Watch the video listed below, along with reading PowerPoint, and then
answer the questions below. This is to
be typed, with proper margins and follow APA or MLA format.
Quality of your written portion: 90 points, following instructions: 5 points;
Grammar/writing style: 5 points.
This is the video that needs to be watched.
Inside the Meltdown – Watch the following Frontline
Documentary, “Inside the Meltdown,” Available at the PBS
website at: http://www.pbs.org/wgbh/frontline/film/meltdown/
All 16 questions need to be answered.
1. What happened to make Bear Stearns go out of
business?
2.
What are sub-prime mortgages
and why were they referred to as toxic assets? There were
two things that made them sub-prime – what were they?
3. What are credit default swaps? Explain how they work. What role did they play in the meltdown?
4. What role did the Federal Reserve play when Bear
Stearns was in financial trouble? What
did they do that seemed unusual?
5. What role did the Treasury Department play when
Bear Stearns was in financial trouble?
6. What is systemic risk? What is a moral hazard? Explain them both and the role each of them
played in the meltdown.
7. Free market capitalism dictates that markets
create efficient solutions and that businesses that fail should be left to
fail. Treasury Secretary Henry Paulson
was so concerned about moral hazards after helping Bear Stearns. Why was Paulson
so concerned about moral hazard – explain how it related to the meltdown.
8. The video followed people who took out mortgages
that they could not afford in the hopes that their home values would increase,
and they would become wealthy. Were
banks incentivized to give out these bad loans?
How so?
9. Should there be laws that restrict the value of
houses that people can purchase and the amount of leverage they use to buy the
home? What potential problems would this
create in relatively free markets?
10.
What are capital injections?
What form did these injections take? Why
were they needed for the toxic assets?
11. Secretary Paulson decided not to guarantee a
loan for Lehman Brothers as he had for Bear Sterns with the JP Morgan takeover. What happened as a result of that
decision?
12. Secretary Paulson seemed to be having a philosophical
crisis about how to solve these problems in the meltdown. Explain his angst in trying to solve these
problems and trying to balance free markets vs government intervention.
13.
Why did the government give AIG
a loan of $85 billion after refusing to loan money for the Lehman Brothers
acquisition?
14.
What were the issues with Fannie
Mae and Freddie Mac? Why did the
government take them over, and so quickly?
Did Fannie and Freddie create these problems or were they victims of it?
15.
The last scene in the video
shows Paulson telling the leaders of major US banks that they had to accept
capital injections. Why did they have
to? What was Paulson’s rationale? What was the US government now becoming?
16. We had a savings and loan crisis in the 1980s that
was somewhat similar to the financial crisis of 2008-2009. There was lots of fraud, bad loans,
excessive borrowing, and the like. Where do you think the next
financial crisis will originate?
Provide an example.
The PowerPoint has been attached for review as well in order to help answer the above questions.
The 2 sources that are required are the video and PowerPoint.