On a cool and clear day in the year 2001, an investment plan was presented to the then CEO of Lehman Brothers. The file, amassed by a team of mathematics and physics PhDs, incorporated a computation to demonstrate how the bank will for all time ends up with a return if they put in their money on the real estate markets. For the next 5 years the bank borrowed billions of dollars to put in the housing sector. And actually it really worked fine. The boom in the housing market had made Lehman Brothers’ firm a giant in the investment banking. They were positioned fourth worldwide.
But as a proverb goes like “Nothing stays for forever”. Similarly the situation changed for the Lehman Brothers also. There was a slump in the housing market which started to show its effect largely worldwide. And all the calculations and assumptions by the PhDs of Lehman group began to shatter one by one. The investment now turned into a mistake, resulting in an astonishing loss of $613 billion. It was on Sep 15 2008 that Lehman Brothers bowed. They lead to one of the biggest economic failure in the US history.
The money making model
They followed a money making model. They started giving insurance covers to other small banks for default cases. They looked out for opportunities to make money as soon as possible without actually speculating the risks involved with it. They started giving insurances at almost double the premium than it should have been and started making gains. As the smaller companies and banks started feeling secure so they were ready for paying double the premium. This type of cover is called a credit derivative swap (CDS).
Another type of deal they agreed upon is termed as collateral debt obligation (CDO). In this they started charging a certain premiums and if there were default cases of more than a fixed number then the rest of the claim would be bourn by the smaller companies. And if it is lesser than the given number then all the claims would be cleared by the Lehman Brothers.

The charisma of the CDO is that roughly all of the time Lehman Brothers don’t have to shell out anything and will only be making money by premiums. It was usually considered to be nearly as safe as borrowing money from the government. Since returns were better the investors were fascinated by it.
But in fact, CDO is much riskier than bank deposits. Just like many investors Lehman Brothers also didn’t looked like knowing that. The problem was that there wasn’t any nationwide fall of housing price since 1920s, so the chances of a borrower defaulting was considered on the foundation of an excellent period in the housing sector. But unfortunately, the housing market worn-out in 2007. Many lenders’ possessions were now worth much less than the credit they have to forfeit in the near future, so a lot of of them refused to pay. Moreover 22% of these borrowers were sub prime borrowers who had little hope of returning money. Banks were not scared of lending funds to them because even if they defaulted, there was insurance cover.

Lehman Brothers decided to invest huge on CDO. After suffering serious losses from CDO, borrowers called back the loans. Lehman Brother borrowed more than it was able to give back and soon was finished forever.

As if the threat of the H1N1 virus was not enough, people now have to check whether the beef products that they currently have at home are made by JBS Swift Beef Company (from Greely, CO). Today, the company had decided to widen their products recall net, to include more beef products that could have been contaminated with the pathogen Escherichia coli.

The USDA was also part of the investigation, who had documented 24 illnesses from various state residents around the country, 18 of which appeared to have their symptoms after partaking of the said beef products from JBS. The FSIS, the division of the USDA responsible for meat inspection, is closely following the recall of the beef products.

When it happened

According to the JBS Swift Beef Company, the possibly contaminated products came from one batch that was produced in its factory plant in Greely last April 21. To make things worse, JBS Swift Beef Company admitted that the contaminated beef products had not been only distributed to most of the states in the US, but also to importing countries around the world.

While the JBS Swift Beef Company was amenable to recalling almost 450,000 pounds of potentially dangerous beef, it was not amenable to saying just to whom they had sold the beef. This was a very big problem since many importers from other countries practiced repackaging, whether to reduce the amount to more affordable amounts or for simple rebranding.

Since JBS would not say names, consumers from around the world who were buying beef would not be made aware of the danger. This poses an unfair advantage to US residents who would know outright that a product was indeed produced by the Colorado company.

Problems with the USDA’s response

According to Sarah Klein, a representative of Center for Science in the Public Interest, the problem may also be traced to the fact that the USDA is still missing a person that would fill a vital undersecretary position. It has already been 7 months and yet, the said position is vacant. This perhaps is the reason why the intervention is also slow in coming; the hierarchy has not yet been established solidly.

Recommendations from CSPI

There are ways to avoid this conundrum in the future, Klein stated. First, a more organized identification system for poultry and other livestock has to be created so that infected animals may be traced not only to the batch production plants but to individual ranches. According to Klein, supermarkets may also help in the effort to recall all contaminated beef products. For example, customer loyalty cards may be used to track down who bought a particular JBS product and when.

After which, communication may be started and the possibly, the products would be recalled without causing harm to the consumer. The infected meats are all large muscle cuts that bear EST. 969. Symptoms related to e. coli infections include vomiting, diarrhea with blood and painful cramping.

