Should bonuses be paid to employees of companies which almost went bankrupt but didn’t because the company took bailout money from the government? Most bankers say yes, yet to the general public, this seems to be absolutely inexcusable. I decided to look into this topic further to satisfy my curiosity.
The large banking businesses are in many ways at blame for the current recession. They lobbied for, and got, the relaxation of rules limiting how much debt they could have. By going into greater debt, they could increase their profits. However, this also greatly increases their risks. When the economy began to decline, these companies suddenly were not able to pay back their debts, which made a huge impact upon the economy. This trickled down throughout the entire economy, which relies upon loans and investments to keep working. The government had to step in and passed a “bailout” for these large companies in order to keep the economy from getting worse, but the damage was already done (Labaton).
The general public is angry at the banking industry because of the damage they did to the economy, which affected the entire country. The public also feels that these companies are in a debt to the public because the government had to bail them out with taxpayer money. Therefore, the public expects the banking industry to be humbled, and being extremely frugal right now. Yet, these companies are gearing up to pay out large bonuses to their employees. The companies seem to be returning to the very same ways which brought about this recession (Kaiser). As Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University says, “It is setting us up for another fall,” (Eder). In this situation, it is not hard to...
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Gomstyn, Alice, and Lauren Pearle. "Could Be Worse: AIG Double Bonus Jeopardy." ABC News/Money. 17 Mar. 2009. ABC News. 25 Jan. 2010. .
Holson, Laura M. “Ready to Spend, but Not to Boast.” The New York Times. 24 Jan. 2010: ST1.
Kaiser, Emily. “Americans want limits on bailed-out banks’ pay.” Reuters. 21 Jan. 2010. Reuters. 25 Jan. 2010. .
Labaton, Stephen. “Agency’s ’04 Rule Let Banks Pile Up New Debt.” The New York Times. 2 Oct. 2008. The New York Times. 25 Jan. 2010. .
Leonidis, Alexis, and Collins, Margaret. “Executive Bonuses: Empty Clawbacks?” BusinessWeek. 14 Jan. 2010. Bloomberg. 25 Jan. 2010. .
Seidman, L. W. (1986) Lessons of the Eighties: What does the evidence show? Retrieved July 25, 2010 from http://www.fdic.gov/bank/historical/history/vol2/panel3.pdf
The financial crisis of 2007–2008 is considered by many economists the worst financial crisis since the Great Depression of the 1930s. This crisis resulted in the threat of total collapse of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. The crisis led to a series of events including: the 2008–2012 global recessions and the European sovereign-debt crisis. The reasons of this financial crisis are argued by economists. The performance of the Federal Reserve becomes a focal point in this argument.
The Auto Bailout started in 2008 after the Great Recession occurred in 2007. Its purpose was to loan money to GM and Chrysler to keep them from shutting down. If the car companies went bankrupt, the supplier companies would also go bankrupt and many citizens would lose their jobs. Giving loans to them would increase economic activity and help bring the US out of the Great Recession. At first, the Government was only going to loan $17.4 billion for the bailout. GM wanted $13.4 billion and Chrysler wanted $4 billion. The total cost was around $80 billion. This extra amount of money came from the Government when they bought all the stocks from GM and forced them to get a new CEO for equity. Chrysler was forced to let the foreign car company, Fiat, run Chrysler for the time being. The Government did this to try and help both car companies from making decisions that would impact the economy negatively. All the stocks bought from GM were sold which helped to make up money owed to the Government. With this “final sale of GM stock, [this] important chapter of our nation’s history is now closed” (Treasury Secretary, Jacob J. Lew). The Auto...
Is continually bailing out these institutions considered ethical? There are many facets that must be taken into consideration when contemplating a topic. JPMorgan Chase is the largest bank in the United States, with over $2.5 trillion in assets. As such, it also happens to have received the largest amount of bailout funds, totaling a whopping $94.7 billion in taxpayer dollars since 2008. Proponents assert that JPMorgan has too much utility to not receive this funding, that the collapse would damage the economy and the effects would be more adverse than a few dollars out of taxpayers’ wallets.
In the midst of the current economic downturn, dubbed the “Great Recession”, it is natural to look for one, singular entity or person to blame. Managers of large banks, professional investors and federal regulators have all been named as potential creators of the recession, with varying degrees of guilt. No matter who is to blame, the fallout from the mistakes that were made that led to the current crisis is clear. According to the Bureau of Labor Statistics, the current unemployment rate is 9.7%, with 9.3 million Americans out of work (Bureau of Labor Statistics). Compared to a normal economic rate of two or three percent, it is clear that the decisions of one group of people have had a profound affect on the lives of millions of Americans. The real blame for this crisis rests on the heads of the managers that attempted to play the financial system through securitization, and forced the American government to “bail out” their companies with taxpayer money. These managers, specifically the managers of AIG and Citigroup, should be subject to extreme pay caps for the length of time that the American taxpayer holds majority holdings in their companies, as a punitive punishment for causing the Great Recession.
