...The sub-prime crisis of has led to a financial crisis in 2008-2009 that impacted many countries around the world. Discuss the cause of the sub-prime crisis and the major parties responsible. A number of parties were responsible for the sub-prime crisis during the period of 2008 to 2009. This essay will be discussing the parties responsible for the sub-prime crisis and how the individual party’s action causes the others to step deeper into the problem. As define by investopedia, sub-prime is “a classification of borrowers with a tarnished or limited credit history. Lenders will use a credit scoring system to determine which loans a borrower may qualify for. Subprime loans carry more credit risk, and as such, will carry higher interest rates as well.” The US subprime mortgage crisis was the catalysis of the finical crisis and subsequently cause the recession that began in 2008. The cause of sub-prime crisis arise from sub-prime loans or also know as sub-prime mortgage, the growth of this loan started expanding during the 1990s and such load is popularly seen in auto (car) loans, home equity (housing loans) and mortgage lending. Sub-prime loans are higher-risk loans labeled “B”, “C” and D credits, where “D” being the “worst”, resulting in a higher interest rate, which also mean a higher risk to the lenders. But it seem not to be a hindering problem, from the point of view of the finical institute who lend out the money, which will be explained later in this essay. In...
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...Mainly four parties were responsible for this crisis. First one is Kenneth Lay, the former chairman of the Houston Natural Gas. Lay as chief executive wanted to make Enron as the world’s greatest company. Lay was responsible for the crisis as approval of the actions of Skilling and Fastow was done without inquiring about the details. He was also involved by making false statement to the auditors, bankers, indulging in wire frauds, conspiracy, money laundering and securities fraud. Moreover, he was a hippocrat who announced to investors to buy the stock as it is predicted to reach a level of more than $130 and at this point he sold his shares knowing the financial crisis of the company. Moreover he appointed Skilling on the condition to use mark-too market accounting that will foster company to book profit as soon as deal was signed irrespective of the success of the project. As the CEO of the seventh largest company he had direct access to the political and government authorities like G.W.Bush. The second individual responsible for the crisis was Jeffrey Skilling. He was hired by the Kenneth Lay to help him as his top subordinate. Skilling was responsible to develop and implement plans to transform Enron to a energy trading company i.e. to act as intermediary between the energy products producers and the users of these products. The third individual responsible for the crisis is Enron’s chief financial officer Andrew Fastow. He was involved in frauds, insider trading, money...
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...The Sub-Prime Crisis of Has Led to a Financial Crisis in 2008-2009 That Impacted Many Countries Around the World. Discuss the Cause of the Sub-Prime Crisis and the Major Parties Responsible. The sub-prime crisis of has led to a financial crisis in 2008-2009 that impacted many countries around the world. Discuss the cause of the sub-prime crisis and the major parties responsible. A number of parties were responsible for the sub-prime crisis during the period of 2008 to 2009. This essay will be discussing the parties responsible for the sub-prime crisis and how the individual party’s action causes the others to step deeper into the problem. As define by investopedia, sub-prime is “a classification of borrowers with a tarnished or limited credit history. Lenders will use a credit scoring system to determine which loans a borrower may qualify for. Subprime loans carry more credit risk, and as such, will carry higher interest rates as well.” The US subprime mortgage crisis was the catalysis of the finical crisis and subsequently cause the recession that began in 2008. The cause of sub-prime crisis arise from sub-prime loans or also know as sub-prime mortgage, the growth of this loan started expanding during the 1990s and such load is popularly seen in auto (car) loans, home equity (housing loans) and mortgage lending. Sub-prime loans are higher-risk loans labeled “B”, “C” and D credits, where “D” being the “worst”, resulting in a higher interest rate, which also mean a...
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...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 always play by the rules of the book and always be ethical. On Sun, Jul 7, 2013 at 3:33 PM, raghunath manikyath <rmanikyath@yahoo.com> wrote: + Role of Financial professionals in sub-prime mortgage crisis: Finanicial professionals provide...
