Too Big To Fail

[Stealth3si]

http://en.wikipedia.org/wiki/Too_Big_to_Fail

Too Big to Fail is a drama television movie in the United States broadcast on HBO on May 23, 2011. [2] It is based on the non-fiction book Too Big to Fail by Andrew Ross Sorkin. The TV film was directed by Curtis Hanson.

Too Big to Fail chronicles the 2008 financial meltdown, focusing on the actions of then Secretary of the Treasury Henry Paulson (William Hurt) to contain the unfolding catastrophe. Specifically, it focuses on the period of August 2008 to October 3, 2008, during which the stock price of Lehman Brothers declined precipitously as Lehman's large exposure to toxic housing assets became more and more apparent. ☺☺☺☺ Fuld (James Woods), CEO of Lehman Brothers, is seemingly in denial of Lehman's toxic assets and refuses several deals to potentially save the company, believing the housing market will recover. Paulson attempts to arrange a private solution to the Lehman problem, and both Bank of America and Barclays express interest in the "good" assets of Lehman. However, they want federal government loans to finance potential losses from Lehman's housing investments. Paulson wishes to avoid another government-sponsored purchase as Bear Stearns was, fearing the encouragement of "moral hazard", and refuses. Bank of America decides to buy Merrill Lynch on the cheap instead, as Merrill was in a marginally better situation than Lehman, yet still desperately needing capitalization. Barclays was still willing to purchase a selection of Lehman assets, but the Financial Services Authority (the British regulators) made it impossible to close the deal in time. Lehman Brothers, acting under the strong and quasi-legal encouragement of Paulson and the SEC, prepared the declaration of bankruptcy on Sunday, September 14, 2008.

Reaction to the Lehman Brothers bankruptcy was positive at first. The stock market as a whole barely nudged, and approving editorials were written of the federal government refusing to bailout corporate mistakes. However, ripples of Lehman's counterparty risk soon spread throughout the financial system, as many of these debts would now need to be written off. AIG, not even a bank at all, had provided insurance to nearly everyone on their housing assets. AIG had priced this insurance very cheaply under the assumption it was impossible for all of the housing market to go bad at once, thus massively underpricing risk. AIG was already losing money it couldn't cover, and the fall of Lehman Brothers hastened its demise, as its creditors refused to lend even more money to AIG's collapsing portfolio. A collapse of AIG would imperil the entire world banking system, as banks find their hedges against a decline in housing not honored by a bankrupt AIG, setting off a chain reaction of bankruptcies. Paulson moves to have the goverment guarantee AIG's bad insurance, but the global economy is still under threat. As banks reassess their balance sheets and realize their liabilities are much worse than they thought, they realize they have far less cash to lend out, creating a credit crunch that starts affecting "Main Street", normal companies who had nothing to do with financial services. Ben Bernanke (Paul Giamatti), Chairman of the Federal Reserve, believes that the only thing that might calm the economy is if the federal government had a gigantic pile of cash ready to smooth over any further disruptions and to get the credit markets moving again, but that such an act would require legitimacy - an act of Congress. Paulson is skeptical of the prospects of passing such legislation a mere two months before an election, and worries that the worst case scenario is Congress explicitly voting down such a tool. Bernanke notes the dire circumstances, and says Congress will act if they are as scared as he is.

Paulson and his staff brainstorm over how best to use such money, should they get it. The plan is "cash for trash" - buy the "toxic" assets of questionable worth off the banks, which will allow the banks to stabilize at a known valuation. Direct capital injection is considered as well, but written off as a political non-starter - a bailout to Democrats, and nationalization to Republicans. Timothy Geithner (Billy Crudup), President of the Federal Reserve Bank of New York, attempts to arrange mergers between "strong" banks and "weak" banks to stabilize the situation. Geither also seeks to end "investment banks," a model which failed, by merging any investment bank with normal depositor banks, bringing them under the regulation of the FDIC. Bernanke and Paulson lobby Congress, with Bernanke emphasizing that a lack of credit helped make the 1929 stock crash into the Great Depression, and that if Congress fails to act "we may not have an economy on Monday." The legislation looks likely to pass, but turbulence happens when John McCain suspends his campaign for president to join the negotiations - potentially restarting them from square 1. The vote moves forward regardless, but fails to pass the House after too many Republicans vote "no", causing an immediate drop in the Dow of 600 points. After a wave of panic and personal haranguing from President George W. Bush, the legislation passes on a second attempt, and the Emergency Economic Stabilization Act of 2008 is signed into law.

