It is common to argue that the financial disaster of 2007 – 08 was the reaction to financial innovations like collateralized debt requirements (CDOs) and credit default swaps (CDSs), created by greedy lenders who would not understand their particular creations (e. g. McDowell 2011). Do you really agree or perhaps disagree with this research? Give causes of your solution.
Greedy can be defined as having a good desire to have a lot more than you have currently got. The bankers mentioned in this piece, who were involved in the creation of products they recognized little about, fit this kind of definition properly. Collateralized debt obligations (CDOs) are an sort of one of these products. They are you possess linked to financial loan packages which have been sold to buyers for a price that reflects their degree of risk; and so are separated the originator with the debt in the bearer with the by-product. Parts of these CDOs are then supposedly covered by insurance by a complex financial device, known as a credit default swap (CDS), to free these people from any kind of risk they might have. However , due to their intricacy, the lenders who developed them would not comprehend the extent from which the economy could be affected by all their ‘risk free' innovation, and so their lack of understanding and their blindness to everything other than their own assets, led to the creation of just one of the main causes intended for the financial crisis. Through analysing and evaluating a variety of educational sources which will explore what causes the financial meltdown of 2007-2008, I aim to prove my argument that I agree with the analysis asked in the title- that as a result of greed and ignorance of bankers, all their financial innovations were the main cause of the financial crisis. This essay will start by talking about the opinions of Paul Mason on the awareness of bankers towards the items they were making and selling, the reasons at the rear of the creation of these items, and the impact that these economical innovations got upon our economy. It shall then take a look at the ramifications of Andrew W. Lo, Linda McDowell and Whilst gary Gorton towards features mentioned in the previous sentence in your essay.
To begin, this essay shall consider the viewpoints of Paul Builder in his book Meltdown: The finish of the Regarding Greed and his understanding of how knowledgeable brokers were regarding the financial innovations that they created. The deregulation in the financial system on 11 November 1999 enabled expense banks to hold the public's savings and also to function as insurance providers (Mason, 2010). Through manipulating their fresh freedom, bankers came up with a concept to produce a financial loan package which may be perceived to hold tiny risk- a CDO. Rating agencies then simply assessed that risk and due to the difficulty of the CDOs, they were announced risk free; as a result making them more appealing to buyers. Mason believes that the shaping of these financial innovations was driven by the greed with the bankers and the constant wish for more (Mason, 2010) which can be in support of my personal argument addressed in the introduction. The fact that he talks about an idea of neo-liberal ideology to confirm and legitimise greed tones up his understanding of the financial meltdown of 2007-2008. This ideology can be defined as some ideas that maintains a group of people in power can have financial dominium placed over them because the dominant have enough understanding for the group to concur together with the dominium (Mason, 2010).
This essay will now consider the interpretations of Bela McDowell. McDowell indicates in her document that the purchasers of CDOs knew next to nothing about their composition or regarding the risk involved, but which the bankers whom created these people had every single intention to locate a method of placing collateralised debt off balance sheets (McDowell, 2011). This can be in contract with the beliefs posed by Builder and my very own argument and thus can be seen to become significant element in the downturn of subprime lending. In her exposé, the American multinational bank corporation -JP Morgan- is given the blame and...
References: Builder, P. (2010). Meltdown: The final of the Regarding Greed. Greater london: Verso.
Lo, A W. (2012). Browsing About the Financial Crisis: A Twenty One Book Review. Journal of Economic Books.
McDowell, M. (2011). Producing a episode out of the crisis: symbolizing financial failing or a tragedy in five acts. Deals of the Company of British Geographers.
Gorton, G. (2010). Slapped by the Invisible Hands: The Stress of 3 years ago. Oxford College or university Press.
Akerlof and Shiller. (2009). Skittishness: How Man Psychology Hard disks the Economy, and Why That Matters to get Global Capitalism. Princeton School Press.