Advanced Issues in Accounting Assignment
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Added on 2020-05-28
Advanced Issues in Accounting Assignment
Added on 2020-05-28
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Running head: ADVANCED ISSUES IN ACCOUNTINGAdvanced Issues in AccountingName of the Student:Name of the University:Author Note
1ADVANCED ISSUES IN ACCOUNTINGFilm Analysis – The Big ShortBusiness DescriptionThe Big Short belongs to the genre of comedy or drama. It depicts the true story offinancial crisis via the group of male investors that belong to the world of high value finance.The movie reflects that the male group of investors correctly predicts the credit and housingbubble, which eventually leads to them becoming filthy rich. During the mid 2000-s a group ofindividuals did bet against the US mortgage market. The film essentially captures the story of theGreat Financial Crisis and its key players.The film depicts that Lewis did change the concepts of banking by incorporating a singleplan for Mortgage-Backed Securities (MBS) in order to ensure larger profits associated withlower risks due to the fact that everyone was paying up their mortgages. This continued till thefinancial crisis hit in the financial year of 2008. No one had a hint about the financial crisiscoming up, except some, who saw it coming. Jamie Shipley, Charlie Geller, Michael Burry,Mark Baum and Jared Vennett were precisely the people who could predict the financial crisis.The banks had already started filling the bonds with riskier mortgagees. This was the only waythe banks could ensure the incurring of profits. The mortgages with excessive risk are known assubprime and the respective real estate market was built up upon these bad loans. The losseswere calculated as 5 trillion dollars in pension money and 8 million did lose their jobs and anumber as high as 6 million people lost their houses.Ethical issuesInvestment Banks (Bank of America, Bear, etc)The banks acted as if there would be no defaults in case of the loans that had beenforwarded. The financial institution closed the deal by selling the mortgages. The bankersrestricted their actions to ensure the achievement of their own personal interest instead of thebank for which they worked. They bundled and facilitated the selling of the subprime mortgages.This is a pure example of ethical egoism in which fulfilling the self interest is considered to bethe rightful action (Lins, Servaes & Tamayo, 2017).
2ADVANCED ISSUES IN ACCOUNTINGRating Agencies (S&P, Moody’s, etc)The Big Three credit rating agencies that are to be discussed are Standard & Poor’s,Moody’s and Fitch. These three rating agencies account for 95% of the market. There had beendiscrepancies in the ratings done by these credit agencies. Some individuals knew the fact thatthe rating agencies were attributing irrelevant scores to the products that deserved much lesserscores but the rest of the market had no knowledge about it. Michael Burry found out that themortgage bonds that were rated 65% AAA had no grounds to deserve such high ratings (Floyd,Li & Skinner, 2015).Government regulators (SEC)The government regulator, Securities and Exchange Commission along with themortgage broker firms did violate a huge number of regulations. The SEC should have taken upthe responsibility to break up the ties between the Congress and the big banks, and have issuedregulations for the mortgage and derivative industries (Haas & Lelyveld, 2014).CongressThe big banks did lobby Congress in order to halt the implementation of the modificationand the improvement measures. This is the point where the banks swiped the money from theAmericans and used it for their own benefit (Lai, 2016).Mortgage LendersThe loans that the borrowers used to buy the mortgages had been approved for the buyerswho had not been in the financial position to make the required payment (Vazquez & Federico,2015).TaxpayersThere must have been instances where the individuals taking loans for buying real estatehad overstated their income on the mortgage applications. The lenders knowing this fraudulentactivity, ignored the fact as they would not be responsible for the cleanup. The evaluatorsalso overstated the value of the homes and the traders. Thus, the taxpayers did the help thesebanks in exploiting the economy (Goh, Li, Ng, & Yong, 2015).
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