Paulson and his staff now have the money, but find that valuing the toxic assets to buy will take two months minimum, and may still not be reliable, as the banks all wish to claim face value for them. As a result, they decide that the only way to get credit flowing again is direct capital injections after all. Furthermore, capital injections to only the weakest banks would be counterproductive - it would declare to the world which exact banks were "weak" and by how much, which could potentially just create a run on these banks and require even more of a bailout. With the help of FDIC chair Sheila Bair and the threat of an FDIC audit, Paulson informs all the remaining banks that they will be receiving mandatory capital injections in the form of non-voting government owned stock, and that they were all to use this money to get credit moving again.

I didn't know about this movie but my curiosity is now looking for some decent insight into the cause(s) of the 2008 financial crisis.

So I missed the movie and want to know if anyone here who has seen it if it's accurate to what you think contributed to the 'meltdown?'

From what I've read from the YT comments the banks seem to be the main factors. If that's true should we be concerned about letting banks hold our money or should we start using cash only?

[freepcmoney]

  I don't watch TV, therefore I never saw the movie. Therefore, I cannot comment on it. However, NOTHING made by man is ever TOO BIG TO FAIL.

[ElleRich]

I don't watch TV either, so I didn't see the movie.  However, if you google in 2008 financial crisis in the US in the search browser, I'm quite sure you will find what you're looking for.

[gaylasue]

Nothing man-made is too big to fail.

[Falconer02]

From what I've read from the YT comments the banks seem to be the main factors. If that's true should we be concerned about letting banks hold our money or should we start using cash only?

Hopefully this comic will stay up, but this is a basic explanation as to what happened. Bankers built up a strong structure on a frail/weak foundation and expected it to hold with no problems. It hurt everyone because some idiots thought they could pay a $4000/mo mortgage while they worked at Mcdonalds and the bankers were too blinded by the money they thought they'd be making without doing proper credit background checks. Ugh...

NOTHING made by man is ever TOO BIG TO FAIL.

Nothing man-made is too big to fail.

Talk about debbie downers! Human ingenuity > Pessimism

[mawhite63]

I saw it the night it premiered on HBO. The night before that I also saw "Inside Job" (http://www.sonyclassics.com/insidejob/) so I felt both together did an OK job of explaining the crisis to the lay person.

My own personal take, with tons of bias, comes next. I personally felt that "Too Big To Fail" was a little too sympathetic to Henry Paulson and Ben Bernanke. That could be because the actors who played them were both so fantastic and try to approach their parts from their characters point of view, that the actors themselves came off as sympathetic. I felt that the film glossed over the parts that Paulson and Bernake had played in setting up the background for why this crisis came to be. If anything, I think it leaned a little too right.

On the other hand, "Inside Job" I felt leaned a little too left. I wasn't really impressed with Barney Frank being the voice of one of the good guys, when he repeatedly insisted prior to the collapse that Fannie Mae and Freddie Mac were in good shape, when they most certainly were not. Other than that though, Inside Job was better in showing the lead up to the crisis.

Definitely see if it you have a chance... even better, watch both.

I think there's too much pointing left and pointing right. My take, both sides failed us politically.

As far as the OP's question

If that's true should we be concerned about letting banks hold our money or should we start using cash only?

My own personal choice was neither. After all this happened, we moved to a credit union.

[prtee33]

I have seen "Too Big To Fail" and thought is was a great movie. The cast was full of stars and very well acted. I thought it portrayed the storyline quite well and definitely gives you a good idea and behind the scenes look between Auguest and October of the 2008 economy meltdown.