In the movie industry, popularity of movies do not necessarily equate with success. While the world financial downturn was a determining factor in increasing the effects of piracy around the world, this year seems to mark a fatal sinking of two of the most prolific movie industries in the world: Nollywood (Nigeria) and Bollywood (India).

Pan, focus: Nollywood

Nigeria is the home of Nollywood, the second most productive movie industry in the world, right next to Hollywood. What makes this particular industry potent and alive is the fact that it mixes modernity and traditional lore and narratives into a form that is appreciated by a whole continent of movie lovers. However, things have not been rosy these past few years.

Of course, piracy was to blame. It is estimated that around 50% of the profits from movies produced by Nollywood are lost to piracy. Piracy thrives in this region of the world because of corrupt local politics and perhaps, support from the movie lovers themselves who choose to buy pirated goods than what local producers can offer. A pirated DVD with 4 or 5 movies inside costs only N590 or $4. On the other hand, an original DVD with only one featured movie in it costs an equivalent of $10 or a bit less.

Nigeria’s movie industry is not wholly dominated by big businesses. In fact, many of the producers are individuals who put their own money in the production, hoping to make a bit from the engagement. But many, like Emmanuel Isikaku (who produced the movie Plane Crash), couldn’t even break even. It is an unfortunate turn of events that many fear would be the end of the prolific Nollywood industry.

It was only in 2006 that Nollywood rose to the challenge of beating Hollywood in terms of film produced per year, and how much was spent per film. In the same year, 872 Nollywood movies were churned out, besting Hollywood’s sizeable 485 major movies.

Tally light, zoom: Bollywood

During Bollywood’s peak, the Indian movie industry was simply dazzled as to how much foreign money was pouring in. The various segments of the middle classes around India were becoming newly wealthy, and they were willing to spend money to fulfill certain desires associated with truly living the modern life. Unfortunately, things have gotten gray these past few months. The money used in financing films almost instantly in the past was simply trickling now. Even the producers themselves held a strike that lasted for 7 weeks.

Though the strike is now over, the producers are not jumping into new projects that eagerly. Many producers like Nikhil Advani are being very careful in starting new films. In the past, all you needed was a star and a good name to back you up. Now, even that was nearly worthless.

In tight times, people tend to become more cautious. And that’s precisely what the backbone of Bollywood is doing. Characteristic of the boom-and-bust cycle being felt everywhere; we are hoping that this slow-down would finally end for the largest filmmaking industry in the world.

In the face of all economic conundrums, President Obama always believed in the power of the Federal Reserve to turn things around as far as the economic turmoil is concern. Although, the president pointed out that the Fed is not totally blameless; he’s only saying that it has the power to drive the economy back to the superhighway, so to speak.

Based on interviews, Fed Chairman, Ben Bernanke, share the same viewpoint as Mr. Obama on giving his agency more power to regulate financial and even non-financial institutions. He also defended his agency’s reputation saying that the Fed has taken enough rotten-egg reviews from lawmakers and the media for failing to avert the crisis. But the Fed, according to Mr. Bernanke, has played a major role that averted the looming second Great Depression. In effect he is saying that the crisis felt now is a milder version of what was looming had the Fed sat on their hands when they saw the signs.

President Obama is proposing on extending even further the power of the fed to regulate institutions and to oversee systemic risks that might drag the economy further into prolonged recession. The Federal Reserve already has the power to oversee mortgages and credit card companies, but this is by no means “enough” according to the president.

In the president’s words, “We believe that the Fed has the most technical expertise and the best track record in terms of doing that [monitoring the health of the institutions and the systemic risks].” Treasury secretary, Timothy Geithner, seems to think so too.

Under the proposed expansion of power, the Fed is given the authority to seize weakened institutions that are deemed posing threat to the whole economy. But some lawmakers and economists don’t believe in this strategy.

Oppositionists of the plan are claiming that the Federal Reserve will be stretching itself too much to the point where the line between a reputable, independent financial institution and a political governing body will be blurred. Former Treasury undersecretary, John Taylor, said that stretching the Fed’s power over wide function will undermine its ultimate mission. He’s afraid that the Fed might lose track on inflation regulation, become highly politicize, and it will lose its independence.

The role of the Fed governor will be stretched too thinly over risk management, inflation and monetary regulation, bank and other institution regulation, and adding to that, a possible congressional relations management if the plan pushes through. It’s too much for a single person handling an already very heavy role in the economy. Former Fed secretary, Alan Greenspan, also expressed concerned saying that stretching the role of the Fed further is, in his words, “mission impossible.”

The question remains, is giving more power to the Fed translates to giving more power to the economy? The answer might not come clean unless it’s tried. But, in times when doing nothing for the economy is a blunder, any plan is better than nothing at all.