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The cause of the global financial crisis
Global financial crisis 1929
The 2007-2008 financial crisis
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1. The Global Financial Crisis As with any war, crisis or other historical event, the most important thing to do is to learn from it and ensure history isn’t repeated. The global financial crisis of 2007/8 has provided those who seek, with many well worth lessons to be learnt. The four most important of these lessons are discussed in detail in this report, as they relate to various key stakeholders in financial institutions. In the past two years the financial sector has witnessed many high profile corporate bankruptcies and hundreds more smaller insolvencies. This financial crisis has been noteworthy due to the global scale and impact of these bankruptcies despite the increasing levels of international regulation, such as Basel, and advancements in financial modelling. The lessons discussed within are discussed with regards to preventing future episodes of mass insolvencies. 2. Chairman of the Board of Directors Financial services firms are unique in that its employees are one of its most important assets, they are the revenue drivers. All employees must be rewarded for their effort and it is a typical fashion in the industry to reward employees who have performed, with a bonus. The design of the remuneration structure is crucial in determining the attitudes the employees will take on. It is the duty of the board of directors and the chairman to ensure the interests of the employees & management of the company are aligned with that of shareholders. However, recent remuneration structures of financial institutions have achieved anything but this. It has been argued that excessive risk taking encouraged by inappropriate remuneration structures played a key role in the financial crisis. This demonstrates the importanc... ... middle of paper ... ...ial services is a fast changing one and if prudential regulators fail to keep the regulation up to date, institutions will attempt to exploit them and may result in negative consequences for companies and their customers. Works Cited “Corporate Governance Lessons from the Financial Crisis”, OECD “Enhancing Market and Institutional Resilience”, Financial Stability Forum “Lessons from the financial crisis”, Willem Buiter, Financial Times “Of couples and copula’s”, Sam Jones, Financial Times “Credit Derivatives Got a Boost from Clever Pricing Model”; Wall Street Journal “Three ways to reform bank bonuses”, D. Heller, Financial Times “Lessons of the Financial Crisis for Banking Supervision”, Ben S. Bernanke “Final Report of the IIF Committee on Market Best Practices: Principles of Conduct and Best Practice Recommendations”, Institute of International Finance
The year 2008 was a very scary one for anyone involved in the US stock market. Due to subprime lending, and cheap mortgages, the housing market became grossly overinflated. Naturally, as with a balloon that’s filled too much, it “popped”. The resulting collapse of the housing bubble had severe implications for the rest of the US economy, housing, and related industries such as lumber, construction, and realty all came crashing down, and the people employed in those fields soon found themselves out of work. As with the stock market crash of 1929, fear of the economic instability caused people to pull their money out of any investments they had. This can be a problem for a healthy bank, being unable to supply the money people are requesting if it’s tied up in loans. However, this would prove to be an even bigger problem if the money never existed in the first place, and would take down one of the largest scams in American history.
The presence of systemic risk in the current United States financial system is undeniable. Systemic risks exist when the failure of one firm may topple others and destabilize the entire financial system. The firm is then "too big to fail," or perhaps more precisely, "too interconnected to fail.” The Federal Stability Oversight Council is charged with identifying systemic risks and gaps in regulation, making recommendations to regulators to address threats to financial stability, and promoting market discipline by eliminating the expectation that the US federal government will come to the assistance of firms in financial distress. Systemic risks can come through multiple forms, including counterparty risk on other financial ...
Investment banks, Rating agencies and Insurance companies are key components of the financial market. In this presentation, I’m going to explain how these three key roles worked together to create the 2008 financial crisis.
Phil Angelides, B. T.-E. (2011). The Financial Crisis Inquiry Report. Washington: U.S. Government Printing Office.
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.
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (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 about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
It is concluded that neither of the above proposals are adequate in that any practical benefit that results from the proposal such as employee and shareholder engagement are outweighed by the theoretical impact of increasing the overlap of the organs which would alter the structure of company law. The legal side of directors’ remuneration appears to be sufficient with the directors’ duties legislation acting as an efficient preventative measure for the problems that directors’ remuneration creates. Furthermore, shareholders already must approve several payments as such this could be strengthened to tackle the issue and employees are to some extent taken care of within s172 as such it is these sections that need development rather than directors’ remuneration.
