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Bailouts and Bonuses: From Financial Bankruptcy to Moral Bankruptcy?



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Code : GOV0041

Year :
2009

Industry : Banking

Region : Global

Teaching Note: Available

Structured Assignment : Not Available

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Introduction:
Capitalism favors no government interventions but capitalists do; when choked to death by a financial crisis. History is evidence. Not farther than 2008 does one need to look back to understand this. In the late 1990s and early 2000s, when the great housing bubble was building in the US, hundreds of billions of dollars were bet on housing market. Financial institutions fed the speculators by recycling a Byzantine of financial derivatives and multiplying the initial investments at every corner point in the chain. The euphoria of short gains blindfolded every participant in assessing the strength of the fundamentals rather, the lack of fundamentals.When the meltdown started by mid- 2006, trillions of dollars of financial instruments evaporated into thin air, leaving the balance sheets of the financial institutions at worth nothing more than crap. The financial institutions need to fill in those black holes to stand erect, but who would do the bravado of investing in companies that are worth nothing? Exchequers as usual.

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"Everything that is happening in the economic and financial sphere has started in the United States. This is a real crisis that all of us are facing. And what is really sad is that we see an inability to take appropriate decisions. This is no longer irresponsibility on the part of some individuals, but irresponsibility of the whole system, which as you know had pretensions to (global) leadership."

Vladimir Putin, Prime Minister, Russia

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