Question

Give an overview of the financial crisis: the use of subprime mortgages, mortgage backed securities and CD Swaps; the failure of Bear Stearns and the government’s intervention; the failure of Lehman Brothers and the government’s refusal to intervene; how the government bailed out AIG (discussing what AIG did that made it vulnerable and in need of a bailout – why it was “too big to fail”); and the government’s capital infusion of the banking system (discussing what the government did and why the banks did not want the government to do it that way). (Your answer must be a minimum of two well-reasoned paragraphs. 10 points)

Answer 1

AIG is a major insurance company of United States and it was writing off credit default swaps which meant that credit default swap were representing the default by third party and it was writing off that default by exchanging commission with the banks and the other intermediaries so when those parties default, the bank invoked the the contracts and these credit default swaps where the third-party defaulted, AIG was not able to pay them because of so much higher amount of demand in such shorter span of time and it was facing a huge bankruptcy this that let it to a drink of getting dissolved Unless it got bailout.

government capital inclusion to the banking system helped the bank in order to steal liquid and avoid liquidation so that they can face off with lower asset quality in a financial district economy and they can also survive and sustain which will mean that they can stimulate demand by lowering the interest rates and reserve requirements and that will help these economies in order to stabilize themselves when the entire system has collapsed to a wider contagian.Bank did not want It that way because Bank did not wanted to lose their own control on the business and they do not wanted to to get merged with another companies