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...Rushabh Shah BA 2196 Section 26/Professor Allmond Writing Assignment: Crisis Communication In April 2009, a video surfaced on YouTube of two Domino’s employees shoving cheese up their nose, among other atrocious things, while making the food (Clifford). Domino’s fired both employees, but subsequently faced a crisis as the video reached over a million views in less than 48 hours (Clifford). This crisis would become the first major crisis to occur through social media. Domino’s effectively managed its crisis in the following ways: A. Patrick Doyle, its president, apologized by communicating through multiple channels such as a video and a Twitter account, which showed that Domino’s cared and was working hard to fix this situation. B. Its spokesperson, Tim McIntyre, established a scapegoat, by accusing the employees responsible for the incident, which showed the public that Domino’s was not responsible for its employees’ actions. C. Domino’s made public health, food safety, and recruitment processes its top priorities, which showed that it is taking steps in making sure this scandal does not recur. Patrick Doyle, its president, apologized by communicating through multiple forms of media such as a video and a Twitter account which showed that Domino’s cared and was working hard to fix this situation. Consequently, customers were able to relate the incident that was going on to a face, instead of a huge pizza chain. Patrick Doyle making this video showed that Domino’s really...
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...cause of the 2008 Global Financial Crisis was the Sub-Prime Mortgage Crisis and the bursting of the housing bubble of the United States. As banks perform suspect lending practices to almost everyone, the result was the house pricing index has increased. From an ambitious point of view banks encouraged potential owners to take further loans more than they are capable of in hopes of generating more revenue. The next highlighted flaw was how the executives contributed to the crisis. No regulation was in place to observe the quality of the loans. Regardless on how the mortgages were performed as long as it was delivered; brokers that supply the chain of mortgages and investment bankers reap the benefit of exorbitant bonuses irrespective on how the loan will perform over time. There was no accountability and all the risks were ignored. This as well did not stop after the collapse in 2008, after an injection of the stimulus; bankers continue to procure excessive salaries and compensations at the expense of taxpayers. The fourth foremost contributor to this crisis is the consumers themselves and the government. The government did not take necessary actions despite the crisis and continued to be subordinates under financial institutions, and consumers unrelentingly went on unsustainable credit loans and lived beyond their means (Gallery & Gallery, 2010). The 2008 Global Financial Crisis proves that capitalism is fundamentally flawed At this day responsible business leadership is embedded...
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...compensation packages which encouraged bankers to over-leverage themselves, and the collapse of the sub-prime housing market. While it is probable that some of these factors played a role in the crisis, none of them can accurately explain the near complete collapse of the financial system that began in late 2007. In fact, the cause of the financial crisis can be directly traced to the failure of government regulators to recognize the dangers of interactions between several different laws designed to protect the system. In their book entitled Engineering the Financial Crisis, authors Jeffery Friedman and Wladimir Kraus lay out an argument asserting that the crisis was caused by an unforeseen interaction between capital requirements for banks and the use of Mark to Market accounting methods. They further contend that there was a “master regulatory mistake that precipitated the crisis: using the bond ratings produced by Moody’s, S&P, and Fitch as the determinant of the capital levels required of banks by law” (Friedman 148). The book contains four chapters; the first is devoted to the refutation of several prevailing theories as to the cause of the financial crisis, the second and third explore the 2 regulatory failures which Friedman and Kraus believe are responsible for the crisis, and the final chapter is a more broad take on the psychology of market behavior as well as the ideology of its players, including regulators. The first element of conventional wisdom...
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...Prime Financial Credit Union’s Robbery Crisis Management Strategy Submitted by: Stephanie Koenig, Amy Seipp, Michael Hill, John Holmes Jr., & Charles Tate Introduction Crisis management is a complex process that requires competencies of individuals throughout and beyond the organization. When asked about their preparedness in the event of a crisis, banks will often point to plans prepared by operations officers, data processing managers and human resources supervisors. In the case of an uneventfully unplanned bank robbery at your local federal bank, being able to react quickly, efficiently and in an organized manner may result in defusing an unpleasant situation quickly, or at least in mitigating the overall adverse publicity received by your organization. If you are not organized and not cognizant that a crisis will arise at your institution, then your first reaction will be to panic. Banks and thrifts are tested in the marketplace by adverse circumstances. Those institutions with crisis management task forces in place can react in a manner that will mitigate the adverse circumstances facing the organization. Potential Crises Bank robberies are relatively uncommon: only about 2 of every 100 robberies are of a bank. Although violence is rare, employees and customers are at some risk of injury. If nothing else, being victimized can be terrifying. In addition, bank robberies can invoke fear in the community at large, as most are well-covered by the media...
