2008 Financial Crisis Essay Example

Bear Sterns. Instead, he focused solely on immediate problems and did not consider long-term consequences while managing the 2008 financial crisis. The collapse of Lehman Brothers affected major investment banks and had severe repercussions for AIG, Fannie Mae, and Freddie Mac which ultimately impacted global economy. Despite making mistakes in his decision-making process, I believe that Hank Paulson acted impartially as Treasury Secretary even given his background at Goldman Sachs. His actions towards Bear Sterns, Lehman Brothers, and Merrill Lynch demonstrate that he prioritized larger companies over smaller ones.

The focus of his decisions was on benefiting the economy of the entire country, rather than individual companies. Question 2: The current economic crisis in the European Union leaves uncertainty as to whether full political integration or disintegration will be achieved. Nonetheless, it is my belief that abandoning the Euro cannot be avoided and progress towards political integration is necessary to resolve the debt crisis. The economic situation in Europe resembles a domino effect where if one collapses, the rest will follow suit.

The situation of the European Union can be compared to the American finance system during Lehman Brothers' bankruptcy. The bankruptcy affected many investment banks in America, leading to a need for Capital injection. Similarly, the problem facing the European Union extends beyond one country, affecting all countries within it and even the global economy. The Euro acts as the unified economic system of the European Union but requires fiscal federalism and coordinated economic policies to function effectively. Hence, credible long-term strategies in political and fiscal union are necessary for achieving short-term financial stability in Europe.

At present, the crisis in Europe goes beyond the economic and

political spheres. Therefore, it is imperative for European leaders to restore the European idea as their foremost priority. Despite the debt crisis, the central European entity remains capable of generating revenue at a federal level to provide public goods for all. It is crucial for the EU to remind everyone that the stability and growth of public prosperity in Europe and the rest of the world are results of working towards unity. Undoubtedly, European integration has contributed to economic prosperity and the absence of war. This is why increased European integration is the only solution to future problems and challenges.

Question 3 asks about the firm responsible for the 2008 financial crisis. It also inquires about what actions this firm took that others did not, and whether or not this firm survived the crisis and still exists today. Additionally, the role of Warren Buffet in this crisis is questioned, along with the number and identity of investment banks impacted by the crisis. Furthermore, it is asked if any investment banks benefited from the crisis and if so, how. The bankruptcy protection of Lehman Brothers caused many companies that invested in them to suffer due to their sudden large losses. AIG is identified as bearing the greatest responsibility for the financial crisis, as their troubles could spread to numerous companies and countries, leading to a worldwide financial crisis, especially affecting Europe. The closure of systemic financial risk had no control and the collapse of the financial system would cause massive unemployment and affect countless old-age insurance and social security intermediaries.

The potential outcomes were beyond imagination. It is my belief that AIG agreed to become publicly owned with

the assistance of the government, an action no other company was willing to take. Due to the significance of AIG, the government was compelled to provide substantial support, or else the financial market would weaken and families could face decreased wealth. The company borrowed money that was secured by all of its assets, and the sale of these assets was anticipated to generate sufficient proceeds to maintain a balanced budget.

Hence, this company persevered and remains operational thanks to Warren Buffet's vital contribution during the financial crisis. Buffet made three appearances in the movie, with the first involving his offer of assistance to Lehman Brothers, which they ultimately turned down. Secondly, AIG reached out to Buffet for aid, but he declined. Finally, when Goldman Sachs was on the brink of collapse, Buffet provided a solution by investing 5 billion and successfully drawing in an additional 5 billion from other investors.

In essence, Warren Buffet's appearance served as evidence of Dick Fuld's grave error. Buffet acted as a lifeline for the various investment banks, including Goldman Sachs, J. P. Morgan Chase, Citi Bank, Morgan Stanley, Wells Fargo, State Street, Bank of America, New York Mellon, and Merrill Lynch, that were affected by the financial crisis and subsequently paid out.

