Too Big to Fail Essay

Bush on October 3rd, 2008. Some of the recipients of this bail out were and continue to be large financial institutions including Wells Fargo & Co., JP Morgan Chase & Co., Goldman Sachs Group Inc., and Morgan Stanley. In this situation the banks are not only able to continue risky behavior, but take little to no responsibility for their actions in causing such a situation. Fundamentally, if the financial institutions were bailed out once it has set a precedent for other financial institutions to view and believe that taking part in risky behavior will not affect them in the long run.

3. (10 pts.) Enron will be an example of a dysfunctional company for many years to come. It was clearly a company riddled with fraud and excess and its conduct drove it into bankruptcy. The text argues that individual behavior was not at the core of Enron’s problems. What were the problems with this corporation from an organizational architecture point of view?

These losses necessitated governmental action in the financial markets. Companies such as Lehman Brothers and Bear Stearns lost all of their stock’s value and were forced into bankruptcy. This risk spread throughout the American banks, forcing the American government to step in and buy all of the securitized, troubled assets from the balance sheets of

“Lehman Collapse Sends Shockwave around the World” Reads the British newspaper, The Times, as the world sinks further into the recession in September 2008. The housing collapse was orchestrated and perpetrated by a system created by investment banks to allow them to make money, by keep the American people in debt, even when the banks knew the loans would default. The investing banking system was left unchecked by the United States government because it did not have the regulations as did the depository banks. There was immoral investing in people’s retirement, pensions, and homes where it created at housing collapse, in which thousands of people over paid in their subprime loans and lost their homes in the process. The federal Reserve is a very selfish and heartless entity in America that has had powerful influence in American politics for decades. The Federal Reserve must be dissolved and succeeded by a federalized entity that has no obligation to any investors. It must contain checks and balances to create a fair playing field. It must not benefit one group of people, but the nation as a whole. Finally, the new banking structure must be solid to keep necessities at steady prices, and must not work on speculation. Prior to “the Fed”, two previous central banking systems were in place, but were limited on how long they influenced (both twenty years) their interest in government, and twice, both banking system were not allowed renewal because many political figures,

After the banking crisis of the 1930s, many people wondered why the Federal Reserve, also called the Fed, had not prevented crisis. After all, helping banks in times of a crisis was one of the primary reasons the Federal Reserve was created. The Federal Reserve was created because of events such as the panic of 1907. The panic of 1907 was very similar to the stock-market crash of 1929. During the summer of 1907, the economy started to go into downturn as many companies went bankrupt. These bankruptcies caused stock market prices to nosedive. These price drops then caused many Americans to withdraw their money from banks, causing many banks to begin failing. In hopes of keeping banks from failing, the U.S. Treasury began giving millions of

All the firms turn to the hedge funds but failed and to bail the banks, Hank Paulson and Ben Bernanke asked the congress for 700 billion dollars.

The Federal Reserve made emergency loans to the big companies in order to prevent large banks from failing when their investors frightened. With the stock market crashing, on October 3, 2008, President George Bush signed the Troubled Asset Relief Program into law. TARP used 250 billion dollars of federal money to “bail out” the banks, and later automakers including General Electric. Government-working accountants reviewed large Wall Street banks’ balance sheets and disclosed to the public which were sound in order to instill more confidence within investors.

The law created a new Federal Insurance Office (FIO) under the Treasury Department, which would identify insurance companies, like AIG, that create risk to the entire system. AIG was caught in in a major liquidity crisis when its credit ratings were downgraded in September 2008. The U.S. Federal Reserve Bank had to step in and create an $85 billion emergency fund—taxpayer money—to help AIG meet increased financial payouts. The new FIO will also gather information about the insurance industry and make sure affordable insurance is available to

An individual that played a part in the crisis include Banker Angelo Mozilo of Countrywide, his stated goal was to lower the barriers for American’s to own homes. Though intentions in such a goal are admirable, it created an environment of failures as homeowners defaulted on loans. Countywide was purchased by Bank of America in 2008. Banker James Cayne of Bear Stearns faced criticism as his institution crumbled under his leadership. He was accused of being absent as hedge funds collapsed. As an example as poor leadership during the period he stepped down, and Bear Stearns was purchased by JP Morgan in 2007. Richard Fuld Jr., Banker of Lehman Brothers Holding Inc., moved his institution in the commercial real-estate market years prior to the 2008 collapse of the market. 2008 after filing for bankruptcy Lehman’s was also sold. These are just a select few of the institutional leaders that had an impact during the crisis, but they represent how different personal and organization ethics can impact a company. Other key players involve elected officials that made key decisions to share the nation of financial depression. Henry Paulson, a policy maker with the Department of the Treasury, refused to save Lehman Brothers Holdings Inc. from bankruptcy. Paulson was involved in the Troubled Asset Relief Program that was used for the bailout of banks, auto companies, and other financial institutions. Ben Bernanke, a policy maker with the Federal Reserve, was a key player in approving the funding for J.P. Morgan to purchase Bear Sterns Co.

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

The Lehman Brothers, another investment bank, also encountered failure due to rumors and toxic investments. Due to the Federal Reserveʻs assistance to Bear Stearns, Lehman brothers expected the same treatment, which Henry Paulson denied to them. As a result, markets failed and the entire system was jeopardized. AIG, the largest insurance corporation in the nation, also needed loans to avoid bankruptcy. Ben Bernanke then lent them 85 billion dollars, which meant that the government had 80% of ownership, and essentially controlled, the largest insurance company. By the end of the crisis, Paulson and Bernanke had no other option than to spend $700 billion dollars to aid all of the major banks, which ultimately contradicted their principle of opposition to government intervention. Even after this plan had been implemented, there was still uncertainty on whether or not all of the money spent would suffice to salvage the financial

c. The full impact of Enron’s collapse on customers isn 't explored within the case. Students might speculate that some customers that had signed semi-permanent contracts with Enron for the delivery of bound commodities were left while not a reliable supply.

The Treasury Department purchased $40 billion in AIG preferred shares from its Capital Repurchase Plan. The Fed will purchase $52.5 billion in mortgage-backed securities. The funds are allowing AIG to retire its credit default swaps.” The case of AIG demonstrates a specific illustration of the “too big to fail” problem.

In this essay I will be addressing the “Too Big To Fail” (TBTF) problem in the current banking system. I will be discussing the risks associated with this policy, and the real problems behind it. I will then examine some solutions that have been proposed to solve the “too big to fail” problem. The policy ‘too big to fail’ refers to the idea that a bank has become so large that its failure could cause a disastrous effect to the rest of the economy, and so the government will provide assistance, in the form of perhaps a bailout/oversee a merger, to prevent this from happening. This is to protect the creditors and allow the bank to continue operating. If a bank does fail then this could cause a domino effect throughout

Although the Paulson Plan held off a major financial crisis and attempted to address many of the issues that were the cause of the crisis, improvements could have been made that would have a more lasting positive effect on the American financial system. According to an article in the Wall Street Journal, the plan needed to achieve at three objectives. It needed to prevent a deep and prolonged recession, achieve that first objective at the lowest possible costs to the U.S. taxpayer, and it should not bail out the existing investors. As stated in the article, “the Treasury plan addresses only the first objective, and only indirectly.” While the article gave many suggestions for improving the plan, perhaps the most useful was the recommendation to require all regulated financial institutions to raise 2% of their assets in additional capital to preserve the stability of the financial system. This mandate should ensure that no individual bank sends an adverse signal to the market, which should cause investors to not lose confidence in the banks.