Macroeconomic Song Analysis

Macroeconomics Song

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The poem 's major theme revolves around the unravelling of the US financial sector - 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 . Some 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 sub prime mortgage crisis . Traditionally , investment banks and other

lending institutions have financed 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 financial institutions sell bonds . Those buying the bonds are guaranteed 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 substantial risks (Zeese , 1 Rasmus , 3 BBC , 1

The main problem was that these loans were made out to a segment of the market that is considered risky...