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Inside job 2011...
- 2. Financial Crisis 2008 AIG(American International Group) was the biggest insurance company. Which is also selling Credit Default Swaps.
- 3. Financial Crises 2008 CreditDefault Swap: The buyer of a credit default swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the debt security. Investors apply in credit default swap and pay premium to AIG to ensure their securities .. In doing so, the risk of default is transferred from the holder of the income security to the seller of the swap.
- 4. Investor company paypremium to AIG for securing the CDO and AIG cover the loss if CDO went bad. This thing protect the interest of investor and promote investment in the country. Joseph, the head of AIG, made $315M personally from AIG. Speculators insure CDOs, they did not own, and bet against it.
- 5. WHAT IS ACDO? One way to imagine a CDO is as a box into which monthly payments are made from multiple mortgages. It is usually divided into tranches, each representing different risk levels. As borrowers make payments on their mortgages, the box fills with cash. Once a threshold has been reached, such as 60% of the month's commitment, bottom-tranch investors are permitted to withdraw their shares. Tranch = Level of risks like 2 year mortgage or 5 year ..
- 6. This system isjust like insuring your own house. But in case of CDOs many people may insure your house.
- 7. Auditor of AIGresigned as warning ..
- 8. “Financial Development makethe world riskier more than ever.”
- 9. Paper focus onstudy that: “Huge cash bonuses on short term period increase the risk level and there is no penalty for the losses which made whole system riskier.”
- 10. Further, study relatesto the personality tactics of the Wall Street People.
- 11. When Lehman Brosbecame bankrupt, they had Million $ paintings, 16 Private Jets in the date of bankruptcy.
- 12. A research showsthat: “The part of Brain stimulate upon the prize of Currency is the same part of brain which is stimulates on use of COCAINE.
- 13. There is anexample of a broker..
- 14. Ratio of Loanin USA
- 15. Borrowers were borrowing99.3 % of amount of loans in USA .. If they went bad, they walk away ..
- 16. HENRY PAULSON (Former CEO of Goldman Sacks) Treasury Secretary of USA in 2008
- 17. Henry sold stockof Goldman of $485M and He save $50M of tax due to the position in congress. He sold CDOs in 2006 but He bet against those CDOs as well which surely result in down market.
- 18. Now, AIG compensatefor the CDOs which save the company for recession but Investors lost their whole investment in the play. How much there is loss, same is the profit to Goldman. Rating of Goldman decrease from AAA to BBB, then people lost their investment.
- 19. When Paulson leftno further CDOs to issued, he take help of Goldman and Deutch Bank .. BOD also face congress committee for this issue ..
- 20. MORGAN STANLEY: Another namein selling toxic CDOs. Employees of Virgin Island sue against Him of Fraud.
- 21. Real issue createsdue to the working of Rating agencies like S&P and Moody. Which does not recognize the real threat to the financial system. Rating agencies use the term “Opinion” for their expression of statements.
- 22. CRISES Bernanke: He become Chairmanof Federal Reserve Board in 2006.
- 23. He spot theissue on his last meeting in 2008 about having any disturbance. Amazing! Even FBI warn about danger in 2004, Many analysts issued articles in 2005,2006 and 2007
- 24. When loans becomingbad, then foreclosures (Recovery of Debt)were increasing. This issue was discussed in 2008 G7 conference by French minister but nobody in US ministry listen to it seriously. An insurance bank does not have money to purchase $2 share of J.P.MORGAN., then Federal reserve help him.
- 25. After some days,Lehman Bros. crash and insolvent. Before some days , they were on AA rating. Oh! Lynch bank was also going to down side which was then acquire by the Bank of America .. Barclays was the only institution who want to acquire the Lehman Bros. for which Britain ask for guarantee on it. But Govt. of America refuses and Lehman Bros down with His London office as well.
- 26. AIG also wentdown by not giving the compensation to investors, Then Government acquire this institution also.