Reward System

Citibanks structured credit group (SCG) experienced weighed down losses in 2008-09 and resulting in partys surpass credit crisis ever. The losses were caused by the as failure of mortgage backed security (MBS), a type of investment that the SCG had to a great intent invested billions of dollars. MBS were bonds backed by mortgages on real earth that were bought by SCG in high volume as they paid high interest rates than other bonds. The market conditions gain ground catalyzed the overweening buying of such MBSs, financial regulators (primarily government at that time) boost free market policy where companies would self regulate themselves and unploughed the interest rates very low. The free market conditions further inculcated excessive competiveness (and greed) in the market yielding more pressures for companies to evidence profitability. The individual reward system used by the company was incongruent with company large boundary profitability. The real farming brokers/mortgage generators had every incentive to sell houses to individuals whose credit was non worth the house. They sold it as they knew they these mortgages would be bought by SCG executives as MBSs in billions of dollars, that would yield high returns in terse term and yield them excellent incentives.

Buying of these low quality mortgages and induce bubble by encouraging more real estate buyers with almost no credit history. Eventually people started to muff as realistically they could not afford the houses and the bubble burst. only the high yielding MBSs bought by the SCG group was worth nothing. SCG hoped for long term growth and profitability, however it rewarded its executives with based on short term (say quarterly) results for these MBSs. Reward system was fouled as it displace emphasis on objective criterion i.e. quantity of MBSs quite than the quality and risk of these securities. There system has overemphasis on super visible metric i.e. quantity rather than the quality. To some extent even market/government... If you want to get a bountiful essay, order it on our website: Ordercustompaper.com

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