2008 Financial Crisis

2008 Financial Crisis

The 2008 Global Economic Crisis: Causes, Cures and Curads

A Seven Pillars Institute slide presentation…VIEW…

 Financial Crisis 2008, Perpetrators, and Justice

Justice is an ancient concept. We often think of the term as synonymous with law or lawfulness. But a broader sense of the word is closer to fairness. Behavioral finance studies indicate Jailpeople have an inherent sense of justice or fairness. This view of human nature clashes with the classical economic view of “homo economicus”. Aristotle’s definition of justice is still widely accepted today. He says justice consists in treating equals equally and unequals unequally but in proportion to their relevant differences. Justice, in other words, is giving each person her due. Aristotle distinguishes two types of justice: distributive justice and corrective justice. We may add three other kinds of justice: compensatory, commutative, and procedural. READ MORE…

 

The Fall of Anglo Irish Bank

In 1986, Sean FitzPatrick became chief executive of a small Irish commercial lender known as the City of Dublin Bank. Over the course of the next 18 years, FitzPatrick oversaw the growth of the City of Dublin bank into the 3rd largest bank in Ireland. By May 2007 the bank, now known as the Anglo Irish Bank, reached a peak value of €13 billion with a share price of €17.60. READ MORE…

 

HSBC Money Laundering Case: “Too Big To Fail” does not mean “Too Big to Jail”

The Problem:  Some banking institutions have become so large criminal prosecutions resulting in revocation of banking charters may negatively affect the national, and perhaps the global, economy. The U.S. Attorney General and other prosecutors are thus left with a moral dilemma: ensure justice through prosecution or forego criminal proceedings to protect the economy and society at large. READ MORE…

 

Bank of America’s Takeover of Merrill Lynch

Bank of America agreed to pay $2.43 billion to settle a class-action lawsuit with investors who owned or bought its shares when the bank purchased Merrill Lynch in 2008. Bank of America acquired Merrill Lynch in late 2008 during the financial crisis. The $50 billion deal came as Merrill Lynch was within days of collapse, effectively rescuing it from bankruptcy. This settlement ended a three-year fight with a group of five plaintiffs, including the State Teachers Retirement System of Ohio and the Teacher Retirement System of Texas. They accused the bank and its officers of making false or misleading statements about the health of Bank of America and Merrill Lynch and were planning to seek $20 billion if the case went to trial. Bank of America denied these allegations and agreed to pay the settlement as a way of eliminating extended litigation. READ MORE…

 

Dimon and the Whale

JP Morgan was one of the few bulge bracket banks to weather the storm of the 2008 financial crisis. The bank seemed a relatively trustworthy player within the financial services industry. However, the recent $5.8 billion hedging loss, initially estimated at $2 billion by JP Morgan, may cast a measure of doubt on the bank’s institutional character. READ MORE…

 

The Dearth of Ethics and the Death of Lehman Brothers

In an unprecedented move that rocked the financial industry to its core, on Sept. 15, 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection. Not only was it the largest bankruptcy case in United States history, but it also came after repeated assurances from the company’s chief executives that finances were healthy, liquidity levels were high, and leverage was manageable. The implosion of this Wall Street institution shattered consumer confidence during a time of fragility, and in the aftermath of its collapse, a number of questionable decisions came to light. This analysis will proceed in two parts: First, a recap of the series of events leading to Lehman Brothers’ failure, followed by the identification of several dubious choices made by its executive management team and how the consequences led to the bank’s ultimate demise. READ MORE…

 

Lehman Brothers and Repo Accounting

Background: Prior to its collapse in 2008, investment banking giant Lehman Brothers Holdings Inc., actively participated in, what is widely considered, trickery in order to mislead the investing public. Repurchase agreements (repos) are a commonly used method of borrowing for many financial institutions across the nation. These agreements should be (according to financial standards) classified as a liability on an institution’s balance sheet. An increase in liabilities equates to an increase in leverage (debt). Lehman Brothers (at some point) found a loophole in the financial accounting standards, which allowed it to move its repurchase agreements (liabilities) off its balance sheet. The intent of the accounting standard was not to facilitate investor deception, but Lehman Brothers apparently exploited the loophole in that way. As asset quality deterioration began to accelerate during the subprime crisis and the public (belatedly) began to focus their concern on leverage, Lehman Brothers relied on this loophole to decrease leverage and maintain investor confidence (and their stock price). READ MORE…

 

Disclosure: The Bernie Madoff Case

There is the issue of the opaque and secretive nature of hedge funds. Critics say opacity caused the Madoff crisis. When Bernard Madoff started his investment company, Bernard L. Madoff Investment Securities, LLC, he conducted business honestly. Around the early 1990s, he stopped trading and started fabricating returns. He issued false statements. A friend whose accounting office was in a strip mall verified these statements. Madoff sold to his clients the idea of combining blue chip securities with derivatives to hedge risk. He provided investors with solid and steady returns even in down markets. He claimed his strategies were too difficult for investors to understand. Existing and potential clients meekly accepted this characterization of themselves because they were seduced by the alleged returns on investments. READ MORE…

 

Jon Corzine and MF Global

The House Financial Services Oversight and Investigations Subcommittee released its report on the MF Global bankruptcy on November 15, 2012. The report was scathing of Corzine saying he created an “authoritarian atmosphere”, “insulated trading activity from review process”, and was responsible for “dereliction of duty…to maintain the systems and controls necessary to protect customer funds.” It seems every few months the restoration of confidence in the financial markets is set back by another enormous ethical failure. In this case, not only does MF Global, a major investment firm, collapse and declare bankruptcy, but billions of dollars from customer accounts are also missing. What happened at MF Global and what were its ethical failures? READ MORE…