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...What caused the financial crisis of 2008 and who is responsible for it? My original intent for this paper was to argue that market failure, particularly in the housing sector, was the primary cause for the crash. Unfortunately my research has lead me in a different direction. According to the discussions we had in class that means I should be arguing from the perspective that the crisis was caused by government intervention then, right? I’m not so sure that’s the case either. Instead I’ll argue that the financial crisis of 2007-08 and the following “Great Recession” were the result of a perfect storm of both regulatory and market failure. Senators Carl Levin and Tom Coburn lead a 2-year long Senate subcommittee investigation into the crash. In April 2011 they released a 635 page report on their findings where they concluded that there was indeed no singular cause of the crash. The bipartisan subcommittee implicates several primary causes. Inflated credit ratings on mortgage related securities are cited as being “…the most immediate cause of the financial crisis…” The two primary rating firms, Standard & Poors and Moody’s had been assigning risk profiles to mortgage related securities similar to that of Treasury Bills – widely regarded as the most secure investment you can make since the government can just print money to pay you. In July of 2007 both firms did massive downgrades that exposed how risky these investments actually were. The downgrades resulted in a...
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...about the financial status of the U.S. government. He or she would most likely have an awareness of the current debt crisis that afflicts our nation’s government, once thought to be impervious to economic decline. Fewer, however, would be aware of the extent to which the U.S. government bears financial burdens and the ways that the debt crisis impacts us as individuals. Overdraft, a documentary directed by Scott Galloway and sponsored by the Travelers Institute, seeks to explain how government spending shapes our wellbeing and provides potential solutions for reducing the national debt. The propositions offered in this movie prompt Americans to consider the ways that they can enact change to prevent the debt crisis from worsening. According to Overdraft, our current national debt amounts to over $14 trillion, and on our current fiscal path, this total will steadily increase. Several factors are responsible for producing this debt, including unpaid tax cuts, two expensive wars, and the recent economic downturn, which resulted in “the lowest revenues… and highest expenditures as a share of our national income in the past sixty years” (Overdraft). Our government’s lack of foresight in managing the national budget is not solely responsible for the current state of affairs, however. In fact, the recession of 2007-2009 was primarily a product of the collapse of the housing economy, the participants of which include the majority of middle class Americans, those who too freely...
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...loan market. The subprime mortgage market grew from $34 billion to $401 billion between 1994 and 2004 (Jennings, 2012, p. 434). The U.S. subprime mortgage crisis, fueled by record mortgage delinquencies and home foreclosures, and the subsequent collapse of mortgage-based securities followed by collateralized debt obligations (CDO’s), led to the financial crisis in the late 2000s. This paper will explore the impact of the subprime mortgage crisis on society and will discuss the roles government, corporations and individuals played. This paper will also offer suggestions on responsible behavior to prevent a recurrence. – Good introduction The History of Subprime Mortgages-- Good -- use one section heading for each question asked in assignments like this that have questions. The deregulation by the Federal Government of the banking industry starting in the 1980s is identified by many experts as responsible for setting in motion the events that resulted in the subprime mortgage crisis. A collision of unintended and intended consequences – regulation, greed, uninformed consumers. Subprime loans have been around for a long time. However, they were never meant for borrowers with less than stellar credit nor as primary loans – good point. ARM, balloon payment and other non-traditional loans were meant for individuals who needed a temporary loan to bridge them while they waited for another property to sell or other transactions to clear. These individuals then paid the loan...
