Inside Job

Topics: Subprime mortgage crisis, Subprime lending, Mortgage Pages: 8 (2833 words) Published: May 13, 2014
RE 383-920: Macroeconomics 1
Winter 2014 Instructor: Dr. Faisal Rabby
383-920-RE
MACROECONOMICS

End of term project: Movies and Case Analyses (15%)
Note: Both of the following movies are available on Netflix.com. Netflix has a one-month free trial membership. You have the choice to close your account before the trial period ends.

1. Watch the movie “Too big to fail” and answer the questions attached here.

2. Watch the movie “Inside Job” and answer the questions attached here. ( Watch here for free: http://vimeo.com/57527797 )

3. Read the article “The Article “Canadian Housing Bubble? 9 Signs We're In For A Major Correction”, and answer the questions at the end of the article. Here is the link to the article: http://www.huffingtonpost.ca/2013/11/11/canada-housing-bubble_n_4255889.html

Guideline: Format of the Paper

1. Your paper must have a cover page with your name, course section, and my name on the bottom right hand side of the page, and a title on the middle (slightly top) of the page. 2. The paper must be clean and organized. Print your paper in advance and make sure that it is legible, clean, and professional. Do NOT forget to staple. Do not submit in binders/folders/files etc.

DUE: Wednesday, May 7, 2014 at the benigging of class (- 10 percent penalty for each day that the project is late, including weekend days)

Note: Students MUST submit a hard copy to me and an electronic copy on LEA

Questions based on “Too Big to Fail” movie
Watch the movie and answer the following questions briefly. Upload your answers on Moodle using the Link “Submit Assignment on Too Big to Fail here”

1. (Up to about 25:00) Why did Henry Paulson have to call all the CEOs to make a private sector deal? What deal? Why did Henry Paulson think that a private sector solution, instead of government bailout, was needed?

2. (Up to about 43:00) Why did the Lehman Brothers sell not work out? (up to about 48:00) Why did Paulson want Lehman Brothers to file Bankruptcy before markets opened?

3. (From about 53:00) Why did the markets in Europe and the USA still panic after Leman Brothers' fall?

4. (From about 53:00) How does the real economy (industries/corporations) get affected by a financial sector panic? You can use the example of General Electric.

5. (From about 42:40) Why couldn't the government let AIG fail? How was AIG entangled with the entire global financial market? Why would the other major banks go under if AIG failed?

6. Many people argue that the govt. should have bailed out the homeowners by directly giving monetary support to the homeowners, not to the big banks who had messed up with people's money. They argue that in that way homeowners would not have to go for foreclosures and home-price would not fall, and that would save the banks' balance tables too. Why do you think the system could/couldn't be saved that way?

Questions based on the movie Inside Job

Background:
Although the basic function of financial markets is straightforward – to match people who have money with people who need money – the way finance and Wall Street actually operate can get very complicated, and involves lot of jargons. The movie Inside Job however, does not involve very many new terms, and explains the recent global financial crisis nicely (even though some of the opinions in the movie may seem biased). The terms Residential Mortgage Backed Securities (RMBS), and Collaterilized Debt Obligations (CDO) are explained in the file “Subprime Mortgage Market and the Great Recession” available on your Moodle course page (under chapter 9). Please review those slides. The term Credit default swap (CDS) is nicely explained in the movie “Inside Job” itself. The textbook chapters 13 and 14 also explains them in detail. However, you do NOT have to study chapters 13 and 14 before watching the movie. Historically, banks that loaned money to home buyers kept...
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