Thursday, June 6, 2019
Money, Power, and Wall Street Essay Example for Free
Money, Power, and Wall Street EssayThe meltdown of 2008 struck the coin banks when they were unable to adequately chaw with the financial crisis. Banks are designed to create and protect ones wealth, but they took advantage of the people, and let people take many loaning risks that they couldnt afford. Banks created the realization default swap which transferred credit of fixed income products between parties. In learning about the credit default swap in class, it is understood that the vendee receives credit protection, whereas the seller guarantees the credit. Therefore, the risk of default is transferred from the holder to the seller of the swap. But swaps allowed companies to shed the risks they didnt want to take. When the banks first created the swaps, it gave investors the opportunity to invest in bank loans.From there, banks sold derivatives on all portfolios by synthetic investment. Investors were able to invest in credit default swap and make it grow. Credit then be came a more available asset which stroke employment. Now all banks wanted credit derivatives which are privately held negotiable contracts that allow consumers to manage their exposure to credit risk. The main problem with this was they assumed risk could be eliminated, but it couldnt. In order to regulate derivatives, Congress passed the Glass-Steagall Act in 1933 to establish deposit insurance, and enforced a number of banking regulations. As learning in class, this affected every business in America.There was now a high rating, and high yield. The king-size return was bankers now bought bundled mortgages. Homebuyers were able to pay double, but lending was too much making people going bankrupt in home mortgages. Borrowers gave loans great than the value of that loan, which made the financial bubble burst, creating a recession. With bankers ignoring all the possible risks from the beginning, they feel into a deep crash. Goldman Sachs was the only bank to make money pip the bub ble burst by betting against their clients.