Goldman Sachs - Nick Mulder - i573515

Goldman Sachs - Nick Mulder - i573515 - Goldman Sachs:...

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Goldman Sachs: Surviving the Financial Crisis Table of Contents 1. Introduction 2. 2007 Sub-prime Crisis
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3. Goldman Sachs: Keeping their head above water 4. A Conflict of Interests 5. Introduction of Northern Rock 6. A Comparison 7. Conclusion 8. List of References Goldman Sachs – surviving the Financial Crisis Introduction On April 7th 2011, the European Central Bank raised it's main policy rate from 1% to 1.25% a move aimed at curbing recent inflation fears. Inflation, among other things, is the aftermath of the recent Financial crisis that saw liquidity dry up as fearful speculation tore through the United States and the rest of the world. As economic growth spurs markets are facing corrections and returning to equilibrium, unfortunately, this had led to the recent inflation fears. The Federal Reserve is expected to follow in the footsteps of the ECB and The People's Bank of China as the world economy recovers and oil prices have upward pressure on inflation.
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The financial crisis hit rock-bottom on September 15th 2008 when Lehman Brothers, the fourth largest investment bank at the time, filed for bankruptcy, a move that shocked investors and led to widespread panic. Only eight days later, rival investment banks Goldman Sachs and Morgan Stanley were thrown a life line from Congress in the form of a bailout as part of it's $700billion Troubled Asset Relief Program. Why did the Federal Government turn a blind eye towards Lehman Brothers while providing relief to it's rivals? The government bailout of Goldman Sachs revealed several critical conflicts of interest, including the use of taxpayer's money to bailout a privatized bank followed by Goldman's decision to pay 953 employees bonuses exceeding $1 million each. Moreover, the personnel “revolving- door” with Government officials was questionable as is Goldman Sachs' position as President Obama's main financial backer. This paper goes on to analyze Goldman Sachs' role in the financial crisis. Furthermore, the outcome of Goldman Sachs is compared to England's Northern Rock, a bank that received liquidity support during the same financial crisis. Finally, the success of Goldman Sachs' bailout is evaluated from three perspectives, namely, the American taxpayer, the Government, and Goldman Sachs themselves. The 2007 Sub-prime Crisis On the eve of the Financial crisis the average American was under the impression that they were in a rosy and secure financial position, as was visible by their outlandish spending. By 2008 the standard American household owned thirteen credit cards 1 . American's rationalized their excessive spending by refinancing their mortgage. As the price of their house increased they were able to refinance and borrow greater amounts fueling additional debt-financed consumption. This saw American household debt as a percentage of annual disposable income increase to 127% at the end of 2007 compared to just 77% in 1994 2 , a figure that still dwarfs similar numbers from competing countries. The causes of the Sub-prime crisis are deeply interwoven and trace back to the turn of the
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Goldman Sachs - Nick Mulder - i573515 - Goldman Sachs:...

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