Macroeconomics Song Essay

The poems major theme revolves around the unravelling of the US fiscal sector and peculiarly its impact on investment banks in the wake of the recent globular economic recession that affected the US and most of the world economies. any(prenominal) of the macroeconomic concepts addressed tacitly and explicitly include executive compensation, and the championship cycle (Paxton, 1).The crisis is said to pick up primarily been triggered by the stand in run aground owe crisis. Tradition in ally, investment banks and other lending institutions devote financed their customers borrowings from the deposits they collect from the members of the public. With the contain for credit finance to purchase essential items such as theatres uphill 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 model or mortgage backed securities.Here, the fi nancial institutions sell bonds. Those buying the bonds are guaranteed of getting their money back after a certain duration plus an attractive interest, and the money raised from floating these bond is advanced to the borrowers (in this case, prospective homeowners). The bondholders will be paying back their money whether the borrowers pay the bank back or default. Thus, it foundation be seen that the investment banks here shoulder substantial risks (Zeese, 1 Rasmus, 3 BBC, 1).The main problem was that these loans were made out to a segment of the market that is considered risky due to its low income and poor credit history. This segment has been referred to as the sub-prime mortgage segment. As long as the prices of homes continued to rise, this model of financial support home purchases made sense because the borrowers could refinance their home purchases. However, and against all expectations, the substantial estate bubble that had been so prolonged in the country burst, and home prices began trending south at a dramatic rate. The import of all these is that the sub prime mortgage borrowers were unable to pay back what they had borrowed. They defaulted, leading to gigantic foreclosures (Zeese, 1 Rasmus, 3 BBC, 1).The loans that had been made out by the financial institutions were in the tune of zillions of dollars. When these borrowers defaulted, the banks were left(a) holding toxic assets, which they wrote down leading to extensive losses. A number of them were pushed to the brink of bankruptcy. These include Fannie Mae and Freddie Mac, Goldman Sachs, AIG, Merrill Lynch, Bears Stearns and Lehman Brothers (Zeese, 1 Rasmus, 3 BBC, 1).It is this background knowledge 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 economy, doling out priceless advice to Americans on m aters 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 blind leading the blind(Paxton, 1). One 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 package by the US g all overnment (whose worth was seven hundred million grand, in the words of the poet) (Paxton, 1). The failing institutions were major beneficiaries of this bailout package. According to Nanking (1), Bears Stearns was bought by JP Chase for $236 million, with the Federal keep back Bank providing a staggering $30 billion to facilitate its purchase. address of the Housing and Economic Recovery Act of 2008, the government is said to have put in some $400 billion in Fannie Mae and Freddie Mac. The AIG on its part received at least four funds bailouts, all of them amounting to $180 billion in total (Nanking, 1).The poet strongly questions the ethics after part these bailout packages, given that the crisis that affected the investment banks was largely self-inflicted. For example, apart from poor image resulting in the sub-prime mortgage crisis, the problems which the banks faced were also catalyzed by poor anxiety practices such as excessive executive pay.The problems facing the banks also skint out at a time the issue of executive pay was coming under the spotlight. For example, Linn (2) writes that in 1970, top executives were earning 44 generation what stamp down workers got and that by 2007 this had jumped to 344 times what the subordinate employees got. More telling is the fact that the chief operating officers of Lehman Brothers and Merrill Lynch, two of the failed investment bankers, received a total 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 pitiable listed for aid under the bailout package having paid a cool $1.6 billion as bonuses to their CEOs.AIG was mulling paying 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 average 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 crock that the poem seems to rant about. Listen to the poet And it said that failure was the only crime. If you in truth screwed things up, then you were through Nowsurprisethere is a contrary point of view. All that crazy rooty-tootin And that golden parachutin Means that someones making millionsjust not youWorks CitedBBC. (2007). The downturn in facts and figure s. 21 Nov 2007. 28 May 2010. http//news.bbc.co.uk/2/hi/business/7302341.stmBass, Frank and Beamish, Rita. (2008). AP subject field 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 shell gives ammunition to critics of high pay. MSNBC. Mar 20th 2009. 29 May 2010. http//www.msnbc.msn.com/id/29791834/Nankin, Jesse. (2009). bill 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. kinfolk 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. http//www.countercurrents.org/zeese251108.htm