Read the case and answer the questions ( but focus more in the first question) - Assignment Example

Due Lehman Brothers Case Study Do you believe that the U.S. government treated different financial institutions differently during the crisis? Was that appropriate?All financial institution in existence looks at credit worthiness before extending any credit assistance to their prospective clients; it is always prudent not to throw good money after bad money. Accordingly, the question is not about the “different treatment” per se, but why such “different treatment” occurs. A government as an umbrella is indebted to provide and ensure that the economy is always in a stable position to attract investment and enable progress in all of its sectors.

It is essential for the government to provide support in cases when a collapse of an institution would have adverse effects on an entire economy, and so is the capability to repay back the loans advanced thereof. The difference in treatment of financial institutions during and in the aftermath of the 2008 crisis was but well order; for with large risks is the chance to succeed and/or fail, all of which the very institution must bear the most burden. 2. Many experts argue that when the government bails out a private financial institution it creates a problem called “moral hazard,” meaning that if the institution knows it will be saved, it actually has an incentive to take on more risk, not less.

What do you think? No one individual among those in search of growth wishes to fail, and so are the institutions with humans at the helm. Equally true is the very fact that entities only reap rewards commensurate to the seeds sowed; anything else only happens in the charity world. With risk, however, comes responsibility; a case where an institution has “masked” bad assets and excessive liabilities outside the proximity of determinable levels is but incurable, and a lesson of some sort must be read across the system. 3. Do you think that the U.S. government should have allowed Lehman Brothers to fail?

It is public knowledge that by the time Lehman Brothers filed for bankruptcy with Federal Reserve, the financial crisis was well underway, and that bailing out the institution wasn’t a priority; the entire system was. To hit right at the tip, getting the right buttons at that particular moment was but hard to call, and that no one knew for sure that lending the Lehman Brothers a hand was that very right button on behalf of the entire system. If indeed its consequential failure had the weight alluded by a section of scholars in quashing off the crisis, then, it was a mistake on behalf of the government.

The foregoing notwithstanding, the downward spiral with exorbitant losses on its books of account wasn’t anything to overlook. Both ways, the decision taken was a double-edged sword with no specified guarantees and/or consequences.