The debacle that is the subprime crisis is said to be one of the worst in history, and sadly, I do not think we will learn enough from it. There are many factors that contributed to this situation and I will try to focus on a few I feel are most important. I realize that this is a finance class and the focus should be on the financial institutions aspect, however, this scenario played out in the real world where there are almost infinite variables. As a 1st generation immigrant, I can appreciate
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Executive Summary: The objective of this report is to evaluate investment opportunities for Strategic Capital Management, LLC regarding stocks of Creative Computer and/or its subsidiary firm Ubid. The analysis deduces arbitrage to be the best investment strategy. Strategic Capital Management (SCM), LLC: SCM is a recent entrepreneur venture founded by Elena King and two of her fellow classmates. The company has currently generated 20 million dollars and aims for annual returns of 10 percent
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11-8-2011 Financial Markets & Inst Dodd-Frank Assignment The Dodd Frank Act has been created as a regulatory reaction from the recent financial crisis. The magnitude of its implications and provisions has not been seen since the great depression and will be conducted as a major overhaul to the financial systems rules. Financial regulation within a system that clearly had ulterior motives and lacked market discipline is inevitable. Without clear transparency of what and how borrowers are
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finance, “fire sale” has been adopted to describe the distressed sales of assets at prices well below their true value. This deviation of asset price is a key amplifier during financial crisis and often acts as a contagion, spreading illiquidity problems to firms in similar industries (Caballero 2009). In the 2008 crisis, large losses for a bank would force this bank to sell assets at distressed prices. This process would force other banks to re-value the same assets at a lower price and would cause
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Do you believe that the US government treated some financial institutions differently during the crisis? Was that appropriate? The issue faced by Lehman Brothers is just a consequence of bad decisions from many parties involved. The fact that this investment bank had been the only one that didn't receive any governmental help, begs the question why the US government did not struggle to let Lehman Brothers survive. Many issues were out of control. Merrill Lynch, another major investment bank, was
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The harder you push the harder the system pushes you. When stock markets plummeted. It was pretty obvious to the rest of the world that the US is in a financial crisis. Lehman Brothers Trading Company was on the brink of bunkrupty and it was to everyone's best interest that they will be able to stabilize to prevent the inevitable crisis. However, no matter how much time, money and effort both the private and public sectors had invested in the matter. Lehman Brothers declared bunkrupty. And because
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derivatives and invested in mortgage-related investment portfolios and collateral calls on credit defaults (Actions Related to AIG). An associate company of AIG was writing insurance in the form of credit default swaps. These swaps offered buyers protection against losses on debts and loans of borrowers in the amount of $447 billion (Gilani, 2008). AIG also participated in collateralized debt obligations (CDOs) that mainly incorporated subprime mortgages and Alt-A mortgages, just to name a few. AIG
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There are three parties that share responsibility for the AIG bailout situation. The first fault lies with the ratings agencies. These agencies (S&P, Moody’s) gave AAA ratings – the highest level of creditworthiness – to the underlying securities that backed the CDS’ that AIG sold. This misrepresentation of the nature of these securities occurred either because of negligence on the part of the ratings agencies or by fraud. In either case, AIG perhaps did not realize that the securities on which
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The section of the reading that I also found interesting was Incentive Pay. The article I found further discusses this topic by weighing the benefits and drawbacks of incentives. What drew me to read this particular article was its title “Why Incentives are Irresistible, Effective and likely to Backfire” This article discusses that though incentives are irresistible to employees and are effective in increasing job performance, it sometimes has negative consequences. For example, the authors states
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Investment Banking in 2008 (A): Rise and Fall of the Bear 1. What role did Bear’s culture play in its positioning vis-à-vis its competitors, and what role might that culture have played in its demise? Bear Stearns played a risky role with the promise of high returns. Bear was participating in the LTCM and created a bubble. Bear’s competitors recognized and hedged against risk by participating in the buyout while Bear Stearns ignored the bullish market. Other banks hired both externally as
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