brothers, the few major banks have a colossal affect on the economy. Due to the massive amount of power these banks possess, it is imperative to keep the financial system sound and resilient, even if this means government intervention. The influence these banks have is very far stretching, reaching areas beyond Wall St. For example in the video it reveals due to the Lehman Brother’s struggle, there were catastrophic consequences in European banks and even GE was having trouble funding their day-to-day operations.