The foundation for effective job performance and compensation system can be traced to effective job analysis process. Fundamentally, a job analysis should consist of a thorough examination of the job 's duties and knowledge, skills, abilities, and qualities that are required in order to be successful in a specific position, upon which appropriate rewards or compensation can be determined. For many perspectives, jobs are usually made up of requirements and rewards, where rewards may be regarded as a major recruitment strategy for motivating potential employees in order to influence them to stay the organization for a longer period as well as enhance their performance. The most common or basic form of rewards which attracts employees is extrinsic
This report explores the issue of the pay that top executives make, and the reasons why they do. It also suggests improvements that can be made to make the system better. High Pay Seems Small When Compared To Company Profits Many companies pull in profits that are extremely high. When an employee of such a companies salary is compared to the amount of profit that the company earns, it starts to seem reasonable. It only makes sense that if the employee is directly responsible for the success of their company, then they deserve to get their payback. It seems ironic, but many salaries even look small once compared with a companies profits. Top Executives Are Under A Lot Of Pressure Being the CEO of a company is not an easy job. There is all kinds of pressure for a person in such a position to succeed. If they do not, then it is their job on the line. Therefore, they deserve to receive a large sum of money for the work that they do. It is the only way to compensate these employees for the tremendous strain that their job puts on them. It is essential that the employees get paid the amount of money that they deserve. Pay Should Reflect Performance When CEOs are being given big paychecks, they are expected to perform at a high level. There success is impeccable. However, this does not always happen. There should be some way of connecting pay to job performance. The best way of doing this would be to award bonuses to those workers who are at the top of their class. This would not only motivate workers to do a good job, but also reward the employees that do succeed.
Remuneration management is defined as the sum received for an employment or service delivered, this includes the money received on a monthly basis as well as benefits given as rewards (investopedia,para.1 ). Individualism need to be taken into account when implementing these remuneration structures or reward schemes, equal pay plays a role in balancing earnings among the diverse workforce (Shen, Chanda, D’Neetto and Monga,2009,p.241). The Woolworth’s Holdings uphold remuneration policies which have the purpose of making sure to attract and hold on to the best talent, that they are congruent with the strategies of the company and are the determinants of performance during the short and long phases. The policy considers the board members and the employees. This policy manages employees of the company by giving...
In conclusion, we feel that the recommendation we have suggested in this report is a suitable foundation to build a sustainable and prudent financial system in this country. This will facilitate the financial industry both, withdraw out of this crisis and in the future avoid as much as possible inducing the scale of matters at present. As the report suggest, everyone contributed in their own miniscule way to this crisis, we feel that it’s up to every one of us to contribute to the overall recovery of this financial crises and recovery of the nation in general.
The Remuneration committee should help the board of directors in its responsibility for setting remuneration policies that are in line with the company’s long-term interests. The committee deliberates on and recommends remuneration policies for all employee levels in the company, but it should pay special attention to the remuneration of the company’s senior executives and the remuneration of non-executive directors on the board.
Warwick J. McKibbin, and Andrew Stoeckel. “The Global Financial Crisis: Causes and Consequences.” Lowy Institute for International Policy 2.09 (2009): 1. PDF file.
Management spends a huge amount of time to design incentive systems and schemes to motivate their workers and to ensure they work in their best possible manner. Motivating workers by giving them decent pay helps in winning employees heart to make the work done efficiently, significantly and effectively. The most effective way to motivate people to work productively is through individual incentive compensation (Pfeffer, 1998). An attraction of getting more is a powerful incentive to people for high performance. While most people agree that money plays a major role in motivating people, in organizations there is a widespread belief that money may also have some undesirable effects on morale.
Organizations are working hard in today’s world of business, not only to remain competitive, but also to focus on stability and structure. Employees are the backbone of an organization. It is becoming more important to offer quality HRM programs to staff, in order to support the retention of trained and experienced staff. Employees have always been concerned with salary however, there is a new focus emerging that looks at compensation as a whole entity. Monetary wages are now just as important as other benefits such as paid time off, medical and dental offerings and retirement. This paper will discuss the importance of the total compensation program which includes many aspects, not just salary. Attention must be paid to equal pay, pay