In 2015, the Big Short movie was realized based on the events that led to an economic credit crunch. Wall Street guru Michael Burry has noticed that the economic conditions and situations in America has put a number of home loans in danger of non-payment anddefault.Greedy opportunists such as Jared Vennett, banker, Mark Baum, hedge fund specialist and others notice that Burry bets against the housing situation and swapping more than $1Billion of investors’ money into credit. Theses opportunists make a fortune by taking full advantage of impending economic collapse and housing collapse in America (Goodstadt, 2011).
In the scene where Mark Baum meets a CDO manager, he realizes that the markets have gone to the dogs. He is frustrated by realizing that the American market will collapse and people will lose the jobs and their investments will run into ruins. In short, bank after bank in America are selling bonds to unsuspecting customers and investors with the guise that they are highly valued and will only reap hefty rewards (Scott, 2010). The bonds are at the time valueless or have a very low value compared to the selling price. After offloading the corporate bonds to the customers, they will later devalue them leading to massive losses to customers and hefty profits to banks. Nobody is willing to tackle the situation. Opportunists like the CDO manager that Mark meets will make a fortune just by buying and selling at the right time (Taylor & Clarida, 2014).
The ethical issues in this scene is that the capitalist world is very greedy. People will make a fortune in a capitalistic market where morality is not necessarily followed(Burnett, 2010).Insider information is also crucial in controlling the market and destabilizing the markets. People with insider information like the synthetic CDO manager will manipulate information in the system. They take advantage of deregulations of the bond system. Mark notices that the greed in the system is abnormal and is worried that the number of home loans will be defaulted (Dolezalek, n.d.). The economy will crumble and the housing bubble will bust.
Due to deregulation of the financial industry in the United States, banks actively engaged in trading of derivatives using hedge funds. These banks then demanded mortgages to support the sale of the derivatives. That created the global financial crisis that led to the great recession considering the United States is the biggest economy in the world.Securitization is another factor that led to the 2008 financial crisis(Law & Hesselbaum, 2015). This is where hedge funds and other institutions sold market –backed securities and other derivatives to secondary markets and the mortgage is used as a security. The third factor that led to the economic crisis and latter global recession is the growth of subprime mortgages and the fed raising the rates of the subprime mortgage borrower. Due to low rates in subprime mortgages, many people took the loans and could not afford to pay up(Goodstadt, 2011). It had become a very industry worth more than $1.3 trillion.Homeowner’s were issued with bills they couldn’t pay.
A financial or accounting event that could go hand in hand with the bubble bust in the housing industry is the collapse of many hedge funds. An example is the collapse of many hedge funds. Dr. Michael Burry a hedge fund manager managing more than $550 million closed his Scion hedge fund. Dr. Burry in one of the scenes visits several banks showing them how the market will crumble under the weight of mortgages but is even laughed at and ridiculed by employees of these top banks (Scott, 2010). Deregulations led to increased sale of derivatives by the banks which in turn led to the financial crisis being experienced. . Securitization is another factor that led to the 2008 financial crisis. This is where hedge funds and other institutions sold market –backed securities and other derivatives to secondary markets and the mortgage is used as a security(Insana, 2014). The accounting principles in America had not been set so as to prevent some key players from manipulating derivatives such as bonds. Many were selling this derivatives without the required approvals and were only doing so to reap big harvest. Hedge fund specialist Dr. Michael Burry realized the crisis and approached the banks for collateral security in the event that the bond market collapses. He wanted full compensation of his money and which was almost impossible since the banks were also on the point of closing due to bad mortgages and loan repayment (Scott, 2010).
The movie Big short tries to show us that there was there were some unethical issues that led to the global financial crisis.As the movie portrays , the financial crisis of 2007-2009 was caused by an erosion of standards of ethics and responsibility by major players in the banking system. The activities of regulatory agencies and financial institutions contributed to the financial crisis. Also government institutions that used rescue strategies that were unprecedented to turn the crisis around(Hogan, Brown & Wood, 2010).
