...1) Throughout this class we have discussed the conduct of the major players at financial institutions and their role in leading their companies to the brink of failure, and in some cases have been successful (Bear Stearns, Lehman & AIG). With that as a starting point how important is character and ethics? What role(s) do you think boards of directors should play and did they exercise their fiduciary responsibilities to the shareholders and employees? Money is an important character in various financial institutions, but by itself is not necessarily evil. Rather, it is something that is used to trade goods and services. We call it "currency", and it allows us to do business between organizations. Unfortunately, that is the sterile dictionary-type definition but it does not capture all the issues that are involved with finances. In corporate life, just like in many other realms, money causes all sorts of problems. People make incredibly bad decisions because of money, and plenty of people have gone to prison because of their money-related behavior. This is why people always approach money with a certain amount of uneasiness. Here are a few thoughts on why financial management ethics are important. The numbers do not have a soul, so they cannot govern themselves. They must be managed by people. Ethics are important because finances make people do some strange things. The spreadsheet does not have a conscience, and the goal of working with spreadsheets is to make numbers add...
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...Glass-Steagall Reform Previously, we briefly discussed that much has recently changed in the investment banking industry, driven primarily by the breakdown of the Glass-Steagall Act. This section will cover why the Act was originally put into place, why it was criticized, and how recent legislation will continue to impact the securities industry. The history of Glass-Steagall The famous Glass-Steagall Act, enacted in 1934, erected barriers between commercial banking and the securities industry. A piece of Depression-Era legislation, Glass-Steagall was created in the aftermath of the stock market crash of 1929 and the subsequent collapse of many commercial banks. At the time, many blamed the securities activities of commercial banks for their instability. Dealings in securities, critics claimed, upset the soundness of the banking community, caused banks to fail, and crippled the economy. Therefore, separating securities businesses and commercial banking seemed the best solution to provide solidity to the U.S. banking and securities’ system. In later years, a different truth seemed evident. The framers of Glass-Steagall argued that a conflict of interest existed between commercial and investment banks. The conflict of interest argument ran something like this: 1) A bank that made a bad loan to a corporation might try to reduce its risk of the company defaulting by underwriting a public offering and selling stock in that company. 2) The proceeds from the IPO would...
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...never a clear path on how to reverse the demand that was cause by repealing the Glass-Steagall Act of 1933. Although there has been other regulations and acts pass since the repeal of the Act of 1933, the ability to restore and strength our dollar has been an uphill battle to take control of it. What was known within our economic system to readjust and rebuilt had not worked to establish balance playing field on the world stage or our domestic economy. As we look forward toward corrective action though the Dodd-Frank Act, Sarbanes-Oxley Act or the Global Legal Settlement of 2002 which reduced the conflict of interest as did the Sarbanes-Oakley Act. These conflicts encompass “underwriting and research in investment banks, auditing and consulting in accounting firms and credit assessment and consulting in credit rating agencies.” (Sanati, 2009) So while we have had a slow and diosmose recovery from this crisis, I will try to answer some of the questions presented to us today on our ability to fully recover and instill some preventative measures to ensure a worst and more devastating financial crisis from taking hold of our economic system. Keywords: Glass-Steagall Act, Bailout, Dodd-Frank Act The Federal Reserve System & Financial Crisis The key factor that protected the banking customers in the United States was repealed in 1988 by than President Bill Clinton; the Glass-Steagall Act of 1933 had placed a firewall between the Commercial banks and the Investment banks...
