The Financial Industry: Bear Stearns

I appreciate that the banking sector is vital to the strong health and growth of our nation’s economy and directly affects each of us, however, many of these financial institutions took the funds and immediately paid out senior executive bonuses instead of using the money to back loans to the public. These executive bonuses were public record and created a massive outcry from the taxpayers, but even this seemingly greedy use of power was overlooked by the federal and state governments.

An individual that played a part in the crisis include Banker Angelo Mozilo of Countrywide, his stated goal was to lower the barriers for American’s to own homes. Though intentions in such a goal are admirable, it created an environment of failures as homeowners defaulted on loans. Countywide was purchased by Bank of America in 2008. Banker James Cayne of Bear Stearns faced criticism as his institution crumbled under his leadership. He was accused of being absent as hedge funds collapsed. As an example as poor leadership during the period he stepped down, and Bear Stearns was purchased by JP Morgan in 2007. Richard Fuld Jr., Banker of Lehman Brothers Holding Inc., moved his institution in the commercial real-estate market years prior to the 2008 collapse of the market. 2008 after filing for bankruptcy Lehman’s was also sold. These are just a select few of the institutional leaders that had an impact during the crisis, but they represent how different personal and organization ethics can impact a company. Other key players involve elected officials that made key decisions to share the nation of financial depression. Henry Paulson, a policy maker with the Department of the Treasury, refused to save Lehman Brothers Holdings Inc. from bankruptcy. Paulson was involved in the Troubled Asset Relief Program that was used for the bailout of banks, auto companies, and other financial institutions. Ben Bernanke, a policy maker with the Federal Reserve, was a key player in approving the funding for J.P. Morgan to purchase Bear Sterns Co.

All the firms turn to the hedge funds but failed and to bail the banks, Hank Paulson and Ben Bernanke asked the congress for 700 billion dollars.

These losses necessitated governmental action in the financial markets. Companies such as Lehman Brothers and Bear Stearns lost all of their stock’s value and were forced into bankruptcy. This risk spread throughout the American banks, forcing the American government to step in and buy all of the securitized, troubled assets from the balance sheets of

The banking crisis of the late 2000s, often called the Great Recession, is labelled by many economists as the worst financial crisis since the Great Depression. Its effect on the markets around the world can still be felt. Many countries suffered a drop in GDP, small or even negative growth, bankrupting businesses and rise in unemployment. The welfare cost that society had to paid lead to an obvious question: ‘Who’s to blame?’ The fingers are pointed to the United States of America, as it is obvious that this is where the crisis began, but who exactly is responsible? Many people believe that the banks are the only ones that are guilty, but this is just not true. The crisis was really a systematic failure, in which many problems in the

The Federal Reserve made emergency loans to the big companies in order to prevent large banks from failing when their investors frightened. With the stock market crashing, on October 3, 2008, President George Bush signed the Troubled Asset Relief Program into law. TARP used 250 billion dollars of federal money to “bail out” the banks, and later automakers including General Electric. Government-working accountants reviewed large Wall Street banks’ balance sheets and disclosed to the public which were sound in order to instill more confidence within investors.

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However, after five years of the financial crisis happened in 2008, is the “too big to fail” problem being solved or controlled? Jim Puzzanghera who published his article on Los Angeles Times insists that banks considered too big to fail are even bigger now. Puzzanghera provides his opinion based on the data he collected, “Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That's up to $2.1 trillion.” Puzzanghera explores that one main concern of coming out with a solution to this “too big to fail” problem is that Democrats and Republicans rarely reach an agreement on the problem. Most Democrats are willing for the federal authority to seize the power and to get rid of the firms if they are too big to fail while most Republicans do not want to force the banks to shrink. In stead of regulating those big financial firms, “the government's new power to seize large financial firms teetering near collapse could result in them being rescued instead of shut down, in effect enshrining

Additionally, when America’s economy was melting in 2008, the Federal Reserve played a big role to stabilize it. Besides the Great Depression during the years 1929 through 1939 the worst economic time for the United States, 2008 was unmistakable one of the worst years of America’s economy history. When this economic recession was taking place, the Fed had to take action to avoid another depression and to stop a fall from the financial system. With the help of the Federal Reserve J.P. Morgan Chase and Co.’s they planned to help Bear Stearns (an investment bank) with financial assistance to help the government to buyout AIG, a well-known insurance company. This helped to produce a strategy targeting to stabilize the credit market and also the short-term interest rate from 45% to almost 0 from the benchmark (Coste). Thanks to the Federal Reserve and their well design plan to avoid another recession they prevented the economy of the world or better known as Macroeconomic system from falling and getting it

Bush on October 3rd, 2008. Some of the recipients of this bail out were and continue to be large financial institutions including Wells Fargo & Co., JP Morgan Chase & Co., Goldman Sachs Group Inc., and Morgan Stanley. In this situation the banks are not only able to continue risky behavior, but take little to no responsibility for their actions in causing such a situation. Fundamentally, if the financial institutions were bailed out once it has set a precedent for other financial institutions to view and believe that taking part in risky behavior will not affect them in the long run.

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On September 10, 2008, Lehman Brothers announced the lowest decline as the shares dropped to 45%. It left the market value at $5.4 billion after the Korea Development Bank rejected to make an investment deal that could rescue Lehman. The company would seek capital from other investors in order to recover their financial situation. These efforts faltered and the situation grew more severe, even after the US government had already saved the Bear Stearns and Fannie Mae and Freddie Mac. Though it is less likely that the US government will keep Lehman's bailout, there should be a resolution from the Federal Reserve System to bolster Lehman’s finance so as to prevent the US economic declination.

Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have

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