Social proof and the confirmation trap were evident in the actions of many or all of the various players involved in the subprime mortgage crises (or credit crises) of 2008. From the NPR News radio program “The Giant Pool of Money‚” the characters on the different rungs of the subprime mortgage value chain explain their actions‚ showing these two characteristics. Social proof is a behavior by which we determine correctness of opinions‚ beliefs‚ or actions by comparing them to others’ opinions‚ beliefs
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that through the new securitization chain‚ lenders of loans to home owners could sell the mortgages to investment banks. The investment banks‚ in turn‚ combined several such mortgages and other loans to create complex derivatives called Collateralized Debt Obligations (CDOs) which can be sold to investors worldwide. Hence‚ essentially‚ the loan payments of home owners went to investors worldwide. It is crucial to note that investment banks paid rating agencies to rate these CDOs very highly hence creating
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The Sublime Lending Fiasco that occurred in the United States was an‚ unfortunately‚ catastrophic example of how the misuse of money and power along‚ with a lack of ethical consciousness‚ can lead to a nation wide crisis that affects a unsettling large amount of innocent people. The mortgage investors involved in this fiasco are a prime example of how greedy and selfish behavior can undercut one’s ethical principles. These mortgage investors used their power to enhance their financial gains without
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Ethical Leadership Name Kaplan University SUBJECT SUBJECT CODE PROFESSOR Date Introduction The topic Ethical Leadership is more complex than meets the eye. It means leadership that knows what is right and acting based on those guidelines. The question that should be asked then is “what is right?” Once the ethical course of action is determined the leader must then have the integrity and fortitude to proceed with that course of action. In addition to decision making ethical leadership
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increase in interest rate in coming years on the mortgage loans the banks had leant‚ the poor rating system that was implemented for rating these mortgages‚ the unrealistic loans that were being given out‚ and the creation of synthetic collateralized debt obligation‚ or CDOs. Another successful thing Lewis does in this book is how simple he makes it to understand what
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Movie Review of “INSIDE JOB” “Earth provides enough to satisfy every man ’s needs‚ but not every man ’s greed‚” said Mahatma Gandhi and this is somewhat the crux of this movie. Inside Job is directed by Charles Ferguson‚ and it highlights the reasons and the consequences of the global financial crisis of 2008. This movie is basically related to recession that was caused by the inefficiency of the industry and the unfavourable banking practices. The director has conducted several interviews and
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Taylor Lewis Accounting 03/10/2013 Inside Job The movie “Inside Job” was a very controversial movie. It talked about the financial crisis and how it affected everyone. Personally‚ it made me angry. All of the big companies such as Goldman Sachs‚ Citi Bank‚ Meryl Lynch‚ and many more‚ performed unethical activities. They went behind their customers back to bet against them just to make more money‚ and the statistics don’t lie. From 1978 to 2008 a banker’s regular salary went from $47‚000 a year
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scrutinized for marketing complex securities to its investors without telling them that a major hedge fund had taken a short position against these securities. The so-called sophisticated investors lost about $1 billion in this synthetic collateralized debt obligation (CDO). The SEC investigation of Goldman Sachs has emphasized that even institutions rely on sellers and may be misled just like anyone else. This is particularly‚ but by no means only‚ the case for highly complex products‚ which
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Creating Toxic Assets June 2014 Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages‚ commercial mortgages‚ auto loans or credit card debt obligations and selling said consolidated debt as bonds‚ pass-through securities‚ or collateralized mortgage obligation (CMOs)‚ to various investors. The principal and interest on the debt‚ underlying the security‚ is paid back to the various investors regularly. Securities backed by mortgage receivables
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LESSONS LEARNT The study of history and the eventual collapse of Lehman Brothers‚ will help us learn some mistakes made by Lehman Brothers. This might enable us to be very keen in future. We should be watchful not to repeat because it may lead to other problems such as global crisis. If we are keen we might understand that this was the largest failure of an investment bank since Drixel Burnham Lambert collapsed amid fraud allegations 18 years pror. Managerial oversight and accountability Claims
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