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...Intangible Costs of Financial Regulatory Reform and Deregulation (The Financial Institutions Deregulation and Reform Act 1999* and the Dodd-Frank Act 2010) on United States Capital Markets and Institutions as measured by Debt Loan Types and Bank Profitability. Key words: Glass-Steagall Act, Financial Institutions Deregulation and Reform Act, Dodd-Frank Act, investment bank, financial statements. II. Table of Content I. Cover Page1 II. Table of Content2 Abstract, key works2 III. Introduction3 IV. Statement of Problem5 V. Background12 V. Results from Research & Summary13 VI. Works Cited 14 III. Introduction United Sates financial reform dates from the last century, in 1930s’ Great Depression. To have a brief talk about US financial reform, which is a long and arduous project. Aim to reach the goal that has to include three important acts: Glass-Steagall Act, Gramm-Leach-Bliley Act, and Dodd-Frank Act. Throughout history, the financial system in US has experienced the mixed operation and separated operation processes, as well as various financial institutions and regulatory authorities continue to be perfected. US financial reform and innovation continue to promote the US economy continues to develop and progress. Next, I will briefly introduce each act in the basic level, and I will explain their historic background in Section V: * "Glass - Steagall Act" – separate the traditional banking and investment banking Before the 1930s, the US financial system was basically...
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...Colorado State University Global Campus | The Great Recession | The Repeal of Glass-Steagall | | Kevin P. Dugan | 12/19/2012 | | Dear Mr. Speaker, Right up until October 29, 1929, most investors and speculators, many of whom worked for private financial institutions, were riding a Bull Market, believing that Wall Street would continue to rise and see gains indefinitely. This lead many of these speculators and banks to engage in high risk investments that exposed not only their private holdings to increased risk but also those savings of individual citizens who had deposited their money with these institutions because they believed their money to be safe. On September 18, that all changed as the stock market crashed, causing a large percentage of Americans to lose much if not all of their savings and investments. During the years prior to the onset of the Great Depression, the market was on what seemed to be a constant uptick, with gains being realized daily in most cases. During these years, many private banks began investing in the securities market. The Free Dictionary (2012) states that, “Beginning in the 1900s, commercial banks established security affiliates that floated bond issues and underwrote corporate stock issues. (In underwriting, a bank guarantees to furnish a definite sum of money by a definite date to a business or government entity in return for an issue of bonds or stock” (para. 3). While loaning money to business for...
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...Is it necessary to combine Investment Banking and Commercial Banking? Separation of Retail Banking and Investment Banking was a hot topic with President Obama’s proposal in January 2010 regarding a ban on US Banks on retail banks from using their own funds in investments and limiting to invest their customer’s funds. This news made many to wonder whether the world is going back to replace Glass Steagall Act which was abolished in 1999.(BBC,21January2010) Glass-Steagall Act(GSA)commonly known as Banking Act 1933 made the investment banks and Commercial Banks to function separately in order to refrain Commercial Banks from greater in securities business activities. This Act prohibited Commercial Banks to underwrite securities to public while it prohibited Investment Banks to accept deposits from customers. (Investopedia,2003). Many argue that commercial banks should not involve in securities(stock/bond)market investments as commercial banks divert funds in investment banking. In other words internal transparency of movements of funds not very clear when operating as a ‘Universal Bank’. Prior to 2007-2009 financial crisis Commercial Banks were greedily involved merely because of profits in securitization business where subprime mortgages were involved. During the rise in property market in 2006,banks created and traded in securitized assets, backed by subprime mortgages. Banks became greedy of making more money through SPV(Special Purpose Vehicle)taking high risks. When...
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...winding down of a “systemically relevant” firm. 2. It must prevent the emergence of more “too big to fail” firms 3. It must not be so stifling as to prevent the controlled growth of safe and profitable financial service businesses. Analysis Up to 1999, banking regulation had been fairly constant since the Great Depression ended. The Golden Rule had been the Glass-Steagal Act. The Glass-Steagall Act, was passed by Congress in 1933 and prohibited commercial banks from engaging in the investment business. It was enacted as an emergency response to the failure of nearly 5,000 banks during the Great Depression. The act was originally part of President Franklin D. Roosevelt’s New Deal program and became a permanent measure in 1945. It gave tighter regulation of national banks to the Federal Reserve System; prohibited bank sales of securities; and created the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits with a pool of money appropriated from banks. In 1999, Bill Clinton signed the Gramm-Leach-Bliley Act, a bank deregulation bill that swept away the Depression-era Glass-Steagall law. The new law had such a chorus of bipartisan support that it passed the Senate 90-8. One of the few who raised concerns against it was Senator Byron Dorgan (D-North Dakota). “I think we...
