The financial crisis in Iceland was mainly because in 2001 the government deregulated the banks in the country. This led to rapid expansion in the banking industry. This in turn led to a large number of banks accumulating foreign debt in order to finance rapid expansion. The crisis mainly started when the banks were unable to refinance the short-term foreign debts that they had accumulated in countries such as the United Kingdom. At the onset of the crisis, the three largest banks in Iceland had foreign debt that was almost €50 billion. This led to the banks collapsing leading to a financial crisis in Iceland.
1. Matt Damon as the narrator of the film
2. Alan Greenspan
3. Jonathan Alpert
4. Eliot Spitzer
5. Sigridur Benediktsdottir
6. Kristin Davis
7. George Bush
Risky subprime mortgages were pooled together and become AAA-rated CDO investments due to a number of reasons that were prevalent in the housing and credit market at the time. The main reason behind these AAA-rated CDO investments was to cover up the risk involved with such investments. This is mainly because once the subprime mortgages were pooled together the risk they posed was quietly hidden. According to the film, the derivatives market high risks would be transferred from on investor to the other. All the investors had falsely believed the ratings and had invested believing that the investments were risk free. In addition, banks also signed mortgages without considering the risks that were prevalent in the market at the particular time. This was mainly because most of the risks were hidden and the products had received AAA-ratings.
I believe that Greenspan’s ideology on the deregulation of the market was flawed. This is mainly because the current financial markets cannot self-regulate themselves. Greenspan was correct in his ideology and it would apply in an ideal market. However, the global financial market is not ideal. Many institutions will take advantage of loopholes to make money. He is also wrong since the market does not have a feedback loop through which it can be able to self-regulate. This is mainly because in the current financial market greed and avenues of exploiting the market have increased. This can be attributed to the fact that the financial institutions are very competitive with many organizations becoming overly ambitious in what they seek to achieve. Most of the financial institution will do anything to make money. In addition, regulation will allow for accountability and will help reduce the risk of having future financial crises.
My view of the role of the government in the market is that government should offer some form of control over the financial markets. This is mainly because financial markets have a very poor trend of creating avenues and loopholes to fuel profits as well as financial returns. For example, in the United States the financial markets have been at the center of the Great Depression in 1930 and the 2008 recession. This is mainly because as financial firms push forwards for profits they leave disasters in their wake. Over time, my view has changed. This is mainly because I strongly believed that the government should not be involved in the financial markets. However, after close evaluation of the economic disasters witnessed it is evident that the governments could play a role in preventing them in the future.
The reason why Wall Street compensation is so high is not that banks have created so much value. However, the compensation in Wall Street is high mainly because the major banks have been able to create an oligopoly. This has led to minimal competition within the industry meaning that productivity of the large banks on Wall Street is very high. The banks have been able to secure customers who pay large amounts of money and can pay high prices for services rendered. These high prices translate to high compensation.
