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Abstract

This case is compiled to highlight the moral arguments on bailing out the banks that have lost more than $1.5 trillion of investors'' money by betting on the highly complicated financial instruments. The case leads to an interesting debate on extending an exorbitant helping hand for the financial institutions, by forcing the huge sums on exchequers. In the late 1990s and early 2000s when the great housing bubble was building in the US, the so-called ''too big to fail'' banks have created, traded and invested in toxic financial derivatives. They lured the speculators and investors from across the globe by multiplying the initial investments at every corner point in the chain. In the process these banks grew even bigger by every passing quarter and Wall Street was all too happy to bestow AAA ratings to the financial investment that barely anybody could decipher - not even the creators. The euphoria blindfolded everyone involved to question the fundamentals. And when the bubble burst, the financial institutions were worth nothing more than a heap of paper assets. The federal government - on behalf of the taxpayer - assumed the onus of honouring the cheap, toxic assets to the tune of $1.3 trillion. The idea behind the valour was noble - to arrest the damaging effects and bring normality to the sinking financial system. But, what happened after the bail outs was all the more disappointing. Some of the banks that were benefited by these packages have announced bonuses for their executives. This case can be used to: (1) debate on the relevance and efficacy of the US bank bail outs and examine the fallout if the banks were not bailed out; (2) have a holistic understanding of the US financial crisis, with special reference to the role played by the US banks; (3) critically examine the nature and efficacy of bonuses being granted to the banks'' employees in the wake of the US financial crisis and out of the bail out money; (4) explore if there is a case for financial bankruptcy becoming a moral bankruptcy; and (5) examine and critically evaluate if the entire episode has shades of dark capitalism.
Location:
Industry:
Other setting(s):
2009

About

Abstract

This case is compiled to highlight the moral arguments on bailing out the banks that have lost more than $1.5 trillion of investors'' money by betting on the highly complicated financial instruments. The case leads to an interesting debate on extending an exorbitant helping hand for the financial institutions, by forcing the huge sums on exchequers. In the late 1990s and early 2000s when the great housing bubble was building in the US, the so-called ''too big to fail'' banks have created, traded and invested in toxic financial derivatives. They lured the speculators and investors from across the globe by multiplying the initial investments at every corner point in the chain. In the process these banks grew even bigger by every passing quarter and Wall Street was all too happy to bestow AAA ratings to the financial investment that barely anybody could decipher - not even the creators. The euphoria blindfolded everyone involved to question the fundamentals. And when the bubble burst, the financial institutions were worth nothing more than a heap of paper assets. The federal government - on behalf of the taxpayer - assumed the onus of honouring the cheap, toxic assets to the tune of $1.3 trillion. The idea behind the valour was noble - to arrest the damaging effects and bring normality to the sinking financial system. But, what happened after the bail outs was all the more disappointing. Some of the banks that were benefited by these packages have announced bonuses for their executives. This case can be used to: (1) debate on the relevance and efficacy of the US bank bail outs and examine the fallout if the banks were not bailed out; (2) have a holistic understanding of the US financial crisis, with special reference to the role played by the US banks; (3) critically examine the nature and efficacy of bonuses being granted to the banks'' employees in the wake of the US financial crisis and out of the bail out money; (4) explore if there is a case for financial bankruptcy becoming a moral bankruptcy; and (5) examine and critically evaluate if the entire episode has shades of dark capitalism.

Settings

Location:
Industry:
Other setting(s):
2009

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