ipl-logo

The Great Recession In The Big Short By Michael Lewis

1552 Words7 Pages

In the book The Big Short, Michael Lewis outlines all of the events that led up to The Great Recession in 2008. Lewis makes it clear that the recession could have avoided if those in the banking industry were not so greedy. Lewis expresses, “One trillion dollars in losses had been created by American financiers, out of whole cloth, and embedded in the American financial system”. This quote exemplifies how much of a hit the economy took in the end. Lewis starts off by explain the concept of mortgages, which he states were only invented ten years before Eisman started working in the industry He explains that these mortgage bonds were just “everyone’s mortgages bundled together and then sold later as a package” and the person who owns the …show more content…

They came up with the idea the bond would be divided in to sections called “tranches” and they would then be organized based on their quality. Instead of purchasing one entire bond, the individual “trenches” would be purchased. Even though purchasing individual trenches was considered riskier, the payout in the long run was worth a lot more money, due the fact the risk is higher. After realizing how corrupt things were and how they were “tricking the consumers” Eisman decided to start his own “hedge fund” focusing in on the subprime load market in hopes to make a chunk of change. He gathers Vincent Daniel, Porter Collins, and Danny Moses to help create his new …show more content…

Lewis now starts to discuss the other party that is involved which happens to be the party that owns the bonds, The AIG or American International Group, Inc. Lewis states that, “AIG FP makes a stupid amount of money—roughly $300 million per year by 2001, which is 15 percent of AIG's profits" . He also explains by 2004, AIG FP dropped smaller markets such as student and auto loans, in order to keep up with the subprime loan industry . Going and focusing on where the money is becoming a central idea that ends up leading too many issues which will be later discussed. By the end, Lippman ends up having complete control of the market and anyone who becomes interested in purchasing a credit default swap has to go through first in order to obtain one, which is how he ultimately makes all of his money . However, things do not go as smooth as he had planned. No one buys Lippman’s pitch resulting in his losing money

Show More
Related
141 Words | 1 Pages

In Addition to maldistribution stood the credit structure of the economy, some farmers were in deep land mortgage debt, so they lowered their crop prices in order to regain credit, and because the farmers were no longer accountable for what they owed banks. Across the nation the banking system found themselves in constant trouble. In America both small and large bankers were concerned for their survival, so they began investing recklessly in stock markets and granting unwise loans. These unconscious decisions would lead a large consequence, such as families losing their life savings and their deposits became uninsured. “ More than 9,000 American banks either went bankrupt or closed their doors to avoid bankruptcy between 1930 and 1933.”Although

Read More
476 Words | 2 Pages

Unfortunately, it clear that this plan would not work. Due to this outcome, Paulson was willing to pull millions of dollars from the government to help support the banking system and plunge the nation into a depression. The top bank CEOs summoned an emergency meeting at the Treasury Department where Paulson told the group they had to accept the $125 billion from capital American taxpayers do that the financial system could be saved. At the beginning of this process, Bank of America's CEO Ken Lewis was supportive of the plan but not long after. It was said that the “injection of public capital” was the beginning of unprecedented government involvement in the nation's banking system, with consequences few understood.

Read More
333 Words | 2 Pages

Great Depression Paper In the book “No promises in the wind,” we learned that the people that you have more personality and physical traits in common with those are the people that you butt heads with. One example from the book is Stefan the dad and Josh the older brother were very similar in the way they acted. One person I am the most common with is my mom.

Read More
1574 Words | 7 Pages

The Stock Market Crash of 1929 fell with a domino effect, driving people out of businesses, causing employers to fire workers because of money shortage, consequently, those workers to go broke and become homeless, and eventually setting the country into the hardly-reversible state of hardships that came with the Great Depression. Quite obviously, the country was impoverished. Panic arose as people started to withdraw all their savings from the banks as soon as they heard that the stock market had plunged, trying to keep their money safe and secure, manually. After breaking down the core issues of the Depression in his “Fireside Chat”, Roosevelt claimed, “I can assure you that it is safer to keep your money in a reopened bank than under the mattress.” This advice stuck with many after hearing their president speak so knowledgeably about the matter.

Read More
196 Words | 1 Pages

In The Anatomy of a Murder: Who Killed America’s Economy? Stiglitz interprets the main cause of the crisis was the behavior of the banks. According to Joseph Stiglitz, the "culprits" are the bankers, the investors, the politicians, and the economists. Corporate governance laws are partly to blame. Stiglitz explains that the bankers didn 't understand the risks.

Read More
255 Words | 2 Pages

The recent financial crisis is attributed in many ways to financial innovations in the mortgage market that made it easier for people with high risk of default to access credit. Although these financial innovations gave millions of Americans an opportunity to purchase a home, their overall social benefit is questionable (Johnson, Kwak 2012). In his address at the Federal Reserve Bank in Atlanta in March 2007 Ben Bernanke pointed out, that despite "the challenges and the risks that financial innovation may create, we should also always keep in view the enormous economic benefits that flow from a healthy and innovative financial sector" (Bernanke 2007). The goal of financial innovations is to make financial intermediation easier, moving capital to where it is needed most. Bernanke continued to state that financial innovations promoted economic growth, and made the economy more resilient to busts.

