Money, Power, and Wall Street Essay Example for Free

Money, Power, and Wall Street EssayThe meltdown of 2008 struck the banks when they were unable to adequately visual modality with the financial crisis. Banks are designed to create and protect ones wealth, nevertheless they took advantage of the people, and let people take many loaning risks that they couldnt afford. Banks created the credit default swap which transferred credit of glacial income products between parties. In learning about the credit default swap in class, it is understood that the purchaser receives credit protection, whereas the seller guarantees the credit. in that respectfore, the risk of default is transferred from the holder to the seller of the swap. But swaps allowed companies to shed the risks they didnt call for to take. When the banks first created the swaps, it gave investors the opportunity to invest in bank loans.From there, banks sold derivatives on all portfolios by artificial investment. Investors were able to invest in credit default swa p and make it grow. Credit then became a more available asset which stroke employment. Now all banks wanted credit derivatives which are in camera held negotiable contracts that allow consumers to manage their exposure to credit risk. The main problem with this was they assumed risk could be eliminated, but it couldnt. In order to regulate derivatives, Congress passed the Glass-Steagall Act in 1933 to establish deposit insurance, and utilise a number of banking regulations. As learning in class, this affected every business in America.There was now a high rating, and high yield. The big return was bankers now bought bundled mortgages. Homebuyers were able to pay double, but lending was too much making people going bankrupt in home mortgages. Borrowers gave loans great than the value of that loan, which made the financial bubble burst, creating a recession. With bankers ignoring all the possible risks from the beginning, they feel into a rich crash. Goldman Sachs was the only ban k to make money off the bubble burst by betting against their clients.