Macroeconomics Song Essay Example for Free

Macroeconomics Song EssayThe poems major theme revolves around the unravelling of the US financial bena and particularly its impact on investment banks in the wake of the recent global economic recession that affected the US and most of the world economies. about of the macroeconomic concepts addressed tacitly and explicitly include executive compensation, and the business cycle (Paxton, 1).The crisis is said to have primarily been triggered by the submarine gear up mortgage crisis. Tradition everyy, investment banks and other lending institutions have payd their customers borrowings from the deposits they collect from the members of the public. With the demand for credit finance to purchase essential items such as homes rising 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 finan cial institutions sell bonds. Those buying the bonds are gua spurteed 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 paid back their money whether the borrowers pay the bank back or default. Thus, it can be seen that the investment banks here shoulder inviolable risks (Zeese, 1 Rasmus, 3 BBC, 1).The main problem was that these loans were made out to a plane section 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 financing home purchases made virtuoso because the borrowers could refinance their home purchases. However, and against all expectations, the real estate bubble that had been so prolonged in the country burst, and home prices began t rending 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 massive foreclosures (Zeese, 1 Rasmus, 3 BBC, 1).The loans that had been made out by the financial institutions were in the tune of one thousand thousands of dollars. When these borrowers defaulted, the banks were left field holding toxic assets, which they wrote down leading to massive 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 backdrop 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 maters 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 government (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 bear Bank providing a staggering $30 one thousand million to facilitate its purchase. Courtesy of the Housing and Economic Recovery Act of 2008, the government is said to have coiffure in some $400 billion in Fannie Mae and Freddie Mac. The AIG on its part received at least four cash ba ilouts, all of them amounting to $180 billion in total (Nanking, 1).The poet strongly questions the ethics behind these bailout packages, given that the crisis that affected the investment banks was largely self-inflicted. For example, apart from poor judgment resulting in the sub-prime mortgage crisis, the problems which the banks confront were also catalyzed by poor management practices such as excessive executive pay.The problems facing the banks also broke out at a quantify the issue of executive pay was coming on a lower floor the spotlight. For example, Linn (2) writes that in 1970, top executives were earning 44 times what subordinate workers got and that by 2007 this had jumped to 344 times what the subordinate employees got. More heavy is the fact that the CEOs 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 bolt (Bass and Beamish, 1). Lloyd Blankfein, Gold man Sachs top honcho, got $54 million, when the bank made a loss, with the 116 investment banks that had been short 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 obscenity that the poem seems to rant about. Listen to the poet And it said that failure was the only crime. If you really screwed things up, then you were through Nowsurprisethere is a different point of view. All that doddering rooty-tootin And that golden parachutin Means that someones making millionsjust not youWorks CitedBBC. (2007). The downturn in facts and figures. 21 Nov 2007. 28 May 2010. http//news.bbc.co.uk/2/hi/business/7302341.stmBass, Frank and Beamish, Rita. (2008). AP Study 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 flap gives ammunition to critics of high pay. MSNBC. Mar 20th 2009. 29 May 2010. http//www.msnbc.msn.com/id/29791834/Nankin, Jesse. (2009). History 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