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...What role did the Accounting profession play in the recent subprime mortgage crisis? What could they have done differently? There were many factors that led to the subprime mortgage crisis; low interest rates, greedy asset managers, and a booming housing market, to name a few. None were, in my opinion, more responsible for the crisis than the banks (lenders) and buyers (borrower). The banks approved loans for buyers who, one could not afford the loan, nor did not have the credit history to get the loan. Subprime borrowers were tricked into innovative mortgage products such as, 12/24 month adjustable-rate mortgages, interest-only loans, piggy-bank and the notorious negative amortization loans (Denning, 2011). These loans proved to be the catalyst that fueled the crisis in 2006. Accounting professionals played a role in the crisis, however, I feel that it was a small one. I say small due to the fact that, while they are professionals, they are still people. People with families, bills, and other obligations. I think that the pressure of having an employer pay them more because they are making more was a deciding factor for not blowing the whistle on questionable financial practices. The text speaks of ethics and unqualified, or clean opinions. “An unqualified opinion is not a clean bill of health about either the current financial condition or future prospects of the entity”. Knowing this we can surmise then even if the accounting professional did raise the flag on the risky...
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...1) Throughout this class we have discussed the conduct of the major players at financial institutions and their role in leading their companies to the brink of failure, and in some cases have been successful (Bear Stearns, Lehman & AIG). With that as a starting point how important is character and ethics? What role(s) do you think boards of directors should play and did they exercise their fiduciary responsibilities to the shareholders and employees? Money is an important character in various financial institutions, but by itself is not necessarily evil. Rather, it is something that is used to trade goods and services. We call it "currency", and it allows us to do business between organizations. Unfortunately, that is the sterile dictionary-type definition but it does not capture all the issues that are involved with finances. In corporate life, just like in many other realms, money causes all sorts of problems. People make incredibly bad decisions because of money, and plenty of people have gone to prison because of their money-related behavior. This is why people always approach money with a certain amount of uneasiness. Here are a few thoughts on why financial management ethics are important. The numbers do not have a soul, so they cannot govern themselves. They must be managed by people. Ethics are important because finances make people do some strange things. The spreadsheet does not have a conscience, and the goal of working with spreadsheets is to make numbers add...
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...for the financial crisis? What should business school do to help prevent similar crisis in the future? The financial crisis, a serious economic recession, has caused some destructive effects to many countries around the word. Now many people begin intensely to find out who should take the responsibility to this phenomenon. Some people aim their spear at business schools. Those people maintain that business schools are supposed to entail the global financial crisis. They also claim that the education of business schools in today’s world is trying to teach students how to seek the maximum personal interest instead of social interest that might lead to economic meltdown in order to increase the ranking rate of school. Others, however, hold contrary opinions. They believe that it is because of greed of individuals not due to the education of business schools. The contestation about this topic has been generally discussed as a result of the purpose of business school’s education. This article is going to point out the different views of whether business schools should be responsible to the global economic crisis and will give some suggestions of what business schools need to do to avoid the same crises that may happened in the future. There are some people who believe that it is irrelative to business schools but relative to greed. Professor Huw Morris, dean of Manchester Metropolitan University Business School, argues that there are lots of reasons why global financial crisis...
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...On the Crisis Management of the Modern Enterprise BIAN Tingting1, 2, TAN Zhanglu2 1 School of Management, Beijing Union University, Beijing, China, 100101 2 School of Management, China University of Mining &Technology, Beijing, 100083 teacherbian@126.com Abstract: Modern enterprises are facing more and more crisis from the external environment. This paper starts from the four major foreign crisis management theories, then analyzes the main problems of the enterprise crisis management in our country, finally it raises the three aspects ideas of the modern crisis management. The three aspects are named crisis prevention, crisis resolving and summer up after crisis. From the three aspects, we should strengthen the crisis management, and control the deterioration of the crisis in time to ease the crisis finally to turn crises into opportunitiesin order to minimize or avoid the loss of the enterprise caused by crisis. Keywords: Modern enterprise, crisis, crisis management 1 Introduction With the acceleration of economic and social globalization, internal and external business environment becomes more complex and changeable, and are full of uncertainty. This uncertainty has brought the potential for the enterprise crisis. Today's economic and social development is more than ever vulnerable to social conflict, terrorism, technological disasters, and financial crisis. Crisis exists anywhere and anytime...
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