Too Big to Fail
A Film by Curtis Hanson
Too Big to Fail is the idea that a business has become so large and ingrained in the economy that a government will provide assistance to prevent its failure. "Too big to fail" describes the belief that if an enormous company fails, it will have a disastrous ripple effect throughout the economy. Read more: http://www.investopedia.com/terms/t/too-big-to-fail.asp#ixzz2GLsRVMT1
The movie was able to capture the events, decisions and strategies made both by the government and the private financial institutions during the US Financial Crisis. Which concept discussed in class was emphasized or demonstrated during the height of the financial crisis. Explain your answer.
The financial crisis that is discussed in the film “Too Big to Fail” is the effect of market and regulatory failure. The market failure took place for the reason that shareholders were not able to protect their own interests and neglected the fundamental measures needed to be done. In companies that reinforced excessive risk taking, compensation structures which show the framework of relatinships between the firm and its independent agents, and among the agents themselves, on the basis of which commissions are computed and along which they are passed on, were constituted. Even when lending regulations had become rigid, banks deliberately bought mortgages. Meanwhile, thousands of officials who were expected to do their jobs and watch the stocks and funds, failed to protect large establishments. Even with the warnings conferred to them about the crisis close at hand, they chose to disregard it, keeping in mind that the market could modulate itself. To prepare for future disturbances like this, finding for a method that will make market incentives benefitial is necessary. Making such system will take time and effort but it is understandably essential so that the well-paid officials who are highly-fit for the job have use when they are called for. The concept discussed in class that was emphasized in the film is Keynesian Theory – an economic theory named after British economist John Maynard Keynes. The theory is based on the concept that in order for an economy to grow and be stable, active government intervention is required. (Read more: http://www.businessdictionary.com/definition/Keynesian-theory.html#ixzz2GLkpwtz). The problem that triggered the financial crisis is the lack of intervention and effort from financial and external sector which mainly resulted to a contagion effect.
In your opinion, which part of the movie showed or discussed the most critical point in the series of events that happened during the US Financial Crisis. Explain your answer. Include discussions on what could have happened if the decisions made by the government officers were different.
Michele Davis: They almost bring down the US economy as we know but we can't put restrictions on how they spend the $125 billion we're giving them because... they might not take it! [the Assistant Secretary of the Treasury for Public Affairs upon hearing that the 9 bank CEOs may refuse to take free money from the federal government if they had to be held accountable for how they spent it]. In this scene, it goes to show that banks cannot come clear on how the money goes in and out. With this being said, there is no wonder as to how the crisis started. The Chief Executive Officers of those 9 banks cannot bear the blame once things end up badly because they clearly know that money laundering is indeed taking place. They refuse to accept the money since they themselves are aware that the money that they will get will be used in different ways and purposes.
To a certain extent, the same financial crisis…
could happen in the Philippines in the future.
is sometimes experienced in the Philippines today
is always observed in the Philippines today.
will never happen in the Philippines.
Even if a country has a good...
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