The government provided a total of 125 Billion in the hopes of restoring the credit of bonds and encouraging borrowing instead of cash withdrawals from banks. The rewards to be gained were either money or cash from the government. With regards to the Kmart/Sears case, considering our class discussion, would you have suggested investing in/acquiring Sears? Explain your reasoning. Additionally, would you recommend investing in Kmart afterwards? Please clarify

your reasoning. Personally, I would recommend investing in Sears since it is more accessible in Iowa compared to Kmart.

Sears has a superior location compared to Kmart due to its presence in most malls. Acquiring new locations would come at the cost of increased leverage and entail venturing into off-mall areas for the first time. Despite this risk, Sears stands to benefit from the vast majority of Americans who prefer to shop at malls, thereby attracting a considerable customer base.

Investors can benefit from the guarantee of Sears's sales and profit with low risk. This is a good idea, as seen in Sears's balance sheet in a textbook. In December 2002, Sears had assets worth 50,409 million and debt of 3,755 million, indicating high income. On the other hand, investing in Kmart may not be recommended due to its unimpressive location and lack of competition potential in the market. This could potentially harm its profit every year.

The asset on Kmart's 2002 balance sheet is 11,238 million, indicating it has a strong asset base. However, with a liability of 8150 million, profits are not as favorable compared to Sears, which may yield lower earning returns for Kmart investors. Furthermore, due to poor management of their internet endeavors and inability to maintain their supply chain at low costs like Wal-Mart and Target, Kmart experienced low sales per square foot and garnered customer complaints about disorganized and run-down stores.

Technology was used by Mal-mart to decrease inventory and benefit from a considerable price advantage, something that Kmart executives were unsuccessful in defeating. Consequently, Sears is a better investment option compared to Kmart. Considering our viewing of Too Big

To Fail, we observed that Dick Fuld from Lehman Brothers was portrayed as committing several management errors during the financial crisis.

Discuss the two major errors committed by Dick Fuld of Lehman Brothers that led to the company's bankruptcy, along with the reasons behind their critical nature. The film Too Big To Fail shows that Fuld's decisions resulted in the need for his company to file for bankruptcy. Following Hank Paulson's ruling, Fuld had to search for potential buyers to merge Lehman Brothers. At the start of the movie, Warren Buffet expressed interest in the company and made an offer to merge it. However, Fuld declined Buffet's assistance, believing that his proposed price was insufficient.

The entire movie reveals that Warren Buffet invested 5 Billion dollars into Goldman Sachs in order to help it survive. As the sole financial company to receive Buffet's assistance, Goldman's popularity soared and attracted additional support from investors providing another 5 Billion to the company. Had Dick Fuld not been so arrogant and conceited, Goldman would not have filed for bankruptcy and lost its company. In other words, if Fuld had accepted Buffet's offer to merge at a low price, he could have saved his company and potentially attracted more customers or investors due to Buffet's widespread popularity.

Dick Fuld's initial decision was a major blunder, causing critical consequences for him. Another mistake was losing support for his company's acquisition. When Korean investors checked Lehman Brothers' info, they decided to hold off and were unhappy with Dick's attempts to make changes. Unfortunately, their view was Lehman Brothers lacked credit, resulting in a missed opportunity. Compared to Warren Buffet's

deal, it's clear the first error was larger. Buffet's involvement brought Lehman Brothers more benefits.

Had he cooperated with Barclays, the British company would not have put him in a troubling situation before the stock market opened. As a result, he would not have faced frustration late at night and made the decision to file for bankruptcy protection with his board of directors. I believe that his poor decision-making was influenced by negative personality traits as he struggled to gain popularity due to criticism of his management style and perceived arrogance. Even though he was an established investment bank, he believed that he could handle the situation better than even Warren Buffet; however, this perception proved incorrect as he encountered significant trouble early on. His hope was that the government would be his safety net in such a scenario.

The possibility of his company declaring bankruptcy would lead to a substantial financial crisis since several significant companies have invested in it, making it as crucial as investment banks like Goldman and J.P. Morgan. Although the government would not forsake his company for this reason, he failed to foresee being the only one left behind.

Despite having faith in the government, some argue that he cannot be held accountable for his mistakes as the government did not provide him with the expected response or assistance.