The recent global financial crisis that started in the United States of America caught many individuals, businesses and governments by surprise. The fall in the mortgage market in the US quickly spread like a wild fire to the whole financial sector in the Country and to all other sectors of the economies.
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Many financial institutions such as the Lehmann Brothers went insolvent and others such as the AIG neared the same fate. Such institutions were ‘too big to fail’ that going into insolvency was too big a consequence to deal with. As such the US government had to come through and aid these institutions through a bail-out program.
The Movie ‘Too Big to fail’
The film ‘Too big to fail’ is a US television docudrama film that archives the precursor to the 2008 financial meltdown. The movie revolves around Henry Paulson (William Hurt), who was the secretary of treasury in that period as he tirelessly tries to save the day for Lehman brothers who held a lot of ‘toxic assets’ in the housing industry.
The 98 minute film is directed by the ‘8 mile and L.A confidential’ Oscar winning director Curtis Hanson. The movie’s cast includes Hurt William (Henry Paulson, secretary of treasury), Asner (Warren Buffet), Billy Grudup (president of the Federal Reserve Bank of New York), and Paul Giamatti (chairman of the Federal Reserve) among others.
Paulson organizes for a private solution for the Lehman brothers where the Lehman brothers CEO seeks external investment but external investors are skeptic about the viability of such an investment decision. Two banks, Bank of America and Barclays present their interest in the ‘good assets’ of Lehman.
However both bids to purchase these assets fail as Bank of America pulls from the deal while bank in the United Kingdom the British bank regulators refuse to approve the merger by Barclays. Having exhausted the available option, Paulson directs Dick Fuld, the CEO of Lehman Brothers to declare the firm bankrupt.
Paulson holds a press conference where he issues strict warning against moral hazard as seen in the Lehman Brother case as the political reaction as well as that of the Wall Street seems favorable.
The situation however changes after Paulson learns that counter party risk from the Lehman Brother is adversely affecting the entire financial industry and that the stock markets in the country are on a speedy fall. Another crisis looms as the AIG begins to experience a possible collapse and again Paulson is called to duty.
The treasury team soon realizes that if AIG follows the Lehman Brothers the whole financial sector will be thrown into a deep end crisis that can exceed the great depression experienced in the year 1929.
This upcoming leads to a tussle between Washington and the Wall Street on whether to bailout or nationalize these companies. Finally, the government approves the bailout and the situation is contained. A list naming ten organizations which are referred to as ‘too big to fail’ is released.
The movie is both educative and entertaining. Someone who watches the movie will certainly relive the possibly most fearful days in financial sector so far in the third millennium.
The financial jargons used in the movie and the various nearly true actions taken in the movie make the movie seem a real story. The movie being stuffed by the Hollywood stars presents a chronicle of the 2008 financial crisis and an entertaining drama at least for those who did not own stock in Lehman Brothers.
The movie also provides some information about the back stage deals that happen among the Wall Street companies and the governments which sometimes never come to the knowledge of the public until such a crisis occurs.
The interesting part is that some characters are such as Henry Paulson, the then secretary of treasury are displayed as the savior while other such as Dick Fuld are depicted as the ‘Bad man’. For anyone who understands how the financial markets operate, this movie is certainly a well cast and perfectly presented piece of docudrama.
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The filmmaker present a battle of wills between the main players on the Wall Street and the government powers in the Washington D.C. Paulson acts as the good man who arbitrates the different interests of the government and the Federal Reserve (Mark 6).
He is engaged in a back and forth runs to try and save the situation in the financial sector of the country. After the Lehman Brothers fall he is seen in a press conference affirming that the treasury will not tolerate moral hazard as seen in the case of the collapsed company.
He however finds himself on the other side as the news about the counterparty risk of the Lehman Brothers affecting the entire financial sector surface. The situation worsens when another crisis occurs with the news of a possible collapse of the AIG.
This makes Paulson and the entire treasury realizes that if AIG is allowed to collapse, catastrophic effects will result in the insurance industry and the whole economy may be on the verge of an unrecoverable depression.
Given the extraordinary circumstances, various individuals come on board, among them Ben Bernanke, the chairman of the Federal Reserve who asserts that they cannot adopt a laissez faire attitude and the only possible way that the situation can be saved is for the US congress to enact legislation that would authorize the fed or the treasury to intervene.
The main players in this movie are seen to be the Federal Reserve, the US treasury and the US congress as they hold the sole possible solution for the US economy. The proposal by the chair of the Federal Reserve is expressly turned down by the congress and the only solution remaining seems to be for the treasury to seek alternative means of intervention.
Paulson and the treasury team comes up with several suggestions such as a purchase of the toxic assets held by the banks which would give banks some liquidity boost or a direct injection to the banks but all these proposal fail to stand ground due to the stand-off between the democrats who support a bailout program and the republicans who are for nationalization.
The role of the Federal Reserve in the US financial sector is seen as the president of the New York Federal reserve realizes that the situation cannot wait for congressional action.
He plans to lobby for a merger between the consumer banks and investment banks so as to help the situation but all the consumer banks become skeptical and as such shy away from the proposal while the investment banks refuse to be sold at highly discounted prices.
The second attempt to have congress enact the legislation succeeds after news that the crisis has spread to the mainstream economy and such healthy companies as GE have failed to finance their daily operational needs.
Benarnke reaffirms that great depression of 1929 and the stock crash resulted from lack of credit and as such, “if the congress fails to act, the repercussions will be far much worse”. The congress finally breaks the deadlock as the Emergency Economic Stabilization of 2008 is signed into law.
The treasury is given cash and continues to offer direct injections to the banks. These banks accept the cash and agree to use the cash only to push credit.
This is however not the case as an epilogue reveals that even though the banks manage to repay the loans lent to them, the credit continue to tighten and rates of unemployment continues to increase. The movie concludes by acknowledging that the remaining Wall Street institutions are too big to fail as they hold 77% of the US banking industry.
In this movie, the filmmaker succeeds in presenting the real world’s events. This is because of the common knowledge that the Lehman Brothers collapse as presented in the movie was the precursor of the 2008 financial crisis.
More so, the US financial sector is regulated by three major parties; the Federal Reserve, the congress and the Wall Street companies. As such any financial policies such as the fiscal and the monetary policies must involve these three important groups of stakeholders.
The filmmakers took liberties to make the film more appealing. The inclusion of international scenarios such as the negotiations with Koreans and the British banks add to the appeal as the movie seeks to present advance plot development in the wake of the global financial crisis.
There is however no significant distortion of reality since the whole discussions and decisions seem congruent with those that are made by these parties in the run up, during, and the post economic crisis era.
The movie is quite interesting and enjoyable more so with the background knowledge of the political science and the various interests held by the Federal Reserve, the Wall Street, and the US congress and the tussle that goes on between the democrats and the republicans. As such, the movie should be kept in the supplemental film list.
Mark, Gongloff. “Too Big to Fail,” the Movie: 4 Things We Learned”.” The Wall Street Journal (2011): 1-12. Print.