Mortgage brokers were some of the major cause of the financial crisis of 2007-2009. For mortgage brokers, there was higher compensation for subprime loans than the conventional loans. This made them to push borrowers to take up risky and more costly loans. They also failed to disclose their compensation differential and the risk posed by the subprime loans. Second is the unethical issue where susceptible buyers were led to believe that rising prices of houses would allow the consumers would allow them to refinance their mortgages into the ones they could afford (Scott, 2010). They did not fully disclose the risks of the loans. A scene from the movie is where a bank Dr. Michael Burry bets against the housing market to a tune of $100 million.
The objective of the Australia’s accounting standards is to achieve full transparency in the relationship to the financial environment of public and private entities, also adding that decisions Financial decisions taken by the government also affect the citizens and, if a transparent financial system is available, the country’s administrations will be able to focus their decisions more in line with Australia’s economic reality.
The convergence to the International Accounting Standards called IAS by its acronym in English is a reality today at a global level. Not by a whim of the government but by a need for globalization of the economies that require different entities not only to Australians but the whole world.This is to strengthen their accounting and financial practices under international reference frameworks and in the search for better executions. The main objective of these standards is the achievement of transparency in finances(Hampton & Darbyshire, 2013). “Citizens are affected by the financial decisions that the government adopts and the stronger and more transparent their accounting and financial practices will make it possible for administrations to make determinations much more in line with the economic reality of the country(Shiller, 2012).
The failure to properly manage the finances will continue to have democratic implications, social unrest, non-compliance with international financial commitments, low credibility of the Government before citizens, multilateral organizations and countries that help in times of economic crisis(McBride, Mahon & Boychuk, 2016).
For the Government to have a successful task, it must have the help of the preparers of the accounting and financial information in both private and Public Sector. “The challenge for the preparers of the financial information is gigantic since they will be the ones that will interpret, apply and use their professional judgment of what the financial institutions expresses as normativity”.
While the experts do the task of convergence, the knowledge should be in the people who prepare the financial information of the entity(Shiller, 2012). In this way, a sustainable convergence will be achieved when the advisors are no longer present. Impact on the level of technological resources and processes It is necessary to ensure that the accounting systems support the new policies and ensure that the government has thought about adapting the system information and in a comprehensive manner, otherwise you will have to develop other applications to make the process more automatic and less wasteful. The need for and appropriateness will not be the copy paste policy that is not really needed in each institution. Revelations At the level of disclosures, is it clear the exhaustive list of disclosures that should be made and how will the construction of this database for them be done(Savona, Kirton & Oldani, 2016). Decision to make this process a reality is the decision of the Administration to start with the convergence project and to make this a real project for the entity.
References
Blackstone, W., & Lewis, W. (1962). Commentaries on the laws of England. Boston: Beacon Press.
Burnett, T. (2010). Black Wallstreet. [United States]: Xlibris Corp.
Dolezalek, H. The global financial crisis.
Goodstadt, L. (2011). Reluctant regulators. Hong Kong: Hong Kong University Press.
Hampton, D., & Darbyshire, P. (2013). Hedge fund modeling and analysis using excel and vba. Hoboken, N.J.: Wiley.
Hogan, N., Brown, G., & Wood, M. (2010). Understanding the securities laws 2010. New York, N.Y.: Practising Law Institute.
Insana, R. (2014). How to make a fortune from the biggest market opportunitiesin u.s.history. New York: Avery.
Law, R., & Hesselbaum, Z. (2015). Cruising though retirement. Tarentum, Penn.: Word
McBride, S., Mahon, R., & Boychuk, G. (2016). After ’08. Vancouver: UBC Press.
Savona, P., Kirton, J., & Oldani, C. (2016). Global financial crisis. London: Routledge.
Scott, H. (2010). Global financial crisis. Hauppauge, N.Y.: Nova Science Publishers.
Shiller, R. (2012). The subprime solution. Princeton, NJ [etc.]: Princeton University Press.
Taylor, M., & Clarida, R. (2014). The Global Financial Crisis. Hoboken: Taylor and Francis.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download