Read More
845 Words | 4 Pages

There were good and bad trusts; bad trusts inflated rates and caused corruption, good trusts benefited the people. Clifford Berryman, a Pulitzer Prize–winning cartoonist with The Washington Star newspaper, designed a picture of Theodore Roosevelt hunting two bears—one bear labeled “BAD TRUSTS” who Roosevelt has destroyed and is stepping on, one bear labeled “GOOD TRUSTS” who Roosevelt has in control and on a leash—in his cartoon “Cartoon of Theodore Roosevelt.” Berryman (Doc. 2) illustrated Theodore Roosevelt as he set out to destroy and control bad trusts, which also scared good trusts and caused them to reform themselves. Louis Brandeis, former American lawyer who served as an associate justice on the Supreme Court of the United States, discusses the destruction that trusts have done to our country in his book “Other People’s Money and How the Bankers Use It.” Brandeis (Doc. 7) states that financial independence was destroyed as each and every trust was created, but also identifies specific trusts that led to this

Read More
337 Words | 2 Pages

In the 1930s the worst economic depression America had ever and has ever faced occurred. It started in 1929 when the stock market crashed. After this banks all over America began to close, causing many Americans to lose their savings. By 1932 businesses were only producing half as much as they had before the stock market crash, hurting the economy even more. By 1933 a quarter of Americans were unemployed, leading to businesses making even less money.

Read More
1004 Words | 5 Pages

A fall in the stock market was inevitable, but no one expected it to come with much force. It was so severe that it “destroyed many of the investment companies,” and wiped out thousands of investors. And it “greatly reduced business and consumer confidence”. The global financial system at the time was in no condition to fix the downturn because it had grown used to the “Golden Standard”. The world was used to America being a large, successful industrial force, and so were Americans.

Read More
1166 Words | 5 Pages

1 THE LIFE OF J.P. MORGAN: BANK TITAN The Life of J.P. Morgan: Bank Titan Brooklyn M. Ward Bethel University U.S. History II Essay 1, Unit 3 Abstract In this essay, I will break down the life of the great J.P. Morgan.

Read More
234 Words | 1 Pages

Trust and consistent returns were characteristics that attributed to the success of Madoff’s operation. White collar crime is committed by educated people in positions of power, trust, and respectability (Ferrell, et al, 2013). Madoff was an educated individual and created an image of trustworthiness in his positions as Chairman of NASDAQ. He also operated a legal business, especially in the beginning that credited his success. Lewis outlines an incident with a longtime friend of Madoff and how trust initiated the investment.

Read More
1091 Words | 5 Pages

However, a legitimate perusing of Lewis' book will uncover that he and McKay fundamentally concur that the money related emergency and the colossal retreat ought to be faulted for the budgetary administrations industry. Lewis, truth be told, sees the tale of the money related emergency starting when he initially began dealing with Wall Street in the mid-1980s, exactly when speculation banks a) beginning opening up to the world and b) started to utilize more modern instruments like subsidiaries and home loan supported

Read More
559 Words | 3 Pages

In previous years the United States have gone through some rough economic times. During the 1930’s the Great Depression occurred and the Great Recession occurred in 2007 and has helped shape the US into a better economy so that it does not happen again. Both events had some similarities and differences to why they occurred and how they affected the people at that When the economy falls during a recession this causes many things to happen in the as an effect. Unemployment rates rose increasingly. During the Great Depression the unemployment rates were at 25%, which is extremely high for that time, and the rates for the Great Recession was 9% which is comparable to then because there are more people in the world than there was at the time of the Great Depression.

Read More
838 Words | 4 Pages

“Goldman Sachs marketed four sets of complex mortgage securities to banks and other investors, but failed to tell them the investments were very risky. In addition, the bank did not mention that it was itself betting that the investments' value would fall, indicating it sold products to clients it did not believe in backing itself”( bbc.co.uk). Publication of BBC News on April 14, 2011 reported a conflict of interest between Goldman Sachs and its clients. Two years earlier, in 2009, “The New York Times” claim that Goldman Sachs created and petted complex securities known as "synthetic collateralized debt obligations, or CDO's", while at the same time they bet against them (nytimes.com). There are also similar cases, “Adelphia Communication

Read More
1560 Words | 7 Pages

Wall Street and the financial crisis Hussain Alansari Submitted to Ian shears In fulfillment of course requirements for academic writing & presentation skills AWP100 Background In this essay, I will talk about the financial crisis of 2008. In the fall of 2008, America endured a staggering monetary breakdown, that’s when profitable securities lost most of the majority of their worth, obligation markets solidified, securities exchanges dove, and storied money related firms went under.

Read More

More about The Great Recession In The Big Short By Michael Lewis

Related Topics

Open Document