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...risk bets by buying mortgages. When people bought houses they could not afford, banks took those individuals’ situation and gave mortgages out to those individuals. When the amount of mortgages starting increasing, and people starting losing their homes, earning bad credit, and losing their jobs, president Obama decided it was time to take action. The Glass- Steagall Act was built on a firewall between investment and owning. The purpose of it was to prevent commercial banks from interfering with the banking investment business. It was believed that banks were too involved in investments, which risked the costumer’s money. Since banks had a huge amount of money, they would risk it in investments, making those investments not so leverage. It was when banks started giving out more and more loans and shifting money from one place to another, the Glass- Steagall Act went into place. After the Glass- Steagall Act was established, banks were no longer permitted to risk the customer’s money by investing it, which then lead to the belief that banks were losing market share and was leading to the financial crisis, causing the Steagall act to be repealed. Even though money can literally be printed out, in order to create money the Federal Reserve gives credit. The...
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...agree in a ring fence or total separation, it is a procedure that will take place over a period of years. In this project a brief review of the debate that takes place around this matter will be presented, mainly by stating some of the ideas that are commonly discussed. The Glass-Steagall Act and how we got here Recently President Obama proposed the separation of investment and retail banks, as it is believed that they were the main reason of the last financial crisis that started in 2007. Avgouleas (2010) points out that the mega banks were created after 1990’s due to the deregulation of the financial industry and they engaged great risk in their investment activities as the deposits (that were used for these purposes) were guaranteed by the government. Benston, G.J. (1994) points out that these mega banks became so large, that even if one of those banks was failed, it would cause a systematic financial crisis, as their role in underwriting and distributing securities makes them vulnerable. However, President’s Obama proposal was based on the Glass-Steagal Act. Benston, G.J. (1994) points out that in the past, steps were made in the US towards narrow banking. The primary law (Glass-Steagal Act, 1933) separated the...
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...spending by the average person, the Smoot-Hawley Tariff Act and a massive drought in the Mississippi Valley. From this nation-wide crisis came Social Security as we know it, the creation of the Tennessee Valley Authority Act, the creation of the SEC and stricter banking and stock market regulations. Overall the Great Depression had a large impact on The United States that can still be seen today. Causes of the Great Depression In January of 1929 an editorial (Encyclopedia of American Studies, 2010) said “It has been twelve months of unprecedented advance, of wonderful prosperity. If there is any way of judging the future by the past, this new year will be one of felicitation and hopefulness.” This was obviously not the case. When the stock market crashed on October 29, 1929, it was possibly the greatest contributing factor to the depression. Some believe, though incorrectly, that the “Great Crash” is the same as the great depression. The stock market crash had people scared to spend money. People no longer bought nearly as many products which led to a drop in production, which in turn led to layoffs in the work force. Coupled with these layoffs, were huge debts being defaulted on by stock holders; this all inevitably to the failure or closing of many banks. The Smoot-Hawley Tariff Act was passed in June 1930 to protect farmers affected by the Great Depression from foreign producers. This Act raised the tariffs or taxes on imports to a new, unprecedented...
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...most of their farm land. There was also agricultural overproduction, which resulted in an uncontrollable disaster for the workers. Thus, the Congress launched the Agricultural Adjustment Act to try to combat the farming disaster. This act set quotas and limitations on agricultural production by paying the farmers money to not to plan as much crops. This act successfully slowed down the production and caused increased income for farmers and raised farm prices. However, this act only benefited the interest of landowners and not those who were sharecropping because it led the eviction of many poor tenants and sharecroppers, which was not very effective in its goal. Agricultural Adjustment Act also met a lot of criticism and was ruled unconstitutional by the US Supreme Courts, saying that the act cause many to kill off livestock and crops. This act also caused farmers to become migrants who “have gone through the hell of the drought, have seen their lands wither and die and the top soil blow away; and this, to a man who has owned his land, is a curious and terrible pain,” (Voices 168), John Steinbeck stated in his writing, the Harvest Gypsies. Steinbeck described the condition and feeling of the farmers that were forced to move and travel. He used this to explain how the Agricultural Adjustment Acts resulted in many farmers losing...
