The film Too Big To Fail (2011) tells a story of the events that took place in 2008 in the financial industry in the USA when several largest financial service companies including Lehman Brothers faced bankruptcy due to the subprime mortgage crisis that hit the USA. Lehman Brothers was the fourth largest bank in the USA and it was surprising to see that the Federal Reserve did not help this bank to survive by offering extensive financial support. Instead the Federal Reserve wanted to make the other largest banks like Goldman Sachs, Merrill Lynch, etc. to purchase Lehman Brothers and in such a way to stabilize the financial system. What is more, the Federal Reserve thought that even if Lehman Brothers had gone bankrupt, the impact on the market would have been very limited. So by not supporting Lehman Brothers the Federal Reserve showed the other companies that they were responsible for the crisis and therefore the Federal Reserve could not act as the primary source of funds for Lehman Brothers and other companies. Additionally, it was unclear how the market would develop further, so the correct action would be not to intervene and be ready for the bigger crisis. In turn, the Fed agreed to rescue AIG which has more than 80 million customers – regular Americans and companies. The Fed did not know what kind of consequences to expect if AIG had gone bankrupt. Probably it could have been a total financial chaos, because AIG had a very large number of partners in the USA and abroad. In addition, AIG failed because only one of its business units that sold the credit default swaps was problematic – so the Fed could provide financial assistance to AIG knowing that the company will surely survive and continue to operate with profitability.
TARP program was needed in order to strengthen the financial sector that suffered from the subprime mortgage crisis. By means of the TARP program the finance companies were able to get rid of the troubled assets and stabilize their balances so that further losses could be avoided. One more important reason for TARP introduction was the need to make the banks resume lending and stimulate the growth of the American economy which went into the recession phase partly because of the low confidence in the financial institutions. Finally, TARP program was a much better alternative than nationalization of the banks and required less time for implementation.
Henry Paulson realized that the economic crisis had spread to the other industries and started to affect the real sector when he received a phone call from Jeffrey Immelt, the CEO of General Electric. Jeffrey Immelt said that his company could face the problems with refinancing the debts. In fact he was lobbying the interests of his company and GE Capital business division in particular and wanted to get access to the TARP program that provided the funds to the other banks.
Judging only from the film Too Big To Fail, the banks and other large finance companies should be blamed for the financial chaos, because they often risked too much and provided lending to the unreliable borrowers. There were also poor practices in terms of underwriting, overleveraging, pricing of risks, etc. As the result, the banks had too many debts that they were not able to cover. As soon as the public found out that there were some serious problems in the financial market, the confidence in the banks declined, and the financial crisis became inevitable. At the same time, one should also blame the American government for inconsistency and being too slow with the implementation of the TARP program which probably could have saved Lehman Brothers. Fed’s deliberation may have been caused by the need to consult with the President and the U.S. Congress, whereas the events developed apace.
Works Cited
Too Big To Fail. Dir. Curtis Hanson. Perf. James Woods, John Heard, William Hurt. HBO
Films. 2011. Film
