TOO BIG TOO FAIL

TOO BIG TO FAIL MOVIE: MUST WACTH!

1.     Housing Bubble Burst

The government tries to give the opportunity to the entire public to have their own house with a low interest rate offer for financing. Every person has the chance whether they were lack on ability. Many developers start build home and the customers apply for financing from the bank as the bank offer low interest rate with easier application process. In 2008, the financial crisis was happen. It gives the big impact to homeowners, which they were unable to make a payment.

The collapse of the U.S. Housing Bubble has a direct impact not only on home valuations, but the nation's mortgage markets, home builders, real estate, home supply retail outlets. According to general consensus, the primary cause of the 2008 recession in the United States is the credit crisis resulting from the bursting of the housing bubble.

2.     Arrange For Merging Bank

Bank’s merger may cause moral hazard of "too-big-to-fail". It seems that the banks are too big, their special capacity of financial intermediaries to ensure the rescue of the government. The government’s bailout encourage banks to take on riskier investments that will affecting money security community.

Merger can be between commercial bank and investment bank in order to strengthen the position on the weaknesses of the both company. Commercial banks accept deposits from customers and makes borrowings to businesses and consumers. This is considered a safe and stable business with low profit margins. Otherwise, investment banks help the companies and the government raising money through the sale of stocks or bonds, advising companies on mergers and acquisitions, and securities trading to clients or their own account. These activities are considered more risky than commercial banking, but the profit margins are higher.

3.     Subprime Mortgage Crisis

Subprime mortgage known as a “second chance loan”. It is a loan given to a group of poor consumers while the other part does not meet the criteria approved lenders can be viewed from a standard bank.

It is also refer to a credit rating lower. They involve a wide range of groups, including low income generator, there is a record debt default, speculators who had no money but want to buy for investment purposes and others. They were given a second chance to make a loan on the basis not want to help, but because of capitalist greed.

When a loan is given to those who had the potential fails to repay, the risk of failure to pay a debt is called 'event of default' higher. The higher the risk of the customers based on its capability to payback the financing, the higher the rate of interest that is charged to the borrower.

This issue is about started to threaten the U.S. economy starting in 2007 and continuing effect the great companies such as Lehman Brothers, Merrill Lynch and AIG into the loss. It's a domino effect on the other companies that are associated with them. It began when the U.S. housing sector started bubble. Meaning bubble is when the home is no longer able to rise up on the people. As a result, the number of borrowers who fail or 'defaulters' is higher. The situation is the turmoil spread to the crisis in August 2007.

James Woods AKA Dick Fuld in Too Big To Fail

4.     Seeking External Investment

When the housing price meltdown, Lehman Brothers start panic, and they were asking and found for external investment in order to increase their capital. They were seeking investors from Asian region such as from Japan, Korea and China.

Otherwise, the investors are curious and disputing about the commitment of the banks, whether they can long-sustain by their attitude in managing the company. The investors are not seeking for short term profit only but for long term-sustainabality.

5.     Direct Capital Injection

U.S Treasury come out with the proposal that to give direct capital injection for all nine investment bank; Bank of Amerika, Bank of New York, City Group, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, State Street and Well Fargo. This capital injection assists the bank in capitalized their assets.

6.     Buying Toxic Assets

Toxic asset is the assets which have no value. In this story, the toxic asset was the house. It was occurred when there is many homeowners that are unable to settle the payment as the increasing in the interest rate and non-performing financing arise affected from that. The price of the house is generally increased, but there is a lot of homeowner unable to fulfill the payment. As the unable to make the payment, they were declared as bankrupt, and the house have no value anymore since there is no more people willing to buy it as the economic crisis.

"Hank Paulson" in Too Big To Fail:
came along with the idea to buy the toxic assets.

Troubled Assets Relief Program (TARP) is a government program which allows the U.S treasury to stabilize the country financial system and restore economic growth by purchase the toxic asset from the banks which have the trouble on that asset for about $ 700 billion. This can help the troubled financial institution liquidate their assets, sustain for next level, and balanced their balance sheet.

7.     Lehman Brothers Declare Bankruptcy

Lehman is the great investment bank. Hence, impact by the crisis, the homeowner (customer) unable to pay the high rate of interest. Compared to choose whether to continue make the payment even they were unable, the customers are mostly refer to declare themselves for bankruptcy.

Basically, when the customers won’t repay their financing to the bank affected from the rising in the interest rate and they were unable since it was burdensome. By right, the bank or the lender will take the risk in case of that. Lehman Brothers, a great investment bank at that time was offering the customer on subprime mortgages. The financing was given without the collateral and for the risky customers based on their (CCRIS and CTOS).

When federal reverse told that they were mostly, refer to save AIG compared to their bank. Fed decided to help AIG in term of government intervention since that insurance company is also influence affect from the crisis.

Lehman brothers had insured their house as guarantee from AIG. When it was a lot of non-performing financing occurs on their assets, it supposedly AIG who that liable on the assets and they were required to pay the claim from Lehman.

However, it seems that AIG will collapse if they were settling all the claim. Fed realizes that, if the AIG collapse, it will give a great impact for the entire country since it was the largest insurance institution that many individual, company and even government is also make a contribution in the insurance. If the AIG bankrupt it will affect many others institution other that Lehman itself.

Fed refers to save AIG as they intervened into the company’ management and operation and let Lehman declared them as bankrupt.

After the bankruptcy Lehman liquidate all the assets and pay the debt, but it wasn’t enough yet to cover all their liable. They were loss about $ 3.9 billion dollars.

 

One of scene in Too Big To Fail