Macroeconomics Song Essay

The songs major theme revolves rough the unravelling of the US financial sector and curiously its impact on coronation banks in the wake of the recent global stinting recession that affected the US and almost of the world economies. Some of the macroeconomic concepts intercommunicate tacitly and explicitly include administrator compensation, and the business cycle (Paxton, 1).The crisis is said to build primarily been triggered by the sub extremum mortgage crisis. Tradition anyy, investment banks and other lend institutions consecrate financed their customers borrowings from the deposits they collect from the members of the public. With the demand for reference book finance to purchase essential items such(prenominal) as homes rising exponentially, the deposits became inadequate to finance the borrowing requirements and many of these financial institutions resorted to innovative financial products such as the securitization toughie or mortgage backed securities.H ere, the financial institutions sell attachs. Those buying the bonds are guaranteed of getting their money back after a certain duration plus an kind interest, and the money raised from floating these bond is advanced to the borrowers (in this case, prospective homeowners). The bondholders will be paid back their money whether the borrowers give birth the bank back or default. Thus, it hindquarters be seen that the investment banks here berm substantial risks (Zeese, 1 Rasmus, 3 BBC, 1).The briny problem was that these loans were made kayoed to a section of the market that is considered unfit due to its low income and sorry credit history. This segment has been referred to as the sub- pristine mortgage segment. As abundant as the prices of homes continued to rise, this model of financing home purchases made sand because the borrowers could finance their home purchases. However, and against all expectations, the real kingdom bubble that had been so prolonged in the cou ntry burst, and home prices began trending s disc everywhereh at a dramatic rate. The import of all these is that the sub prime mortgage borrowers were uneffective to pay back what they had borrowed. They defaulted, track to commodious foreclosures (Zeese, 1 Rasmus, 3 BBC, 1).The loans that had been made out by the financial institutions were in the agate line of one thousand thousands of dollars. When these borrowers defaulted, the banks were left holding toxic assets, which they wrote scratch off leading to massive losses. A lean of them were pushed to the brink of bankruptcy. These include Fannie Mae and Freddie macintosh, Goldman Sachs, AIG, Merrill Lynch, Bears Stearns and Lehman Brothers (Zeese, 1 Rasmus, 3 BBC, 1).It is this backdrop that provides the context for the poem. The poet parodies the false sense of security that these institutions had projected for long, investment bankers such as Lehman Brothers had been viewed as beacons of stability in the American econ omy, doling out priceless advice to Americans on maters economic.But as the poet shows, the sub prime mortgage crisis unmasked them for who they are, left them at a loss of what to do, and they have turned out to be the artifice leading the blind(Paxton, 1). matchless wonders how, with all their wisdom, the investment bankers could have hedged their risks upon such a risky market as the sub-prime mortgage segment.One of the immediate responses to the financial crisis was the rollout of a bailout incase by the US giving medication (whose charge was seven hundred million grand, in the words of the poet) (Paxton, 1). The failing institutions were major beneficiaries of this bailout package. concord to Nanking (1), Bears Stearns was bought by JP Chase for $236 million, with the Federal timidity Bank providing a staggering $30 billion to facilitate its purchase. Courtesy of the living accommodations and Economic Recovery Act of 2008, the government is said to have put in some $40 0 billion in Fannie Mae and Freddie Mac. The AIG on its part received at least four cash bailouts, all of them amounting to $180 billion in wide-cut (Nanking, 1).The poet strongly questions the ethics behind these bailout packages, prone that the crisis that affected the investment banks was largely self-inflicted. For example, apart from poor judgment resulting in the sub-prime mortgage crisis, the problems which the banks faced were also catalyzed by poor management practices such as ebullient executive pay.The problems facing the banks also skint out at a duration the issue of executive pay was approach path nether the spotlight. For example, Linn (2) writes that in 1970, draw executives were earning 44 clock what subordinate workers got and that by 2007 this had jumped to 344 times what the subordinate employees got. More telling is the particular that the chief executive officers of Lehman Brothers and Merrill Lynch, two of the failed investment bankers, received a t otal of over $117 million in spite of leading their organizations down the drain (Bass and Beamish, 1). Lloyd Blankfein, Goldman Sachs top honcho, got $54 million, when the bank made a loss, with the 116 investment banks that had been short listed for aid under the bailout package having paid a cool it $1.6 billion as bonuses to their chief operating officers.AIG was mulling compensable its CEO $165 million, when it had made a loss of over $60 billion (Bass and Beamish, 1). Given that these banks had been advanced cash under the bailout plan (which itself is from taxpayer funds), it is logical to assert that it is the norm American (who earns 344 times less what the CEO gets) who is being made to pay for the mistakes of the CEOs. It is this obscenity that the poem seems to rant about. learn to the poet And it said that failure was the only crime. If you real screwed things up, then you were through Now forcethere is a different point of view. All that crazy rooty-tootin And th at golden parachutin kernel that someones making millions honorable not youWorks CitedBBC. (2007). The downturn in facts and figures. 21 Nov 2007. 28 May 2010.  http//news.bbc.co.uk/2/hi/business/7302341.stmBass, Frank and Beamish, Rita. (2008). AP find out Finds $1.6B Went To Bailed-Out Bank Execs. 22 Dec 2008. 29 May 2010.  http//corridornews.blogspot.com/2008/12/investment-bank-executives-pork-out-on.htmlLinn, Allison. (2009). AIG flap gives ammo to critics of high pay. MSNBC. Mar 20th 2009. 29 May 2010. http//www.msnbc.msn.com/id/29791834/Nankin, Jesse. (2009). History of U.S. govt bailouts. 1 Nov 2009. 29 May 2010. http//www.propublica.org/special/bailout-aftermathspenncentralPaxton, Tom. I am changing my name to Fannie Mae.Rasmus, Jack. (2008). Fannie Mae, Freddie Mac phase two of the financial crisis. family line 2008. 28 May 2009. http//www.zcommunications.org/zmag/viewArticle/18717Zeese, Kevin. (2008). The causes of the auto crisis. 25 Nov 2008. 28 May 2009. htt p//www.countercurrents.org/zeese251108.htm