Final Exam Essay Questions

Your final essay questions will be based on the documentary “Inside Job”, which explores the causes of the 2007-8 financial crisis which led to the Great Recession. You can watch the entire 1.5 hour video at: http://documentarylovers.com/film/inside-job/ A synopsis of the video is included below as well as a glossary of financial terms used in the video. You should review these terms before watching the video and print out the glossary so you can refer to it as you watch the video.

Questions

To what extent was the Great Recession of 2007-8 attributable to deregulation of the financial industry? Use specific examples from the video and the text, particularly the Glass Seagall Act.

Explain derivatives and what bankers did with them. Does the video say derivatives make markets safer or more unstable? Why? What happened when government officials tried to regulate derivatives from 1997-2000?

Discuss the changes in home mortgage industry when financial instruments such as Collateralized Debt Obligation (CDO) and Credit Default Swaps (CDS) were introduced. How did this lead to the real estate bubble? Use the examples from the video

Explain what the Fed did to address the issues of predatory lending, CDOs, CDSs, and subprime loans.

Discuss the collapse of Lehman Brothers and AIG as brought out in the video. What did this do to the American and world economy? How did the government respond? Should the government have bailed out these Wall Street firms?

What about the professors interviewed in “Inside Job?” Consider specifically the dean of the Columbia Business School Glenn Hubbard and the Columbia Economics professor Frederick Mishkin and the interviews regarding their compensation for writing “research” articles. What issues are brought out in the video by members of Harvard’s faculty?

Discuss Elliot Spitzer’s role in the video.

What is the relationship between ethical behavior and legal behavior? Goldman Sachs appears to take the position publicly that there was nothing wrong with taking positions against the securities it sold to clients, partly because those positions were not substantial and partly because their clients should be presumed to be sophisticated in financial matters. Do you agree with this view?

Do you think that compensation within the financial industry was a factor in the crisis?

Would you support government regulation of compensation at certain levels?

How would such regulation best be accomplished?

After the Great Recession, Congress pass the Dodd-Frank Bill which attempted to strengthen regulations of the banking industry to reduce the chance of another financial meltdown. Recently, the Senate Banking Committee voted to weaken Dodd-Frank (seehttp://www.latimes.com/business/la-fi-financial-regulation-shelby-dodd-frank-20150521-story.html ). Explain what Republicans are trying to accomplish. Do you support this move?