2. How large is the US’s financial sector vs. its manufacturing sector?
The financial sector is large compared with the manufacturing sector. The manufacturing sector is
controlled by policies from the financial sector
3. How much wealth was lost with the financial / banking crisis in 2008-2009?
4. Why did the “Occupy Wall Street” protests begin?
They wanted bankers to be prosecuted. They felt that justice was not demonstrated after the loss of the
money which caused great financial effects.
5. Before the Meltdown, what was the major assumption about housing prices?
It was assumed that houses prices were so high and much of the finances obtained from the housing
programs benefited the government.
6. At a 1994 meeting in Boca Raton, what financial innovation was created by JP Morgan employees in
order to manage the risk of loan risk?
The financial innovation which was developed by Morgan was credit derivatives. The risk that the lons
could not be paid was sold out.
7. Why would it be important for an investment bank to “skirt” or avoid capital requirements?
To reduce the households secured loans. Capital requirements are additional expenses which
investment banks should avoid.
8. Who is Brooksley Born? Which agency did she work for? What did she believe?
She was a US attorney and a former public official who served between 1966-1999 as the chairperson of
the Commodity Futures Trading Commission (CFTC). She believed in predicting different financial
experiences which later could become true.
9. What type of insurance product is a “Credit Default Swap”?
It is a sudden borrowing aimed at meeting the payment obligations that settles a payment.
10. What was Alan Greenspan’s reaction to the regulation of the Credit Default Swap?
He admitted that he made a mistake in putting too much attention on self-correction of free markets.
He failed to anticipate the self-destructive of wanton. This had adverse financial impacts on his
11. Describe the “rollback” of Glass-Stegal through the Gramm-Leach-Bliley Act of 1999. What did it
According to this provision, there was going to be a limited scope of future derivatives reform. Other
changes such as an increase in accountability and transparency in decision making.
12. In the bond market, why would a highly-rated (AAA) and high yield (high return) security be the
“Holy Grail” of offerings?
There are less risks associated to these two strategies. Financial investments could be accounted easily.
13. What is a “subprime loan”? How did derivatives and securitization allow the subprime loan market
This is a loan given to someone who may have the difficulty to pay the loan or maintain the loan
requirements. Aspects such as poverty play an important part in this.
14. What is predatory lending?
This is the lending by a lending organization during a loan origination process which is unfair and
15. What type of thinking happened at JP Morgan that prevented them from truly getting into subprime
Collateralized Debt Obligations (CDOs)?
JP Morgan thought that the company did not have enough sources of capital to pay the costs it owed to
16. What type of trading of CDOs happened in London? Why was it legal?
In London, the trading CDO was legal since it had legal compliance and the involved organizations had
full responsibility of the situation.
17. Why do you think the executives at JP Morgan understood CDOs and CDSs, but other banks and
financial institutions did not?
To understand the Collateral Debt Obligation of the situation required JP Morgan executive to assess the
past and future economic implications. This was not possible with other banks.
18. What is a synthetic CDO? What did it bet on? How is it different than gambling?
This is the variation of a CDO and this uses credit default swaps so as to achieve the goals of the
organizations. It bets on the performance of mortgage products and not real mortgage securities.
19. What would happen at meetings between bankers and regulators?
Bankers will be at disagreement with directors. They have different vies and banks are aimed at making
profit while regulators are aimed at ensuring economic conditions and requirements are observed.
20. When did the market begin to drop?
The market began to drop when regulators started imposing huge taxes on businesses. Marketing needs
were not well achieved.
21. Which bank took advantage of the failing subprime loans? How did it do it?
Bank of America. The bank improved its services and gained many customers.
22. Why would an Investment Bank not advise its clients to stop buying CDOs and CDSs? Was this
No investment bank would want to pay its debts to its clients first before completing other financial
23. What happened with CitiGroup when it tried to offload the risk with CDOs?
Most of the clients were not compensated. People lost faith in CitiGroup and the profits the organization
used to make were reduced.
24. What was the value of the CDSs owed by AIG (American Insurance Group)? Could it pay them off?
The amount of money which is the value of CDSs owned by AIG was $440billion and was not enough to
pay off the mess which had been caused. The financial crisis was too big.
25. Why didn’t anyone know of the amount of CDSs owed by AIG?
The amount of CDS owned by AIG was not disclosed to hide the identity of the institution. This privacy
was an added advantage to the organization’s clients.