Question

Can you discuss cases with major financial institutions (AIG, Lehman Brothers, Goldman Sachs and others) and Credit Default Swaps?

Answer 1

SOLUTION

CASES WITH MAJOR FINANCIAL INSTITUTIONS

LEHMAN BROTHERS

On Sept.15 2008, Lehman brothers filed for bankruptcy. The name may bring up images millions of people saw in the news for the first time : Hundreds of employees, mostly dressed in business suits, leaving the bank's global offices one-by one with bankers boxes in their hands. It was a sombre reminder that nothing is forever- even in the richness of the financial and investment worlds. With $639 billion in assets and $619 billion in debt, Lehman's bankruptcy filling was the largest in history, as its assets was surpassed those of previous bankrupt giants such as World-com and Enron. Lehman was the fourth largest U.S investment bank at the time of its collapse, with 25,000 employees worldwide.

Lehman's demise also made it the largest victim of the U.S sub-prime mortgage-induced financial crisis that swept through global financial markets in 2008. Lehman's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to the erosion of close to $10 trillion in market capitalization from global equity markets in oct.2008- the largest monthly decline on the record at the time.

AIG ( AMERICAN INTERNATIONAL GROUP )

You may be suprised to learn that the American international group better known as AIG is still alive and kicking, and is no longer considered a threat to the financial stability to the United States. After a decade after it was handed a government bailout worth about $150 billion, the U.S financial stability oversight council (FSOC) voted to remove AIG from its list of institutions that are systematic risks, or in headlineterms, "too big to fail ''. In 2013, the company repaid the last installment on its debt to taxpayers and the U.s government relinquished its stake in AIG. In Quarterly earnings announced in August 2019, AIG posted a nearly 18 % increase in revenue,and the company's turn-around was deemed to be well underway. But it had been forced itself to cut its half, including selling of a half valuable Asia unit in-order to repay its massive debt to U.S tax-payers.

GOLDENMAN SACHS

Goldman Sachs controversies are the controversies surrounding the American multinational investment bank Goldman Sachs. Goldman has been harshly criticized, particularly in the aftermath of the financial crisis of 2007-2008, where some alleged that it mislead its investors and profited from the collapse of the mortgage market. That time - ''one of the darkest chapters'' in Goldman's history according to the New york times - brought investigations from the U.S council and the United department of justice, that resulted in Goldman paying $550 million settlemet.

FED ( FEDERAL RESERVE SYSTEM )

Federal and state governments have myriad of agencies in place that regulate and oversee financial markets and companies. These agencies each have a speecific range of duties and responsibilities that enable them to act independently of each other while they work to accomplish similar objectives. Regulatory bodies are established by the governments or other organizations to oversee the functioning and fairness of financial markets and the firms.

CREDIT SWAPS

Companies that traded in swaps were battered during the financial crisis. Since the market was unregulated, banks used swaps to insure complex financial products. Investors were no longer intrested in buying swaps and banks began holding more capital and becoming risk-averse in granting loans.