TOO BIG TO FAIL: 2008 Financial Crisis, HBO Film (2011) 🎥

[appalachiablue]

Last edited Tue Mar 14, 2023, 05:39 AM - Edit history (1)

- (Too Big to Fail, 2011 *FILM). Too Big to Fail chronicles the 2008 financial meltdown, focusing on the actions of U.S. Treasury Secretary Henry Paulson & Ben Bernanke, Chairman of the Federal Reserve System, to contain the problems during the period of August 2008 to October 13, 2008. The film starts with clips of news reports about the mortgage industry crisis and the forced sale of the troubled Bear Stearns to JPMorgan Chase, with Fed guarantees.

With Bear Stearns out of the picture, short sellers have turned their attention on Lehman Brothers. In need of capital, CEO Dick Fuld reluctantly fires COO Joe Gregory & CFO Erin Callan, naming Bart McDade as the new president & COO. McDade begins to successfully negotiate a deal with Korean investors, hinging on the condition that Lehman's toxic real estate is excluded. The deal falls through, however, when Fuld's pride gets the best of him & he tries to coerce the Koreans into accepting the real estate assets. Paulson is adamant that the government will not subsidize anymore acquisitions, but it becomes clear the most promising buyer for Lehman, Bank of America, is uninterested without Fed involvement... https://en.m.wikipedia.org/wiki/Too_big_to_fail
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- 'There’s a deeper story to Silicon Valley Bank’s failure. What can we learn from it?' Robert Reich, The Guardian, 3.14.23. Ed.

Financial deregulation led to the crash in 2008 and it could again in 2023. It’s time to make banking boring again
On Friday, bank regulators closed Silicon Valley Bank, based in Santa Clara, California. Its failure was the second largest in US history and the largest since the financial crisis of 2008. Will other banks fail? On Sunday, regulators closed New York-based Signature Bank. As they rushed to contain the fallout, government regulators at the Federal Reserve, Treasury and Federal Deposit Insurance Corporation announced in a joint statement on Sunday that depositors in Silicon Valley Bank would have access to all of their money starting Monday. They’d enact a similar program for Signature Bank. They stressed that the bank losses would not be borne by taxpayers but by bank shareholders.

The surface story of the Silicon Valley Bank debacle is straightforward. During the pandemic, startups and technology companies enjoyed heady profits, some of which they deposited in the Silicon Valley Bank. Flush with their cash, the bank did what banks do: it kept a fraction on hand and invested the rest – putting a large share into long-dated Treasury bonds that promised good returns when interest rates were low. But then, starting a little more than a year ago, the Fed raised interest rates from near zero to over 4.5%. As a result, two things happened. The value of the Silicon Valley Bank’s holdings of Treasury bonds plummeted because newer bonds paid more interest. And, as interest rates rose, the gusher of venture capital funding to startup and tech companies slowed, because venture funds had to pay more to borrow money. As a result, these startup and tech companies had to withdraw more of their money from the bank to meet their payrolls and other expenses. But the bank didn’t have enough money on hand.

There’s a deeper story here. Remember the scene in It’s a Wonderful Life where the Jimmy Stewart character tries to quell a run on his bank by explaining to depositors that their money went to loans to others in the same community, and if they’d just be patient, they’d get their deposits back? In the early 1930s, such bank runs were common. But the Roosevelt administration enacted laws and regulations requiring banks to have more money on hand, barring them from investing their depositors’ money for profit (in the Glass-Steagall Act), insuring deposits and tightly overseeing the banks. Banking became more secure, and boring.

That lasted until the 1980s when Wall Street financiers, seeing the potential for big money, pushed to dismantle these laws and regulations – culminating in 1999, when Bill Clinton and Congress repealed what remained of Glass-Steagall. Then, of course, came the 2008 financial crisis, the worst collapse since 1929. It was the direct result of financial deregulation.. Will the failure of Silicon Valley Bank be as contagious as the failures of 2008, leading to other bank failures as depositors grow nervous about their safety? It’s impossible to know. The speed with which regulators moved over the weekend suggests they’re concerned. The Wall Street crisis of 2008 began with one or two bank failures, as did the financial crisis of 1929. Four lessons from this debacle.. not even Dodd-Frank is adequate. To make banking boring again, instead of one of the most profitable parts of the economy, Glass-Steagall must be re-enacted, separating commercial from investment banking. There’s no good reason banks should be investing their depositors’ money for profit...https://www.theguardian.com/commentisfree/2023/mar/13/svb-collapse-2008-financial-crisis
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- GOP deregulation likely contributed to Silicon Valley Bank failure. Don't let them pin it on Dems, Daily Kos, 3.12.23,

You know what really bothers me about Republicans? And no, it’s not that they still haven’t microchipped Louie Gohmert even though he keeps running into the woods without his collar. It’s that they keep playing this cynical game wherein they deregulate things and otherwise weaken government’s ability to prevent disasters, and when their landmines blow up under a Democratic president’s watch, they’re quick to point fingers—assuming they haven’t blown them all off with unregulated fireworks in GOP-controlled red states.

So you get rail disasters that are blamed on the current administration, even though Republicans have giddily rolled back safety regulations at every opportunity. Or you get a Great Recession brought on by financial industry deregulation, and when the economy doesn’t recover fast enough—in large part because Republicans are deliberately slowing it down—conservatives blame the new Democratic president for the mess. Which, to be clear, is a little like scapegoating the mayor of East Palestine, Ohio, for the Norfolk Southern rail disaster because his street crews haven’t swept up the dead birds quite fast enough...https://www.dailykos.com/stories/2023/3/12/2157619/-GOP-deregulation-likely-contributed-to-Silicon-Valley-Bank-failure-Don-t-let-them-pin-it-on-Dems
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- GLASS- STEAGALL Lesislation, 1933. The Glass–Steagall legislation describes 4 provisions of the US Banking Act of 1933 separating commercial and investment banking. The article 1933 Banking Act describes the entire law, including the legislative history of the provisions covered herein. As with the Glass–Steagall Act of 1932, the common name comes from the names of the Congressional sponsors, Senator Carter Glass and Representative Henry B. Steagall. The separation of commercial and investment banking prevented securities firms and investment banks from taking deposits, and commercial Federal Reserve member banks from:
dealing in non-governmental securities for customers,
investing in non-investment grade securities for themselves,
underwriting or distributing non-governmental securities,
affiliating (or sharing employees) with companies involved in such activities.

Starting in the early 1960s, federal banking regulators' interpretations of the Act permitted commercial banks, and especially commercial bank affiliates, to engage in an expanding list and volume of securities activities. Congressional efforts to "repeal the Glass–Steagall Act", referring to those four provisions (and then usually to only the two provisions that restricted affiliations between commercial banks and securities firms), culminated in the 1999 Gramm–Leach–Bliley Act (GLBA), which repealed the 2 provisions restricting affiliations between banks and securities firms. By that time, many commentators argued Glass–Steagall was already "dead"...https://en.m.wikipedia.org/wiki/Glass%E2%80%93Steagall_legislation

[JustAnotherGen]

1. The book

Really takes a deep dive!

[appalachiablue]

2. I'm sure the book covers the crisis a lot deeper, thanks for the suggestion.

[2naSalit]

3. K&R