6. The film the Inside Job highlights many deficiencies at all levels that contributed to the financial meltdown. Actions could have been taken in order to avert the meltdown.
The public ratings agencies such as Standard & Poor’s or Moody’s should have been accurately rating companies and investments rather than being concerned about protecting their business. It’s ridiculous that representatives would claim that their ratings are merely “opinions” and that they had no responsibility. (Inside Job) Can you imagine your home inspector saying their inspection was merely opinion and not standing by their work? In 2015 Standard & Poor’s agreed to a settlement of $1.4 Billion dollars for their role in the crisis. (Fortune, 2015)
The derivatives market absolutely should have had more regulation. Complex new investments were being developed that were not regulated and frankly regulators might not have understood. It is particularly worrisome that the derivatives market influences companies to make different business decisions than they otherwise would. This disconnect of the consequences of decision-making could cause fundamental structural changes in the way businesses operate.
In the CDO market, investors should not have been allowed to invest against the CDO failing. You ended up with AGI being on the …show more content…
There was definitely a moral hazard at play in the financial meltdown. Mintz tells us that a “moral hazard occurs where one party is responsible for the interests of another, but has an incentive to put her own interests first.” (p. 183) Mortgage originators were responsible to work in the best interests of their mortgage clients. However, since the mortgages could be securitized and sold to investors, the mortgage originators were not subject to any of the risk associated with default of the loans. The originator could make more and larger commissions and this created a conflict of interest in representing the best interest of their mortgage
The public ratings agencies such as Standard & Poor’s or Moody’s should have been accurately rating companies and investments rather than being concerned about protecting their business. It’s ridiculous that representatives would claim that their ratings are merely “opinions” and that they had no responsibility. (Inside Job) Can you imagine your home inspector saying their inspection was merely opinion and not standing by their work? In 2015 Standard & Poor’s agreed to a settlement of $1.4 Billion dollars for their role in the crisis. (Fortune, 2015)
The derivatives market absolutely should have had more regulation. Complex new investments were being developed that were not regulated and frankly regulators might not have understood. It is particularly worrisome that the derivatives market influences companies to make different business decisions than they otherwise would. This disconnect of the consequences of decision-making could cause fundamental structural changes in the way businesses operate.
In the CDO market, investors should not have been allowed to invest against the CDO failing. You ended up with AGI being on the …show more content…
There was definitely a moral hazard at play in the financial meltdown. Mintz tells us that a “moral hazard occurs where one party is responsible for the interests of another, but has an incentive to put her own interests first.” (p. 183) Mortgage originators were responsible to work in the best interests of their mortgage clients. However, since the mortgages could be securitized and sold to investors, the mortgage originators were not subject to any of the risk associated with default of the loans. The originator could make more and larger commissions and this created a conflict of interest in representing the best interest of their mortgage