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...|Name of the acts |Needs of the acts |Outcomes of the acts | |1933 glass steagall act: |There was a need to curb and control the |This act separated investment and commercial | |The Glass-Steagall Act, also known as the |activities of investment banks and commercial |banking activities. | |Banking Act of was passed by Congress in 1933|banks. |Prohibited commercial banks sales of | |during a nationwide commercial bank failure |To get rid from the Great Depression of the |securities | |and the Great Depression. Two members of |economy. | Created the Federal Deposit Insurance | |Congress put their names on what is known |Commercial banks were accused of being too |Corporation (FDIC), which insures bank | |today as the Glass-Steagall Act (GSA). |speculative in the pre-Depression era, not |deposits with a pool of money appropriated | | |only because they were investing their assets |from banks. | | |but also because they were buying new issues | Public confidence was restored by the act in | | |for resale to the public...
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...enforce regulatory powers by those in the Federal Reserve and Treasury Department led to increasingly risky behavior by banks (Inside) (Das) (Rajan). The repeal of The Glass-Steagall Act in the late 90s meant that the banks engaging in these risky operations were larger than ever before and were using depositors’ money in order to trade for the benefit of the firm rather than its clients (Roubini) (Rajan) (Sorkin) and it is that risky behavior that ultimately led to the near collapse of the world’s economy. Although banking leadership must be held responsible for the practices that many institutions in the financial services sector engaged in (Sorkin), the failure to adequately regulate the banking industry gave banks the opportunities to engage in the behavior that caused the crisis (Inside) (Rajan) (Taylor). In the years since the crisis, and as the global economy continues in its efforts to recover, many have called for strict reform of Wall Street regulations (Acharya). Legislative efforts have resulted in the Dodd-Frank Act and the Volcker Rule, which aim to ensure that the risky financial practices that caused the 2008 financial crisis will not be repeated (Acharya) (Johnson). While the recent financial crisis may have occurred in 2008, the seeds of the disaster were sown in the decades before. Regulatory acts intended to keep Wall Street behavior in check were...
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...enacted several laws designed to regulate financial institutions. One of these laws, the Banking Act of 1933, included four provisions limiting the ability of deposit-taking institutions to trade for their own benefit. These provisions are colloquially referred to as the Glass-Steagall Act. GlassSteagall forbade commercial banks from dealing, underwriting and investing in most securities. By the late 1990s, the resolve to enforce Glass-Steagall faded, shown particularly by the Fed’s blessing of the Citicorp/Travelers Group merger. In 1999, President Clinton signed the Gramm-Leach-Bliley Act into law, effectively repealing the Glass-Steagall Act. Echoing the political landscape following the Great Depression, the aftermath of the Great Recession saw a resurgence in grassroots campaigns to reinstitute tougher regulations on banks and financial institutions. The bailouts given to many large banks fueled this public outrage, especially in the light of the million Americans losing their homes to foreclosure. A recently inaugurated Obama administration sought to prevent a reoccurrence of the financial crisis by tightening government regulation of financial institutions. This eventually manifested itself as the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act included several enhancements to bank regulation, going so far as creating a spiritual successor the to Glass-Steagall Act. The Volcker Rule, proposed by former Fed Chairman Paul Volcker, called for a separation between...
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...whom to blame for the 2000-2006 housing bubble has shifted from an economic to a political discussion. As with a lot of political issues, each party seems to think they know who’s to blame for issues within the U.S. economy. One theory states that through things like the Community Readjustment Act and the Affordable Housing mission, the government should receive the blame. Other economists believe that the U.S. government did its best in the to make the American Dream of owning a home more accessible to everyone, banks took advantage of reduced loaning standards and lent out money they knew individuals could never repay. When it comes to the conservative opinion, individuals believe the federal government caused the housing bubble....
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