About The 2008 Financial Crisis-Gocela

Name: Jhelo N.
Gocela
Course/Section: ACT171-C2
Title: Key Information About the 2008 Financial Crisis
Banks that failed because of the 2007-2008 Financial Crisis are said to be more than
500 in the span of seven years, starting in 2008 and ending in 2015. But the institutions
that experienced the largest failure were the investment banks, including the Lehman
Brothers, which was denied the bailout offered by the government and eventually led to
them shutting their doors, marking the largest bankruptcy in the history of the USA, and
Bear Stearns, which was purchased by JPMorgan for a very cheap price. There is also
what is considered the largest bank to ever fail, IndyMac (Singh, 2023).
Several institutions in the US that was greatly affected by the crisis, including the five
investment banks—Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and
Morgan Stanley—where the SEC loosened their net capital requirements and made
way for them to levy their initial investment by up to 40 times. By June 2007, Bear
Stearns will no longer be redeeming from two of its hedge funds, marking the seizing of
Merrill Lynch's $800 million assets from those funds. Also, the Wall Street banks and
subprime mortgage company, New Century Financial, are said to have filed for
bankruptcy protection in 2007 because of the $60 billion in loans they made in 2006,
which eventually led them to file for bankruptcy in April 2007 (Singh, 2023).
As much as those institutions closed their doors for good, the biggest banks that starred
in the movie called "Too Big To Fail" include JPMorgan, Goldman Sachs, Bank of
America, and Morgan Stanley, which emerged even bigger after they took the bailout
and after the recession.
The roots of the crisis can be traced back to very low interest rates and relaxed lending
standards that became a way for housing prices in the US to go up so that even
subprime borrowers who have high credit risks were able to buy a house. And there are
collateralized debt obligations (CDOs), which are known as low-risk financial
instruments that are composed of sold loans from banks. Although not the main factor in
the Great Recession, CDOs were a major contributor.

During the financial crisis, a decrease in the value of the CDOs' underlying
commodities—primarily mortgages—led to the crisis. Also, their rapid increase in the
banking community is said to be the cause of the Great Recession. Also, their rapid
increase in the banking community is said to be the cause of the Great Recession. And
during those times, millions of homeowners defaulted on their loans, which caused the
collateralized debt market to collapse (Singh, 2023).
In October 2008, the government approved the Wall Street bailout package, which will
assist financially distressed financial institutions. This includes them buying so-called
"toxic assets", investing in stock shares of banks, and also providing financial aid to
Fannie Mae and Freddie Mac. According to Investopedia.com, the total cost of the
financial crisis that the government has paid was a total of $1.48 billion allocated for the
bailout of different banks such as Bear Stearns ($30 billion), Fannie and Freddie ($187
billion), ARRA Tax Cuts and Spending ($831 billion), and TARP Bank ($440 billion). Due
to this, the stock market stabilized, but the damage was so immense that millions of
Americans lost their homes, and unemployment skyrocketed to 10%.
According to the Corporate Financial Institutions, the definition of financial market is "A
marketplace that provides an avenue for the sale and purchase of assets such as
bonds, stocks, foreign exchange, and derivatives". It plays a very vital role in the
economy and capitalism because it helps to smooth their operations. Also, if these
markets fail, it can result in different financial crises, including recession and
unemployment. Which is why it is very important to know about the causes, risks, and
effects of these economic failures, specifically in the finance sector, to better assess
how to operate efficiently and to eliminate, or lessen, the damage if ever these events
occur in the future.
The movie "The Big Short" depicts the different professionals, also known as the Wall
Street greed (Singh, 2023), who profited from the rise and fall of different financial
institutions in the 2007-2008 Financial crisis, which eventually led to the Great, and one
of those individuals is Mark Baum, played by Steve Carell. Baum is a hedge fund
manager who is one of the clients of Jared Vennett (Ryan Gosling) who is a Deutsche
Bank executive. He is one of the individuals, along with Burry and Vennett, who
predicted that if the housing bubble pops, it will cause the US economy to collapse. .
Baum is responsible for the shorts in the financial sector. The situation was CDOs were
given an AAA credit rating. In doing so, he faced dilemmas such as being accused of
wanting to change the ratings for his personal gain, but his intentions were contrary to
that; he wanted the rates of the bond risk to be accurate(Murray, 2016).

Here are some financial terms that I believed were discussed in the film "The Big Short".
First is the housing bubble in which house prices rose rapidly until they collapsed due to
demand, speculation, and excessive spending (Investopedia, 2020). Also was the term
wall street which is synonymous with the financial industry and the firms within it. Also
this notion stems from the historical prevalence of brokerages and investment banks
with headquarters located on or near the street(Murphy, 2023).
Short here is a term that entails borrowing something, then selling it on the open market
with the intention of later purchasing it at a discount and profiting from the price
difference (Baldwin, 2021). Also discussed is the subprime meltdown, which began in
2007, the abrupt rise in high-risk mortgage defaults contributed to the worst recession in
decades. (Kenton, 2022). Credit default swap or CDS which is a type of financial
derivative that enables investors to swap or offset their credit risk with those of other
investors(Hayes, 2023).
Also includes the previously discussed CDOs or the collateralized debt obligation. The
AAA Credit rating which is the highest rating that any of the major credit rating
companies may give an issuer's bonds(Chen,2023). And the rating service which is
defined as an evaluation of the security of debt and preferred stock issuance (Kenton,
2022).

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Name: Jhelo N.

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