6. The film the Inside Job highlights many deficiencies at all levels that contributed to the financial meltdown. Actions could have been taken in order to avert the meltdown.
The public ratings agencies such as Standard & Poor’s or Moody’s should have been accurately rating companies and investments rather than being concerned about protecting their business. It’s ridiculous that representatives would claim that their ratings are merely “opinions” and that they had no responsibility. (Inside Job) Can you imagine your home inspector saying their inspection was merely opinion and not standing by their work? In 2015 Standard & Poor’s agreed to a settlement of $1.4 Billion dollars for their role in the crisis. (Fortune, 2015)
The derivatives market absolutely should have had more regulation. Complex new investments were being developed that were not regulated and frankly regulators might not have understood. It is particularly worrisome that the derivatives market influences companies to make different business decisions than they otherwise would. This disconnect of the consequences of decision-making could cause fundamental structural changes in the way businesses operate.
In the CDO market, investors should not have been allowed to invest against the CDO failing. You ended up with AGI being on the hook on two sides when a CDO failed, both to the original investor, and then to those who speculated against the CDO failing. (Inside Job) 7. While it can be frustrating to bail out companies that made such unethical and dangerous decisions, the decision to bailout or not needed to be based on the ethics of the situation, not out of a desire to punish companies for their misbehavior. From a utilitarian perspective you would choose the action that created the greatest net benefits. If such a large percentage of banks were allowed to fail, the consequences would have been far reaching throughout the economy and not just affect the banks themselves. In addition, the loss of jobs would have been tremendous with widespread bankruptcies in the financial sector. As of March 14, Pro Publica reports that taxpayers have made a profit of $64.4 Billion or a rate of return of 10.4% on bailout funds. While not all firms have paid back bailout funds, taxpayers have earned back all of their investment plus a healthy return. These funds have been earned through repayments, dividends on held investments, sale of stock warrants, interest, fees, and sales of other assets. (Pro Publica, 2016) Many objections to the bailout were made since taxpayers had to foot the bill, since taxpayers have been repaid it should be less objectionable. 8. The financial industry lobbies to have regulations removed in order to generate more …show more content…
There was definitely a moral hazard at play in the financial meltdown. Mintz tells us that a “moral hazard occurs where one party is responsible for the interests of another, but has an incentive to put her own interests first.” (p. 183) Mortgage originators were responsible to work in the best interests of their mortgage clients. However, since the mortgages could be securitized and sold to investors, the mortgage originators were not subject to any of the risk associated with default of the loans. The originator could make more and larger commissions and this created a conflict of interest in representing the best interest of their mortgage
The public ratings agencies such as Standard & Poor’s or Moody’s should have been accurately rating companies and investments rather than being concerned about protecting their business. It’s ridiculous that representatives would claim that their ratings are merely “opinions” and that they had no responsibility. (Inside Job) Can you imagine your home inspector saying their inspection was merely opinion and not standing by their work? In 2015 Standard & Poor’s agreed to a settlement of $1.4 Billion dollars for their role in the crisis. (Fortune, 2015)
The derivatives market absolutely should have had more regulation. Complex new investments were being developed that were not regulated and frankly regulators might not have understood. It is particularly worrisome that the derivatives market influences companies to make different business decisions than they otherwise would. This disconnect of the consequences of decision-making could cause fundamental structural changes in the way businesses operate.
In the CDO market, investors should not have been allowed to invest against the CDO failing. You ended up with AGI being on the hook on two sides when a CDO failed, both to the original investor, and then to those who speculated against the CDO failing. (Inside Job) 7. While it can be frustrating to bail out companies that made such unethical and dangerous decisions, the decision to bailout or not needed to be based on the ethics of the situation, not out of a desire to punish companies for their misbehavior. From a utilitarian perspective you would choose the action that created the greatest net benefits. If such a large percentage of banks were allowed to fail, the consequences would have been far reaching throughout the economy and not just affect the banks themselves. In addition, the loss of jobs would have been tremendous with widespread bankruptcies in the financial sector. As of March 14, Pro Publica reports that taxpayers have made a profit of $64.4 Billion or a rate of return of 10.4% on bailout funds. While not all firms have paid back bailout funds, taxpayers have earned back all of their investment plus a healthy return. These funds have been earned through repayments, dividends on held investments, sale of stock warrants, interest, fees, and sales of other assets. (Pro Publica, 2016) Many objections to the bailout were made since taxpayers had to foot the bill, since taxpayers have been repaid it should be less objectionable. 8. The financial industry lobbies to have regulations removed in order to generate more …show more content…
There was definitely a moral hazard at play in the financial meltdown. Mintz tells us that a “moral hazard occurs where one party is responsible for the interests of another, but has an incentive to put her own interests first.” (p. 183) Mortgage originators were responsible to work in the best interests of their mortgage clients. However, since the mortgages could be securitized and sold to investors, the mortgage originators were not subject to any of the risk associated with default of the loans. The originator could make more and larger commissions and this created a conflict of interest in representing the best interest of their mortgage