Estimation Techniques Of The U S Financial Crisis Case Study

Length: 6 pages Sources: 3 Subject: Finance Type: Case Study Paper: #23237024 Related Topics: Lehman Brothers, Financial Crisis, Econometrics, Financial Institution
Excerpt from Case Study :

Estimation Techniques of Financial Crisis

The unquestionable ethical conducts within the corporate circle had been the major factor that led to 2008/2009 financial crisis. By studying the root causes of the crisis, it has been revealed that bad conducts among the CEOs of Bear Stearns, Lehman Brothers, Citigroup and Countrywide Financial have been the primary factors leading to 2008/2009 financial crisis.

Objective of this paper is to argue that the CEOs of Bear Stearns, Lehman Brothers, Citigroup and Countrywide Financial did not take the interest of the companies into a consideration leading to frictions between the CEO and the shareholders

In 2007, the financial markets were shaken by a serious financial crisis because of a dryness in liquidity associated with a subprime mortgage business where people with doubtful credit reports were offered mortgage loans leading to a rise of loan default. Moreover, lack of transparency, greediness and excessive desire for money have been the major factors that led to the financial crisis. (Gorton, 2008). The greediness was demonstrated among the CEOs of Bear Stearns, Lehman Brothers, Citigroup and Countrywide Financial where all of them increased their compensation packages without putting the companies' and shareholders' best interests into considerations. Traditionally, the Bear Stearns, Lehman Brothers, Citigroup and Countrywide Financial were publicly traded companies and raised largest percentages of their liquidity from shareholders' funds. Thus, their primary obligations are to protect the interests of the companies and shareholders. However, the CEOs of these companies did not respect these obligations rather they indulged in the risky businesses that consequently eroded the shareholders'
"These companies did so at the expense of millions of ordinary Americans and
investors of all types -- including other financial institutions, universities and pension funds, cities and towns, and even hospitals and religious charities," Holder said at a news conference announcing the settlement." (Tucker, 2014 p 1).

Despite several warnings from financial experts about the associated risks of subprime lending, the CEOs of the companies were not pursuing the interest of the companies rather they went ahead to increase their compensations. An expert in stock trading had warned the Citigroup that "he would not be surprised if half of these loans went down it was amazing that some of these loans were closed at all." (Tucker, 2014 p 1). Despite this warning, the CEOs of the Citigroup and Countrywide Financial increased their compensations to $25 million and $43 million respectively. The CEO of Bear Sterns also increased his compensation package to $34 million in 2006. In the same year, CEO of Lehman Brothers increased his compensation to $27 million. (Larcker, & Brin, 2010). However, these executives did not compensate their companies with revenues…

Sources Used in Documents:

Reference

Gorton, G. B. (2008). The Subprime Panic, National Board of Economic Review, Working Paper 14398,

Larcker, D. & Brin, T. (2010). Lehman Brothers: Peeking Under the Board FaAade, Stanford Closer Look Series.

Tucker, E. (2014). Citigroup to Pay $7 Billion to Settle Subprime Case. Associate Press.

Wiggins, R.Z. Piontek, T. & Metrick, A. (2014). The Lehman Brothers Bankruptcy: Overview. Yale Program on Financial Stability Case Study.


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