Global Financial Crisis: the American Bank Scheme

Topics: Morgan Stanley, Subprime mortgage crisis, Bank of America Pages: 7 (1797 words) Published: May 28, 2013
Ross Trivisonno

The U.S. government should have taken more action in strengthening the integrity and infrastructure of large investment corporations such as Lehman Brothers and Goldman Sachs, so as not to let them fall to the brink of bankruptcy--in the 2008 financial crisis.


Economic/Political Arguments
Subpoint 1: It is the U.S. government’s job to insure that corporations do not “dig themselves a hole” to deep to recover from.

--"The practice of calmness, of immobility, of certainty and security, suddenly breaks down," Keynes wrote. "New fears and hopes will, without warning, take charge of human conduct." This is the "herd behavior" that George Soros has identified as the dominant feature of financial markets. It is the government's job to stabilize expectations.”

Even by being calm and secure, new fears/hopes—“stimulators”—will control human behavior. This behavior is the main feature that manipulates many markets…It is the government’s job to regulate and stabilize this.

Citation: Skidelsky, Robert. "The king is dead. Long live the king. (Comment)(BUSINESS CYCLES: TEETERING BETWEEN KEYNES AND FRIEDMAN)(Financial report)." Globe & Mail [Toronto, Canada] 16 Sept. 2008: A19. Global Issues In Context. Web. 1 Oct. 2012.

--“…Lehman Brothers was forced to seek bankruptcy protection yesterday, while an even bigger institution, Merrill Lynch, was pushed into a merger to avoid the same fate. And American International Group, the largest insurer in the United States, declared that it needs at least a $40-billion (U.S.) lifeline to shore up its deteriorating capital base and prevent credit downgrades. The U.S. government, which had earlier stepped in to salvage two battered mortgage giants, drew the line at Lehman Brothers”

Many great corporations were recently put in jeopardy—bankruptcy, forced acquisition, or worse. Our government refuses to rescue Lehman Brothers and others as it had just managed to save to other large mortgage companies.

Citation: "Far-reaching collateral damage. (LEHMAN BROTHERS INSOLVENCY)(Editorial)(Financial report)." Globe & Mail [Toronto, Canada] 16 Sept. 2008: A18. Global Issues In Context. Web. 28 Sept. 2012.

--“The nation's economy is not just the sum of its individuals. It is an interwoven context that we all share. To stabilize that communal landscape, sometimes you have to shower money upon those who have been foolish or self-indulgent…And at some level, we're all in this together.”

In way, it is the government’s job to stabilize our economy—not so much as to regulate and control it (mercantilism)—but to give money to companies that have dug them selves too deep, and cannot get out of their mess. In some ways, we are all in this business to compete, but also to help each other. That is especially the government’s duty.

Citation: Brooks, David. "Money For Idiots." New York Times 20 Feb. 2009: A31(L). Global Issues In Context. Web. 19 Oct. 2012.

Subpoint 2: Although the U.S. government rescued many major corporations, the Feds should have done more to save these companies.

--“Merrill Lynch

Its shotgun marriage with Bank of America is now drawing fire from government investigators.


Bailed-out bank lost 70 percent of its value, now gasping along on life support from U.K. government.”

Merrill Lynch’s rapid merger is now gathering bad publicity from the government. It was sloppy, quick, unplanned, and cost thousands of jobs. RBS—a Scottish bank—is currently hanging by a thread from the U.K. government as it recently lost 70% of it’s net worth value.

Citation: "Conventional Wisdom." Newsweek International 28 Sept. 2009. Global Issues In Context. Web. 5 Oct. 2012.

Social/Cultural Arguments

Subpoint 1: The culture at Goldman Sachs (and many other investment firms) is poor and reckless making for unhappy customers and a “dirty” company; therefore, officials should have stepped into the picture.


Citations: Carney, John. "Crash of the Titans: Merrill Lynch 's salvation spelled Lehman Brothers ' doom." The American Conservative 7.20 (2008): 10+. Global Issues In Context. Web. 4 Oct. 2012.
Social/Cultural Arguments
Subpoint 1: Even though the culture was not up to par, it was brought to the executives’ attention—and the company is willing to change.
““It was, said Edward Hill-Wood, executive director of Morgan Stanley 's European media team, "one of the clearest, most thought-provoking insights we have seen, so we published it". This says a lot about the stuff produced by the grown-ups at Morgan Stanley.””
“It was one of the most direct, concise, and stimulating internal views we have ever been exposed to”, said Morgan Stanley’s European media team director—Edward Hill-Wood.
Citation: "CITY investment bank Morgan Stanley [...]." Evening Standard [London, England] 14 July 2009: 13. Global Issues In Context. Web. 5 Oct. 2012.
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