The Dodd-Frank Wall Street Reform and Consumer Protection Act brought the most significant changes to financial regulation in the United States since the reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry. Like Glass-Steagall, the legislation passed after the Great Depression, it sought to regulate the financial markets and make another economic crisis less likely. Banks were deregulated in 1999 by the Gramm-Leach-Biley Act, which repealed the Glass-Steagall Act and essentially allowed for the excessive risk taken on by banks that caused the most recent financial crisis. The Financial Stability Oversight Council was established through the Dodd-Frank Wall Street Reform and Consumer Protection Act and was created to address the systemic risks in the United States financial system and to improve coordination among financial regulators.
What at first seemed to be an economic slump turned into a brutal crisis, and all eyes looked to the Government and Federal Reserve to help the economy. With the large amount of debt the economy faced the Federal Reserve stepped in and bailed out the banks in an attempt to smooth over the financial struggles of the economy. The banks that survived took precautionary measures, making it difficult for businesses and consumers to borrow (Love, 2011). Thus leading to businesses failing and less jobs being created. The large amount of debt had also taken its toll on the job market. Between 2007 and 2009 employment dropped by 8 million workers, causing the unemployment rate to go from 4.7 percent to 10 percent (McConnell, 2012).
...ear price and communication. If the financial services firms focus on providing special services to the mass affluent including bundles, the mass affluent will begin to take part in financial services at an even higher rate than the affluent. Banks must offer proper services and advisory services for which the segment is willing to pay for without feeling ripped off. Holding the 43 percent of the world’s wealth the mass affluent are underserved and deserve their time to have the same services offered in the banking industry as the mass affluent. If the banking industry provides outstanding services to the affluent, the American social system should not hinder the mass affluent segment from obtaining financial advice. It is time for a change in the American banking industry and the mass affluent are the future of the movement for an affordable lifestyle for everyone.
Banks all around, especially the large ones, sought to support the market before it could crash down. As the stock prices crashed, banks struggled to keep their doors open (“Economic Causes and Impacts”). Unfortunately, some banks were unsuccessful. Customers wanted their money out from their savings account before it was gone and out of reach, leaving banks insolvent (“Stock Market Crash of 1929”).
The causes of the Great Recession all started as hundreds of billions of dollars was given to the United States abroad and financiers conceiving were to make a profit and what better way but the real estate market. Since the Community Reinvestment Act of 1977 and an expansion made in 1995 the than President Bush endorsed the program that created Option adjustable rate mortgages (nick-named “Pick-A-Pay”) to allow for bank to sell these options even though they were high risk (Conservapedia, 2013). The Community Reinvestment Act of 1977/95 is defined as to framework financial institutions, state and local governments, and community organizations to jointly promote banking services in the community” (Office of the Comptroller of the Currency, n.d.). That being said, there were three individuals, and firms that contributed the most to the recession including Senator Charles Schumer D-NY, Fannie Mae, American Ins...
CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.
...lume basis. At Lehman Brothers, their own risk management department were constantly raising red flags which management overruled in order to seek more revenue. On December 12th 2013, The US Securities and Exchange Commission fined Merrill Lynch just over $130million for making false disclosures over 3 CDOs and holding inaccurate books. The banks believed the CDO machine couldn’t fail; they believed once they have sold on the toxic mortgages, it was no longer their problem. However, once the housing bubble burst, investors began to question the value of MBSs; there was a huge write down in their value, prompting huge losses in the financial sector. The long held myth that house prices do not decrease was found to be catastrophically inaccurate, and with the collapse of Lehman Brothers in September 2008, The Era of The Great Complacence was well and truly at its end.
The recession officially began when the 8 trillion dollar housing bubble burst. (State of Working America, 2012) Prior to that, institutions bundled mortgage debt into derivatives that were sold to financial investors. Derivatives were initially intended to manage risk and to protect against the downside, but the investors used them to take on more risk to maximize their profits and returns. (Zucchi, 2010). The investors bought insurance against losses that might arise from securities so that they could secure their money. Mortgage defaults unexpectedly skyrocketed, which caused securitization and the insurance structure to collapse. (McConnell, Brue, Flynn, 2012). The moral hazard problem arose. The large firm investors thought they were too big for the government to allow them to fail. They had the incentive to make even more risky investment.
Banks failed due to unpaid loans and bank runs. Just a few years after the crash, more than 5,000 banks closed.... ... middle of paper ... ... Print.
(Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question who is actually to blame for this financial fiasco.