2008 Financial Crisis

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Question 1
Hank Paulson played a critical role in the financial crisis of 2008. How did Mr. Paulson help create the environment that led up to the financial crisis? What mistakes did he make as Secretary of Treasury when he had to manage the financial crisis of 2008? Do you think Mr. Paulson acted as an unbiased Secretary of the Treasury or did his background at Goldman impact his thinking and his actions?

As Secretary of Treasury, Hank Paulson’s lax supervision let too many subprime mortgage bonds get into the market. The investment banks purchased this big short, which was like a time bomb. This was the environment, which Mr. Paulson created to lead up to the financial crisis. In March 2008, the Wall Street fifth investment bank, Bear Sterns, got trouble, as it set foot in subprime mortgage market and the real estate bubble began to burst. Because of the ability to figure out the problem, Bear Sterns was the first one to have the liquidity crisis so that the whole market panic. Fed reserve and DOF decided to let J.P. Morgan purchased Bear Sterns, and Fed Reserve paid more on the loss, which we call the government gave Wall Street the bailout. And then, as the collateral economy, the third and fourth investment banks, Lehman Brothers and Merrill Lynch, got trouble some days later. As government was facing serious pubic duties for the bailout last time, they decided not to help Lehman Brothers and Merrill Lynch and gave a hand to the other Wall Street financial companies to merge them to ride out this financial storm. Unfortunately, BOA was more interested in Merrill Lynch. Lehman Brothers had to seek the other company to get help. Barclays tried to merge Lehman Brothers, but British decided to give up this deal at the last critical moment so that Lehman Brothers had no choice to apply for bankruptcy before the stock market opened on Monday.

However, I think Hank Paulson’s mistake was that he didn’t advance the internal forces of the government to solve the problems of Lehman Brothers, like they did on Bears Sterns, and again and again to deal with the immediate problems without considering the consequences in the long run, when he had to manage the financial crisis of 2008. Lehman Brothers’ bankruptcy not only spread to the other big investment banks, but also affected seriously to AIG, Fannie Mae and Freddie Mac in order to influence the whole world’s economy. Although Hank Paulson made some mistakes on his decision, I still thought he was an unbiased Secretary of the Treasury, even the special background at Goldman. From his decision on Bear Sterns and giving up to use government’s force to help Lehman Brothers and Merrill Lynch, I could find out that he was the person who took care of the bigger companies. His each decision was to help the country’s economy, but not any specific company.

Question 2
Do you think the European Union will move towards full political integration or do you think the EU will eventually disintegrate?

The European Union is facing their economic crisis, the question concerning about whether the European Union will or will not fully toward integration is really depend on them. However, in my opinion, they will “have to” finally give up on the Euro, and European Union should move toward political integration to end the debt crisis. The whole European economic is somewhat like the domino effect, which is if one down, the rest of will go right after it. It might be not extremely appropriate to compare their situation to the American finance system, but something similar is when Lehman Brothers finally declared bankruptcy, most greatest investment banks in the America were hurt by its bankruptcy, and eventually lead to Capital injection. The European Union has a unified economic system, which is Euro; their problem is not just about one country, but all the countries within the European Union, and even the whole world. Moreover, a monetary union can’t work well if they don’t...
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