Project Report: Finance Impact of Credit Crisis on Market Liquidity

This project report examines the impact of a credit crisis on financial markets, drawing insights from a movie depicting the events. It analyzes how the crisis affected market liquidity, leading to disruptions in debt markets, IPOs, and interest rates. The report discusses the role of mortgage-backed securities in risk management, the impact on Lehman Brothers' debt and pension fund investments, and the importance of future valuation of such securities. It also explores the future structure of rating agencies and the consequences of the sale of Bear Stearns and the bailout of AIG. The project further investigates executive compensation at financial institutions and the roles of the Treasury and the Federal Reserve in managing the crisis, providing a comprehensive overview of the crisis's multifaceted financial implications.

Running Head: Finance
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Project report: Finance

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Impact of credit crisis over the financial market liquidity:
According to the movie, it has been analyzed that the any kind of credit crisis makes
an impact over the financial market liquidity very badly. In this movie, the debt market of the
country has been affected at a large and thus the financial institute stopped to give the debt
and loan to the comapny. Due to the financial crisis faced by the comapny, the IPO of the
company has been affected and the required investment has not been get by the company.
The interest rate of the debt has also been enhanced by the financial institutes to reduce the
debt demand in the market.
Mortgage backed securities $ risk taking financial institutions:
In this movie, the comapny has mortgaged some securities in the banks and the other
financial institutions such as mutual funds, mortgages etc. to raise the funds through loan. In
the case of the financial crisis, the bank has the mortgage assets and thus the risk of the bank
get reduced regarding the debt which has been given by the banks and other financial
institutes to the comapny. Through this it has been analyzed that the mortgage backed assets
make it easy for the comapny to manage the risk.
Pension fund investment in Lehman Brothers’ Debt:
Lehman brother’s debt has faced the financial crisis at a huge level. The comapny has
made some investment into the pension fund for its employees and the corporation to reduce
the level of risk and manage the fund at urgency time. Through the movie, i have analyzed
that the investment guidelines have not been followed properly. The regulations are required
to set a particular limit to make a proper decision (Moohr, 2013).
Future valuation of mortgage backed securities:
In this movie, when the Lehman brothers put their assets as a mortgage asset into the
financial institute to raise the funds than the banks and other financial institute has measured
the future valuation of the asset and according to that value the mortgage amount has been
given to the comapny. In the movie, banks have considered the time value of money to
measure the future value of the assets. It is required for the financial institutions to manage
and analyze the future value so that the risk occurrence chances get reduce. This film depict
that the financial institute must assure about the real worth of the assets after a particular
period of time.

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Future structure of rating agencies:
Rating agencies are those which give the rating to a comapny n the basis of their
performance and the debt payment structure. According to the given rating, it becomes easy
for the loan provider companies and the financial institute to identify the level of the
comapny and ensure that the comapny would repay the amount into the given period.
According to the movie, the future structure of the rating agencies must be in such a manner
that the entire related factors of financial system of a comapny is recognized and a better
decision making is done by the financial institutions accordingly. In the movies, it become bit
difficult for the banks to analyze that whether the firm would be able to repay the debt
amount in the given time or whether the financial performance of the comapny would be
stable (HBO, 2017).
Sale of bear Stearns:
According to the movie, on 14th march 2008, New York’s Federal Reserve Bank
agreed to offer a loan worth of $ 25 billion to Bear Stearns by clear and free assets from the
Bear Stearns to offer the liquidity position of the comapny in next 28 days which has been
rejected and refused by the market and financial analyst in the market. Further, few changes
have been made by the New York’s Federal Reserve Bank into the deal and they have
proposed the bear Stearns that it won’t be possible for them to offer a 28 days loan to the
comapny. And lastly, the comapny has been sold in $ 30 billion.
Bailout of AIG:
After the selling of assets of Bear Stearns, it made a new contract with the JP Morgan
Chase of merging the companies by swapping the stock in the market worth $ 2 per stock or
less than the market value of bear sterns by 7% before 2 days of the deal. According to this
deal, both the companies were trying to manipulate the investors and shareholders about the
performance of the comapny and this became the big reason behind the financial crisis. After
merging both the companies, the total loan was $ 30 billion out of which $ 1 billion was
mortgage loan which could not be getting back by the comapny through selling the assets of
the comapny (Centre, 2013). And the mortgage asset of the comapny is of less worth than the
loan.
Executive compensation at financial institutions:

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In the movie, it has been found that the financial institutions always got extra
compensation to manage the level of the funds and reduce the level of the risk in the financial
market of the country. According to the movie, the federal bank has offered extra
compensation to the financial institution to manage the level of the risk and reduce the loss
which has been faced by the financial institutions due to the financial crisis. The executive
compensation which has been offered to the executives of the financial institutions was way
better even in the financial crisis in the market.
Role of treasury and the fed in credit crisis:
According to the movie, the treasure managed by the comapny, Lehman brothers
helped the comapny a lot in managing and fighting back with the financial crisis situation in
the market, the short term demand has been met by the comapny through the treasury
maintained by the comapny and the fed bailout has also been seen and found that due to these
factors, the level of the financial crisis managed by the economy and the country.
Thus this movie has explained the various levels and learning about the financial
market and the various other related factors which could affect the financial market of a
country.

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References:
Center, B. P. (2013). Too Big to Fail: The Path to a Solution. Economic Policy Program,
Financial Regulatory Reform Initiative.
Moohr, G. S. (2013). White Collar Crime Goes to the Movies. Ohio St. J. Crim. L., 11, 785.
HBO. (2017). Too big to fail, retrieved from http://www.hbo.com/#/movies/too-big-to-fail
available on 17th Oct 2017.